Replies to post #21331 on Zeev's Turnips Patch-No Politics (ZEEV)

[mlsoft]

Zeev...

I agree with your analysis in theory - in a weak economy with low capacity utilization and low demand, inflation should not be a problem. In spite of that, and contrary to the PPI and CPI overall trends, I keep seeing inflation in a lot of my everyday life - mostly in insurance and services which are not covered well in the government numbers. I also continue to see signs of inflation rear up in individual government reports on a regular basis, and as mentioned, the CRB index has been steadily climbing.

I have been expecting all these signs of nascent inflation to gradually disappear, but I must admit that to date they have not done so. I find this an unexpected development that bears watching, though.

mlsoft

[lurqer]

You got to be careful with MZM growth, it includes money withdrawn from the markets, as well as new savings that are not going into the market.

That's why I referred to other "effects" in my original post.

The adjusted money base figures you cite are far from alarming

It is sometimes challenging to tease out the "true rate" of the Fed pumping from the available data.

When money supply grows too rapidly, but capacity utilization is low, you rarely get inflationary pressures, more often than not, that money goes into inflation of assets rather than goods.

As with the current housing bubble?<g>

My own take is that inflation takes time. Initially the increased money supply will pump up asset prices. If the pump is left on too long though, inflation will ignite. As we all know, the Fed's been trying to revive the economy since Jan '01. This is longer than is typically required after bear market corrections (within secular bull markets), but is it long enough to get inflation momentum going? If I'm right inflation should be evident within the next 6 months.

lurqer