Tuesday, March 31, 2015

Inflation, Interest, British Isles Prices

Mish's Global Economic Trend Analysis: Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It:

If you follow the link, Ben  Bernanke started a blog and one of his first posts was "Why are interest rates so low?" Mike "Mish" Shedlock is an investment guy that was relatively on top of the housing bubble and made money off it -- Bernanke isn't all that clear in his column, Mish disagrees with most of what he has to say, but isn't super clear either. My view is that when you are talking a $17T US economy, heavily intertwined with a $73T world economy, there is plenty of room for everyone, expert or not, to be confused, wrong, etc -- Mooses most of all!

The "simple Moose baseline" is that money is a "good" ... mostly like any other good; grain, oil, beer, ZZ Top tickets, etc. It happens to be the good that we all exchange, invest, etc to live, and it has a few "brands" -- dollars, euros and pounds were the brands that I spent some time with the past couple weeks. Interest is what we pay for money on the market -- and right now, we are paying historically low rates. (and of course also receiving historically low rates if we have some money to lend)

I found the key statement in the Bernanke post to be:
Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed.
I think he is maybe being a little overly honest there -- global economic conditions and government polices have interacted to do a couple of things -- first, to make investment, savings, work and general productivity less likely to net good returns. We are in the age of consumption, not production, with vast amounts of that consumption being done by governments or people receiving payments in one form or another from governments (FICA, medicare, earned income credits, welfare, subsidies, grants, etc, etc). Second, the costs and risks of investment, savings, work and productivity are at very high levels -- taxes of all sorts, regulation, mandates like BOcare, PLUS the trend is clearly toward ever greater and ever more unpredictable risk on all those fronts -- more taxes, more regulation, unpredictably and capriciously applied often with no more than an executive decree.

Government has also been lowering the value of the money commodity by printing more of it here and in Europe, while at the same time raising both the costs and risks of production -- so the demand for money is LOW -- or in common terms, interest rates are low.

Business always deals with unpredictability. Government likes to lie to everyone that it deals in security and "certainty" (whatever that is), but it is in fact the biggest bubble of all -- it claims to be "too big to fail". In my personal dictionary, under "too big too fail", it says "see Brontosaurus"!

But what of inflation? We are told that it is also very low, yet anyone going out to eat, buying food, looking at what it costs to just live in your home, or doing much of anything KNOWS that they are being lied to -- that is unless you are being subsidized by the government, which slightly over 50% of the population now are.

The government keeps the inflation books, and like all their books, they cook them -- the fact of interest being low is part of the "low inflation" calculation (the "market basket" assumes you are a borrower) ... the fact that housing prices are still well below their bubble high also artificially depresses the inflation number -- homes are "down" relative to the bubble numbers. It is my understanding that the cost of taxes doesn't get factored in at least directly -- I'm not an expert, something I need to look into more.

My personal observation from the trip is that inflation in many areas is relatively INSANE, especially when one considers that we were getting a BETTER dollar - pound and dollar - euro exchange rate than what has been had in a good long while.

A 30 min train ride each way from Gatwick to London was $50! The one day tube pass was $25! Most all the "attractions" -- Stonehenge, Chartwell, Churchill's WWII bunker, were $30 per person. What's more, items that were formerly not charged for -- like Winchester Cathedral,  not charged for in '89 when I was last in London (yes, I know, a LONG time ago!) are now also $30+.

The other factor that I noted was that I get a lot more tired traipsing around the "square mile" now than I did nearly 30 years ago! Age seems to take a bit of a penalty on physical assets!

My suspicion on public transportation is that it is yet another form of socialist transfer payment -- while we just went out to the rail site and looked for fares, I bet if you live in the UK you can plug in your income, buy a long term pass and pay a much reduced rate. The concept is an old one -- tax the productive at high rates to build the system, and then "tax" the productive again with high fares if they want to use the system -- the socialist ideal of no good (productive) deed going unpunished!

While I had a lot of fun on the trip, it is VERY good to be home where the 4-lanes don't have curbs right at the edge of the lane and the rest of the roads have SOME form of buffer better than often having a rock wall 6" from the edge of the narrow lane. Not to mention hotel rooms the size of modern ladies closets in the US, and everything just packed in like sardines. Europe is a great place to visit, but it is EASY to see why so many people left!

'via Blog this'

No comments:

Post a Comment