Murphy\’s Bye-Laws

Law #4: Any fool can make a rule, and any fool will mind it. –H.D. Thoreau

Inflated Credibility

Posted by PintofStout on June 12, 2008

If I had a quarter every time I heard some news story about gas prices or food prices breaking some kind of record I’d be rich. If I had pre-1974 1964 (oops) quarters, I’d be richer. There’s a reason for that, even though one wouldn’t hear it from any of the supposed “experts.” I heard the economics editor for a major financial newspaper on NPR yesterday speaking of inflation as if it was simply the cost of things rising. If a doctor thought food poisoning was simply when someone…er…evacuated a lot, we wouldn’t consider him an expert or even worthy of the title “doctor.” How can economists and financial experts look straight into the camera (or speak directly to the microphone) and say inflation is rising prices? How can news agencies let this happen with a clean conscience? Since when could economic laws be changed and ignored because they were inconvenient? Don’t like the Law of Gravity? Fine, just ignore it and see what happens. It’ll likely turn out the same way these new economic laws will. Sure, the fall was much longer and slower for those who followed Keynes off that bridge (and those they have dragged with them), but economic law will reveal itself again at the bottom.

Sure, oil looks expensive. Sure, prices for many things appear to be rising. But only the frame of reference we are stuck it is moving, if I could mix my physical laws with economic laws for the sake of illustration. Supply and demand is alive in well in our inhabited frame of reference; that of paper money and dollars. The supply of money has skyrocketed (should economists and central bankers be referred to as rocket scientists?) making it less in demand and therefore decreasing on a value scale. The frame of reference commodities inhabit is relatively stationary on a value scale, but when viewed from our frame of reference appears to be rising. People have a habit of messing things up when it’s perceived everything revolves around them.

David (a.k.a. Jeffersoniantoo), over at Freedom Port: Firefly has a very informative post about this as well.

Congress just had a bunch of oil executives testify before a committee on the high ‘dollar’ price of oil. Amazingly, none of these genius’ could put a finger on the cause.

He goes on to point out that as long as we are in this frame of reference with the inflatable dollar, it appears everything else is going up with the exception of our supply of dollars (that’s reserved for those of privilege). If we occupy a frame of reference with other commodities, such as gold, silver, oil itself, anything but the inflatable, practically make-believe dollar then we would only see the dollar falling in value. Inflation isn’t the dollar price of things going up; it’s the value of the dollar going down as the Federal Reserve prints more and more to cover the debt of the U.S. government.

The painful part of inflation doesn’t affect the producers, or the first couple of people to use this newly created money. It really hurts the people at the bottom who don’t have access to this new paper. While prices adjust to the supply of paper money pretty fast, the lag in the supply of paper money for the people who the money wasn’t printed for hits them hard. And really, printing money is so last century, so these days much of the money created (intelligently designed?) is electronic and not even tangible. But don’t expect to hear this from any sources in the top tier of users of this new money or the lackeys who get the good scraps, though. Instead go read Oil Pressure at Freeedom Port: Firefly and take in the rant of the Mugambo Guru and feed off of his energy to try and shake off this illusion.

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7 Responses to “Inflated Credibility”

  1. thesofine said

    interesting read, dude.

    It’s funny that when housing prices were increasing at 10% a year across the country that not much people complained or thought about how much longer the pace can sustain itself.

    Petrol is a funny thing because most every american needs it for their car, and everyone sees the price of petrol most everyday. The majority of americans (myself included) pay any attention to the daily fluctuations in the price of milk, OJ, etc (whatever the causes may be). This is the reason politicians love talking about the daily/monthly/yearly fluctuations in the price of gas and not the price of anything else. For example, no one talks about the price of electricity because the costs are a little abstract to understand and we only see the price every month. But just like gasoline, it’s just something we have to pay . . . it’s difficult to live without it.

    I watched the local news last week (I find TV news irritating) and the issue was the price of gas. They were interviewing a “man on the street” (like I really care about what some ignorant stranger says about the issue) and his comment was that due to the price of gas he now eats steak a couple days a week instead of almost every day. The reason I bring this up is that this guy looked like he lived near poverty-income and his response to gas prices is interesting. I interpreted it as: “As an american I enjoy a relatively high standard of living, but due to this increase in one commodity (arguably a luxury) I will have to curb my excesses in the culinary sense.”

    ____________________________________________________________________
    I wanted to just break down why I personally don’t care too much about the price of gas. My argument is that yearly changes we have been seeing is not as relevant as most americans feel it is. Sure, I’d rather pay $15 to fill my gas tank, but if you sit down and calculate what the difference in price really means to your annual income then it helps to gain perspective. Here I’ve broken it down:

    10,000 miles a year in a car that gets 20miles/gal (500 gallons of gasoline a year)
    $3.00/gal = $1,500 a year
    $4.00/gal = $2,000 a year

    So, for someone that makes $40k a year, this increase of $500 a year represents 1.25% of their annual income. The silly tax rebates that most americans got this year (and are usually in a rush to spend) would pay for this difference in gas price.

  2. thesofine said

    Sorry about my occasional word omissions in the post above. I use less than 300 gallons of gas a year (in my massive land-yacht), so gas prices affect me even less.

  3. This post wasn’t so much a discussion of the price of gas, really. I guess I meant to point out how the “experts” so blithely mislabel inflation. The decimation of the fiat dollar is seen much faster in petroleum products since they are traded in dollars and the price has always fluctuated on a weekly basis; this price fluctuation is the mine canary and inflation’s effects are seen here faster than other places. Just because gas is able to adjust faster doesn’t mean that gas is fueling (hehe) the inflation.

    It’s just too bad wages aren’t as flexible.

    P.S. The problem or perceived problem you illustrate, thesofine, is one of time preference, I think. Equally valid, though, if only for perspective. Myself, I use approximately 75 gallons a month or 900 gallons a year for everyday driving. Throw in a trip or four to Shenandoah or Maryland and I’m likely up to about 100 gallons per year. I need a part-time job…

  4. thesofine said

    no, i got the point of your post but I wanted to talk about the price of gas – sorry.

    Well, do you remember in the 60’s and 70’s unions were demanding near 10% annual increases in pay due to inflation? Talk about adding fuel to the fire, right? These guys were thinking: money is worth less (or worthless) so print more of it for us. It gives me visions of eastern europeans buying a loaf of bread with a wheelbarrel full of bills.

    Hey, in a completely different vein: check out this editorial on the population bomb. I know this theory’s been around for over a century, but I’m seeing more and more references to it in print. (It’s like we’re reliving the 70s with raising gas priced, inflation, worries of over- population, etc.) Check it out:

    http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/06/18/the_coming_population_bust/

  5. Dang, you’re quick. I was adding a p.s. to my last comment.

  6. It is like we are in a panic feedback loop. Sheep, man. Sheep. Scare us with bugaboos and then offer the solution. Our politician infestation problem is only bound to get worse from all this.

  7. With a hoist of the glass to Bill St. Clair:

    PricedInGold.com has charts showing historical prices of a bunch of things in gold. Let’s you easily see that almost all the price increases we’ve seen of late, including oil & postage, are due to monetary inflation. Stuff isn’t getting more expensive. The dollar is getting cheaper.”

    Very cool (and better than my hackneyed graphic!). The charts for various things are on the right. I found the chart for the DOW Jones Industrial Averages between 1900 and 2008 interesting, especially the large jump just before the 1929 crash, where it came back down (over five years) to about the same level as 1913, the year the Federal Reserve got its start.

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