Thursday, December 20, 2007

Wage Spiral Or Death Spiral?

Lost in the Wage-Price Spiral

By: Richard Daughty, The Mogambo Guru -

The Fed expanded Total Fed Credit, the ultimate source of the banks' fabled "money from thin air", by $1.5 billion last week. Not too much, but enough to keep me saying that we are freaking doomed to die from inflation in prices by the actions of that egregious clot of halfwits testing out their stupid Neo-Keynesian theories and their stupid equations.
So after the Fed had yet another week, on top of years and years of other weeks of creating more money and credit until I am crying out in pain and horror, then it is not too surprising, then, that the M2 money supply rose $17.3 billion last week. And since inflation in the money supply always precedes inflation in prices, I say "Damn!"
The Financial Times reports that Germany's finance minister says that Germans agree with me that the Fed is a disaster, and the European Union central bank is a disaster, and if I would help them invade Poland and then kick France's nasty butt again, then they would elect me Chancellor with awesome, dictatorial powers to cruelly crush the European Central Bank under my heavy, hobnailed boot, which suits me just fine.
Okay, they didn't actually say that, and it was a pretty poor joke, but he did say that "The 'snooty' attitude of bankers and financiers who thought they were more clever than everyone else is largely to blame for the global credit squeeze 'disaster'." Exactly so!
Foreign central banks, through their holdings of Treasury and agency debt stashed at the Fed, increased their immense hoard of U.S. debt by $5.7 billion last week, taking their total to a mind-boggling $2.031 trillion. These "custody holdings", which is debt and interest that we owe to foreigners, are up a staggering $320 billion in the last twelve months, in case you were wondering.
And it is not just us stupid Americans, but reports that "Money-supply growth in the euro region accelerated to the fastest pace in more than 28 years, adding to the European Central Bank's inflation concerns." Hahaha! "Adding to concerns" they say! Hahaha!
Perhaps it has something to do with what Jim Jubak at is reporting, namely that "Inflation jumped to 3.3% in Germany, the European Union's biggest economy, in October." And it is going to get worse, as the Eurozone money supply "grew by 12.3% from October 2006 to October 2007." I gasp!
The worse news is that the also-fabled wage-price spiral, creating disastrous inflation, is rising up, as "At the same time as German inflation is at a 13-year high, German unemployment has dropped to an almost-15-year low. That gives workers clout to negotiate pay increases above the inflation rate."
But wages always lag prices, so they are just wanting to catch up to prices (never mind the losses in buying power that they have suffered to this point!), which will unfortunately make prices go higher still, as is proved by Mr. Jubak quoting the chief economist for Germany's DGB trade-union federation, who said that "inflation had negated the pay raises it had negotiated this year." Hahaha! What in the hell did you think would happen, bozo?
Mr. Jubak can easily see by the way I am rising to my feet that I am going to get into a real honking snit about this wage-price spiral thing, and so, in a panic, hastily says, "Those are exactly the kind of raises that central bankers fear will set off an unstoppable inflationary trend, in which rising inflation prompts pay raises that in turn drive inflation higher. As if to confirm these fears, Germany's BASF, the world's largest chemical maker, has announced it will raise prices by as much as 15%." Yikes! 15%!
So what is the next step in a wage-price spiral? "The country's 1.3 million-member civil-servants union has announced that it will look for a pay raise of 6% to 7% in 2008." Hahahaha! Here we go again!
So imagine my astonishment that Wolfgang Munchau, in his Financial Times editorial titled "Rate cutting will not get us out of this mess", says that this inflation thing will bedevil us forever, as he writes, "It is our consensus today - and rightly so - that the ultimate purpose of monetary policy is to keep consumer price expectations anchored at some mildly positive rate". Did he say "rightly so" to actually creating inflation in prices? I scream "Gaaaah!" while laughing "Hahaha!", which isn't as easy as you would think.
This is so (how do I phrase this?) preposterously stupid that I am shocked that it appeared in the Financial Times, when such ridiculous idiocy is more in line with the crap that routinely comes out of the editorial pages of the Wall Street Journal.
Perhaps he was not thinking about people whose wages cannot be increased because they don't have any wages to raise to offset higher prices, such as JMR Len M. sending news that, "In Philadelphia, PA, the City offers fixed pensions for its retirees. Fixed means just that; fixed, no adjustment for inflation ever, so a retiree when they first retire may dine on steak and lobster the first year of retirement, but end up on dog and cat food on the 12th year of retirement, and not the brand name versions either." Funny, but exactly right!
And if the troubles of retired people on, literally, fixed-incomes is not enough to send you screaming into the street and shouting "We're freaking doomed!", then consider that the unemployed, the sick/infirm, the prisoners and the criminals do not have wages to increase, and they are certainly not going to be happy with higher prices.
Especially the criminals, who can only increase their incomes by stealing something from me, destroying the social order and destroying the peace and quiet around here as I run them off by expending lots and lots of expensive ammunition and screaming death threats to them all and vowing to hunt them down, one by one!
This societal order thing brings up JMR Peter F., who is appalled at my homicidal viciousness, but nevertheless writes that he has been struck by a particularly pithy phrase he found in the book "The Rise of American Democracy." In short, the idea is that everything is about money today, but it was not always so. "For Americans of the early republic," the excerpt goes, "politics, government, and constitutional order, not economics, were primary to interpreting the world and who ran it -- a way of thinking that can wrongly look simplified, paranoid, and conspiracy-driven today."
Nowadays, it's about the money. It's a just about the money. It's always about nothing but the money, especially if you listen to my family whine about how I don't make enough and I don't give them any.
And even more especially if you watch the monetary horrors committed by the Federal Reserve.

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