NEW ECONOMIC TERM REQUIRED. COSTIVITY?

The misuse of the word inflation threatens an understanding of the forthcoming crisis. It is more than ever essential that it is understood that the term inflation refers (or should properly refer) to money and not to prices, and that the dumbed-down bastardisation of the term to refer to the level of price increases prevents the coherent discussion of economic policy. Resorting to the expression “price inflation” does not seem an adequate remedy. An entirely new term that contrasts the level of (consumer) prices with the volume of money is required because, for a variety of reasons I will discuss, the two have never been further apart. I shall use the term costivity until a better one can be agreed upon and substituted.

A 1919 bulletin of the Federal Reserve described inflation as “the process of making additions to currencies not based upon a commensurate increase in the production of goods.” This statement was a reiteration of the classical understanding of the term by pioneer economists mindful of the need for the careful use of language in an emerging science. (An excellent essay by Michael Bryan “On the Origin and Evolution of the Word Inflation” can be found by googling.)

Costivity may of course be influenced by many factors other than inflation: technology (automation and robotics, ability to extract shale oil, 3D printing, etc), changes in taxation, changes in consumer preferences, impact of foreign competition, rising labour costs, etc.

Historically, nothing had more impact than a good or a bad harvest. The price of grain in France quadrupled between 1692 and 1693. The overall costivity faced by the French peasant may have been in the order of 100% as substitute products were also bid up in price. (The famine killed tens of thousands.) To refer to this increase as inflationary would be absurd - and yet I feel that such is the current misuse of the word that there are those who would reach for it.

How can it be, when inflation is rampant (in every category of money through through quantitative easing, runaway government spending and rising public and private levels of debt, etc), that there is talk of and fear of deflation?

The answer is an essentially simple one, though it is interesting in detail and reflects a combination of circumstances. An increase in the supply of money only tends to drive up consumer costivity if it is directed towards consumer spending. But in today’s world that money is directed towards wealth accumulation. The desire of those who command the money is to store wealth, to accumulate wealth. (Often not quite the same as “saving” in the traditional sense.)

And why is this? Here are the top four reasons. First, there are oil producing states that know that their resources will not last forever and that sovereign wealth funds are necessary to safeguard the future of their citizens (or at least of their rulers). The size of these funds is prodigious. Second, as people live longer they need to make greater provision for their old age, and their employers need to provide pensions for them. Third, there is increasing inequality in incomes, and those in the higher brackets who see their incomes grow to an ever larger multiple of the average tend to spend little more on the regular consumables of daily life. Fourth, the Chinese have a cultural tradition of accumulating wealth and there are increasing numbers of mega-rich Chinese.

However, a desire to accumulate wealth does not of itself increase the number and size of the vehicles in which wealth can be stored - so we can expect to observe prices being bid up. Real estate prices (including agricultural land) may waver from time to time, but the long-term trend is strongly upwards. Raw material prices were strong until hit by stagnating demand from manufacturers. Enormous funds are drawn into betting in the shape of currency speculation and derivatives, but economic uncertainties and fears prevent stock markets from reaching record PE levels.

That leaves bonds/debt, and it is here than we observe an extraordinary bubble of unprecedented proportions. This is where the surplus mega-trillions have been absorbed. Well, they have to go somewhere, however pathetic the returns. Say not that there has been no inflation, HERE is where to observe its impact.

Herbert Stein achieved fame for a statement of the obvious: “When something cannot go on forever, it stops.” Here is my restatement, for which I should like to achieve equal fame: “When something cannot inflate forever, it pops.”

The above is my response to reading the “The best/safest thing to invest in today?” thread, but covers different territory. I thought Edont Knoff’s answer was pretty sensible. Well, I think I have written quite enough for one session. I will maybe describe the actual impact of the bursting of the bubble another time. The factors that are causing the present situation to persist (despite the countless videos predicting imminent financial armageddon that have been around for years on YouTube) are also worth an essay.

 

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Oh God, more bullshit from yet another economic idiot who wants to be a guru without doing the requisite homework. Before describing anything else, how about acquiring some subject matter knowledge from credible sources and not just repeat crap you find on the internet?

 

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Try to be a little more specific in your criticism!
BTW, I was awarded an honours degree in Economics at a Scottish university nearly fifty years ago when we were taught to apply the language of economics correctly.

 

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And I'm the King of England.

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Except, the word inflation has not been misused. Words do have specific meanings. Additionally, inflation has everything to do with prices. Money is worthless if it cannot be used for commerce, and without prices there can be no commerce. So contrary to your claim, inflation has everything to do with money, because without prices money has no value. Below is how inflation is defined by professionals.

What is 'Inflation'
Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

Read more: Inflation Definition | Investopedia http://www.investopedia.com/terms/i/inflation.asp#ixzz40oZlTvNP
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That's gibberish. One would think if the a new word were needed, a legitimate economist would invent one. It's not like we have a shortage of economists. When people have to invent new words as you do, that should be a big red flag for any reader. Based on that paragraph and your previous paragraph, I don't think you understand inflation, what it is and what it isn't.

My former finance professor once keenly described inflation as, " too few goods being chased by too much money". There is a supply and demand component to inflation - a fact which lost on folks such as yourself. Inflation isn't just a monetary phenomena. Expanding the money supply doesn't automatically create inflation (e.g. the last decade). Inflation isn't just a monetary phenomena.

I've researched this a bit, and the closest I can get to an origin, is an article published in the "The Merchant Plumber and Fitter" in 1916 and there have been various iterations of it over the years. But I have yet to see it in the alleged Federal Reserve bulletin. Aside from the specious nature of the claim, it really isn't relevant even if it were true. If true, obviously someone at the Federal Reserve got it wrong, and that wouldn't surprise me given the state of economics at the time.

The problem isn't a supply problem, it's a demand problem. Supply is irrelevant if you don't have demand, and that's the problem you are missing. That's why for the last 8 years of unprecedented global monetary expansion we have seen virtually no inflation. When we define inflation as too much money chasing too few goods, you cannot ignore the verb "chasing" as you and others have done.

So in times, like today and the last 8 years, when demand is low, monetary supply can be expanded without inflationary effects (e.g. the last 8 years).

I don't know what you are trying to say here. My best guess is you are trying to describe disposable income. http://www.investopedia.com/terms/d/disposableincome.asp

There are a number of economic measures used to measure the economic health of consumers which are closely followed because consumers are a major factor in aggregate demand and aggregate demand is vital to economies. There is no single measure, nor can there be. If you could describe your notion of "costivity" in mathematical terms, it would help people understand and it would clarify your notion. But until I see some clarity of thought, I have to write it off as nonsense.

EXCEPT, inflation isn't rampant even with many years of quantitative easing. Inflation in the US (i.e. home of quantitative easing) is zero and has been zero or near zero for 8 years now. So your premise is deeply flawed.

Well, aside for you notion of "costivity" whatever that is, there is some truth in this paragraph. The problem is demand. We have a demand problem. The increased money isn't being spent. Wealth inequality is a big problem, a very big problem and it is hindering economic growth. So if that is what you are saying here, I agree wholeheartedly.

The other part of the problem, and the two are actually related, is the inability of governments to use appropriate fiscal remedies. Monetary policy and monetary policies alone where never intended to solve all economic woes. Governments have been largely fiscally profligate (e.g. Republicans in the US), and that is indeed unfortunate. The inability of governments to effect appropriate fiscal policies have made monetary policy the only game in town and that is indeed unfortunate.

There are some truthful statements in there, but I don't see how it all plays together to form a coherent conclusion or how it supports your assertion.

 

On reflection, it would have been wiser to point you more directly to my source for the quotation taken from an article by Michael Bryan, currently VP of the Federal Reserve of Atlanta. Among other places I found it on the Swedish Riskbank website at: http://www.riksbank.se/Upload/Dokument_riksbank/Kat_foa/1015.pdf

The professors who taught me back in the sixties would have approved the quotation, and insisted that inflation be used to refer to an increase in the supply of money. The German experience of 1923 was about inflation. The French experience of 1693 had nothing to do with inflation.

My professors would have said that inflation of the money supply tended to drive a rise in prices, a situation of cause and effect. They would have regarded the application of the word inflation to what might or might not be the outcome of inflation of the money supply as confounding two different things. Heavy rainfall is not the same thing as flooding.

They would have regarded (indeed they did regard) the misuse of the word inflation by the media to refer to consumer price increases as sloppy thinking; as dumbing down for the masses; as losing the precision necessary for analysis. It is clear from your own quotations that they were fighting a losing battle - and so, perhaps, am I.

The important thing is that there are two different things (inflation in its original sense, and inflation in the degraded popularised sense preferred by yourself) and that they need to be distinguished - as clearly as we understand the distinction between heavy rainfall and flooding.

My suggestion is that the term inflation be restored to its original sense, and a distinctive new term be used for what you call inflation. My suggestion was the term costivity -- which I hate and needs improving upon; on reflection, I prefer “levation” but do not think that is perfect either. However, perhaps YOU would like to replace what I call inflation with a new word.

Anyway, what I was driving at in my piece was that there has never been such a disconnect between inflation (of the money supply) and levation (of consumer prices) for some of the reasons I specified.

Money supply can indeed be expanded mightily without consumer price rises. That does not mean it is a good idea and it is CERTAINLY NOT WITHOUT EFFECTS. The effects have been felt most of all in the bond markets, sustaining increased public debt whilst at the same time depressing yields (i.e. the reverse of what is to be expected). Think of this mighty volume of surplus money poured into bonds as you might think of floodwater building up for a while behind a dam or dike before bursting forth. It doesn’t do to forget it is there (as I think perhaps you do), and as bond yields wither the breaking point for the bond market may not be far away. The flood of investment funds looking for new homes will remind us how much inflation (in my preferred sense) has taken place over the last eight years. It will have come out of hiding.

 

I'm still stuck on why you think a new word is needed. There are many measures of money supply. There is M1, M2, M3. So why do we need another word to communicate the money supply? And unless you can be more specific about what it is you want this new word to mean, I don't understand your intended meaning. In order for your new word to have meaning it needs to be very specific and measurable, and at this point, I'm not seeing that.

It certainly isn't without effects, that's why central banks expand the money supply. They do it to create an effect. But it doesn't automatically equate to inflation either. It does affect bond yields, and while that hurts some individuals, that is what is needed to stimulate the economy during periods of waning aggregate demand. "Sustaining increased public debt", what do you mean by that exactly? The only way to increase public debt would be for governments to spend more money and that has absolutely nothing to do with monetary policy. During periods of slack demand, fiscal spending would be a good thing for government, as it increases aggregate demand, and governments are able to buy goods and services cheaper, and borrow at lower rates. That's exactly what the doctor ordered. It makes sense on a number of levels. And that's exactly what would and should happen during periods of slack aggregate demand (e.g. the last 9 years).

I'm not seeing that surplus of money you seem to be seeing. And you do realize central banks can contract the money supply as well as expand the money supply should conditions warrant? Bond yields aren't a problem for anyone but bondholders. The eventual problem is what the US Federal Reserve is dealing with now, the normalization of interest rates. As the economy recovers, it will need to raise interest rates over a period of time in order to avoid over stimulating the economy. It shouldn't raise them too fast so as to send the economy back into recession, but if it is too slow in raising interest rates it could cause inflation. And then there is the problem attributable to a more interlinked and interdependent global economy. As interest rates in one country go up (e.g. US) money leaves developing countries thereby depressing those economies. It's a complicated problem. And then there is the issue of lagging data, central bankers are always dealing with lagging data. That's why we pay the central bankers the big bucks to make these decisions.

I'll tell you what I worry about, I worry about the increasing reliance upon monetary policy and the lack of responsible fiscal policy. That's what I worry about. That's what keeps me up at night. I haven't read El-Erian's book yet, but I intend to. From what I have read, I think he and I are on the same page.

http://www.amazon.com/The-Only-Game-Town-Instability/dp/081299762X

 

I should like to point out that inflation has a meaning outside of economics. It is a word about VOLUME. One can inflate a balloon, a liferaft, or a bouncy castle. It is a word about enlarging or diminishing, not about raising or lowering. It is therefore appropriately used about VOLUME of money; not about price LEVELS. It seems right to use the word in the sense in which it was originally adopted by classical economists who were careful about their use of terms.

That is why (following my Scottish professors) I want to insist on using the word in relation to volume of money -- remembering that it would always remain to clarify which measure of money was being used. That is why I require a new word to describe what you, jopistole, and others refer to as inflation. Ideally, this should be a word with etymological connections to rising/falling rather than volume.

However, the above we can put aside as something we are going to continue to disagree about, and where the tide of dumbing down favours your stance.

Yes; also M0 and M4, and no forgetting L. They remind us that money is a very fuzzy and amorphous concept. I think most economists would feel that exactly what was ruled in or ruled out of the various measures was bound to be arbitrary (and it differs from country to country) but that what matters is to measure the same indices each month. Everyone agrees that money includes savings readily convertible into spending power. Savings may include Treasuries. If memory serves me, domestic private holdings of Treasuries are included in M3. (Maybe not if part of an inaccessible pensions plan; something like that.)

I can’t believe you wrote that! They are so closely bound together. The more money governments borrow the more money is saved in the form of government promises to redeem their debts. Quantitative easing drives down interest rates and enables debts to be raised more cheaply.

The money invested in bills/notes/bonds is part of the wider money supply, and that supply has been massively inflated. But the process of driving down yields has been taken as far as it will go. As this goes into reverse, as it must eventually, the cost of servicing debt will rise, doubts about redemption will increase, and this will accelerate the upward movement in yields.

If investors stay in (generic) bonds, they are likely to lose by it. To the extent that money and wealth simply evaporate, it is they who will be chiefly affected, but not without an impact on the wider economy. But there is also likely to be a massive surge of money being taken out of bonds, and where is that going to go? Some people, of course, are saying it will go into gold.

Nevermind exactly how things unfold, the effects of the rampant inflation (in my definition of the word) that has taken place over the past eight years, and has been contained until now by the bond market, will be unleashed. I am not sure you appreciate the enormity of the impact.

Absolutely! Wealth is undertaxed. Income is overtaxed. The level of economic activity would be much better controlled by varying the burden of taxation between wealth and income from year to year. Taxation of wealth (over a certain level) in slack times could be made palatable by putting the proceeds into a National Infrastructure and Industry Corporation, which would issue $100 shares for each $100 paid in wealth tax, and would hopefully pay a dividend as its projects came on stream. The stimulation given to a slack economy would probably make the wealthy wealthier, despite the levy on their wealth -- and everyone else wealthier too.

PS I do hope someone else will join in this dialogue.

 

Ok, but that's not the context in which you are using the word. You are misusing the word. Inflation has a very specific meaning in economics and it has absolutely nothing to do with VOLUME. This is part of your ongoing problem, you are misusing the word, AND IF you have an education in economics as you have asserted you should know that. As previously pointed out to you there are numerous measures of money volume (i.e. supply). Just because you don't like word meanings, it doesn't entitle you to make up new meanings for the words the rest of us use.


Additionally, you have no evidence early economists (i.e. classical) were more careful in their use of terms. There is absolutely no evidence to support your assertion. Economists are very careful about the words they use and how they use them - especially so with central bankers. Just because it "seems right" to you, it doesn't make it right.

Well that's just the point isn't it? You want to misuse the word. You want to use the word in a unique way, in a way in which it is not used by others. I have already provided you with the definition of the word inflation. Must I do it yet again?


What is 'Inflation'

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly. http://www.investopedia.com/terms/i/inflation.asp


What you have done and what you continue to do is misuse the word.


Read more: Inflation Definition | Investopedia http://www.investopedia.com/terms/i/inflation.asp#ixzz40uCYxMlA

Well here is the thing, I use the word the way virtually every investor, businessman, and economist in the world uses the word. And you think that is the "tide of dumbing down"...seriously? What you have done, what you continue to do, is attempt to redefine the language to suit your particular needs. Unfortunately for you, we do have a dictionary.

Actually money isn't amorphous, there are many different measures of money. That doesn't mean there is anything thing amorphous or fuzzy about money. It is well defined, well measured and well reported. The measure of money changes a bit by country as circumstances change by country. Different measures of money supply, give perspective to money supply. It doesn't make it amorphous or ambiguous.


You have been repeatedly asked to define in specific terms what this new word you want to invent means in very specific terms and why is it necessary. So again, please define this new word you want to create in concrete and specific terms and explain why you think it is necessary. What differentiates it from words currently used? If you want to create a new word as you do, you should be able to define it in some specific and concrete terms and explain why it is necessary and should be used.


P.S. The US doesn't report L.

Oh and how is it they are "so closely bound together"? If you have some knowledge of economics as you have asserted, you should know the difference between fiscal policies and monetary policies and known central banks have absolutely nothing to do with fiscal policy. Fiscal policy is very different from monetary policy. Central banks have absolutely nothing to do with fiscal policy (e.g. debt). You are confusing the two.


http://www.economicshelp.org/blog/1850/economics/difference-between-monetary-and-fiscal-policy/


As I previously pointed out to you, during periods of waning aggregate demand government spending is the perfect remedy for all the reasons previously stated. One of the problems which has vexed economies around the globe is governments have been unable to implement appropriate fiscal remedies leaving monetary policy the only game in town. And that's in direct opposition to your assertion that expansionary monetary policies lead to more public debt.

You are confusing supply and price again. The two are different, and you are of course ignoring demand as is your custom. You have no evidence the supply of "bills/notes/bonds" has been inflated, much less massively inflated. What has happened and what continues to happen in Europe, is central banks have been purchasing "bills/notes/bonds" and in doing so injected large sums cash into the economy. Interest rates have fallen as a result. As the price of debt has increased in response to central banks purchasing debt, debt yields have fallen. If you are versed in economics as you have asserted you should be well aware of the inverse relationship between debt price and debt yields. But you seem to be unaware of that fact.

Well, not really. You are doing a lot of broad brushing with not a lot of support. If interest rates rise as they ultimately will, it is true bond holders will lose some value depending upon bond maturity and the interest rate increases as bond prices would fall and interest rates will rise. That's called interest rate risk and it is present in every debt investment. But if bonds are held to maturity, no principal or interest is lost. The only loss a bond investor would experience is the opportunity loss. The bond investor would have lost the opportunity to earn a higher return on investment that higher yields bring. And none of that affects the broader economy. There is no hidden economic crisis buried there.


And what makes you think there will be this massive surge of money taken out of the bond markets? Interest rates have risen before, and it hasn't resulted in a "massive" exodus from bond markets. Bond investors are bond investors for a reason. They do not want to risk their principal even if that means less return on investment. Bonds are still one of the safest bets in town. Bond investors are very risk adverse, and moving their money from bonds where risk is relatively low into high risk speculation like gold as you suggest is not something bond investors would ever do – EVER!


Gold and commodity investments are high risk, so why would risk adverse individuals jump from the frying pan and into the fire where the risk of principal is a very real risk? It just doesn’t make any kind of sense.

 

I don't appreciate your new invented word meanings for all the reasons previously and repeatedly explained. In the real world where words are appropriately used, there has been virtually no inflation much less "rampant" inflation as you have asserted. And that is simply a matter of math, fact and the good old dictionary.


I think what you are trying to say is you believe that because of the monetary expansion resulting from quantitative easing in the US and now in Europe, you expect "rampant" inflation to occur at some point in the future. But as previously pointed out to you, that is an erroneous prognostication for several reasons.


As previously and repeatedly pointed out to you, and you should know this if you have ever studied economics as you have asserted, inflation isn’t just a monetary phenomenon. It requires excess aggregate demand, and that is something that has been lacking for the last 8 years. That’s why even with the monetary expansion we have not seen an iota of inflation, nor will we see if aggregate demand continues to lag. In the US the central bank has reversed its expansionary monetary policy by increasing interest rates, because US central bankers have seen an increase in aggregate demand.


Additionally, just as easily and as quickly as central banks have expand the money supply they can contract the money supply. Instead of buying debt and expanding the money supply as they have done, they can reverse the trade and sell the debt they purchased and carry on their balance sheets and in doing so, remove money from the money supply. They can also raise interest rates as the US central bank has done. As previously pointed out to you, it’s a little more complicated than you seem able to appreciate.

Wealth is under taxed, and income, in some cases, is over taxed. But fiscal policy has been woefully underutilized. Economies need appropriate fiscal and monetary policies to thrive. Thus far we have yet to see appropriate fiscal policy.

It's an interesting idea. I think it needs some work. The point being there is an excessive amount of wealth accumulation and some redistribution is necessary to keep the system competitive and working. Too much wealth accumulation is destructive to demand and to capitalism. Something is needed to take the burden off central banks. Central banks were never intended, and do not have the ability, to replace fiscal policies.

 

You really are a very difficult guy to get through to, jo. You persistently misunderstand me.

Germany famously suffered from inflation in 1923. Inflation is the word always used when you read the history. There was massive creation of money, with local currency notes being printed all over the place, and prices soared to extraordinary levels. Descriptions of the episode can be found hundreds of times on the internet.

Sometimes you can read that the money supply was inflated and soaring prices resulted. Most often it is not clear WHICH is the inflation: the money supply or the prices. It’s like it was all part of the same thing. But they are clearly two different things -- just as heavy rainfall is not the same as flooding.

I am choosing to use the word inflation in relation to volume of money supply. This is the original usage. Just try to bear with this usage, try to hold on to it, even if you disagree with it. Park your own choice of meaning for the word inflation on one side just for long enough to read the next few paragraphs, however distasteful you find the experience.

In fact, I tell you what, I won’t even use the word inflation, I will call it schlugg.

When I say there has been rampant schlugg I mean there has been a big increase in money supply, not that there has been a big increase in consumer prices. Got it? You are not used to hearing about “rampant schlugg” of late because a similar expression is more commonly applied to soaring consumer prices. Because you are not used to hearing the expression, it takes a while for it to sink in that this IS what has been going on, and to just the same degree as at times we now look back upon as "inflationary". That is right, isn’t it? You agree that there has been a rapid expansion of money supply.

What has been driven up (in particular) by this schlugg is bond prices. Moreover, bond prices have been driven up and yields down despite much more government debt being created, which might be expected to have the opposite effect. So the schlugg has had a powerful effect, though not in the usual direction for the reasons I have given earlier.

1: that is not what I was trying to say. 2: not necessarily.
Generally, schlugg leads to a fall in the value of the currency. This time round, most of the schlugg may get taken out of the system by a collapse of bond prices from unsustainable levels. I simply get the idea that you do not comprehend that a collapse of bond prices can administer as traumatic a shock to an economy as the collapse of a currency. There are so many reasons why it may not prove a smooth or gradual event given the casino mentality of money men and their derivative playthings. Also, you speak rather casually about rising interest rates as if the current high levels of public debt could still be paid for if bonds carried higher coupons.

PS I'm still hoping someone new will join the party!

 

To answer the OP, there is a difference between price inflation (increase in price over a period) and monetary inflation (increase in money supply etc). The latter can of course lead to the former.
I'm not sure it's correct to assert that the term inflation is simply equivalent to monetary inflation and that therefore price inflation should be given a different term. Without further qualification, the term inflation on its own (at least when discussing economics) is generally taken to mean price inflation, although for clarity one should prefix it with either monetary or price to ensure that the audience is aware of what is meant. Whether the popular usage/understanding is the original meaning is really neither here nor there in the grand scheme. Words change meaning over time. Simples.

The rest of the post, and subsequent discussion, thus seems rather moot.

 

Well, I'm not the guy trying to rewrite the dictionary.

That isn't disputed, but you are leaving out something very significant, there was also demand. What you have done, what you continue to do is cherry pick your way through history. You ignore the fact that for the last 8 years or so, the US central banks has aggressively expanded the money supply without inflationary effects. Now I know you think there is some dam somewhere where all of this inflation has been somehow magically dammed up. The reality is there is no magical dam. As I have repeatedly pointed out to you, for the last 8 years or so, aggregate demand has been weak.

Again, you are selectively looking at history and leaving much out in the process. And again, you still haven't explained your belief a new word is needed, and you haven't been able to define this new word of yours in any meaningful way. As has been explained to you numerous times now there are numerous measures of money supply with very precise definitions. So I fail to see why we need another word for money supply. Inflation also has a very precise definition and is widely measured. So I don't understand why you think a new word is somehow warranted. Furthermore, I have yet to see any credible economist sign on to your belief in the need for a new word.

Economists are awash in data. You need to explain in meaningful terms what you think this new word means, something you have yet to do. You cannot explain it in any detail nor can you define it with any degree of specificity, and more importantly you cannot explain why it is needed.

Again, I'm not sure what you are trying to get at. Are you trying to create a mathematical linkage between money supply and inflation? If so, as previously and repeatedly explained to you, that would be a mistake because inflation isn't only a factor of money supply. You keep ignoring the demand component. You are trying to drive a tricycle with only two wheels. It won't work.

I know that, but as repeatedly explained to you, that relationship you think exists is a myth.

I don't care what you call it as long as you can define it. But you cannot define it much less explain why it is needed or what value it will bring to the table.

Well here is the thing, I'm still struggling to understand what you new word means as you have never defined it in any meaningful or specific way. It's you word, let's see a specific definition.

That's largely gobbledygook. Additionally, we are not talking about a collapse of bond prices. There is nothing on the table that would indicate a collapse of bond prices. A collapse in bond prices would mean interest rates rise and higher interest rates would retard economic growth. But that's not what we are talking about here. The appropriate Fed (i.e. central bank) response would be to do as it did in 2008 and expand the monetary supply and in doing so increase bond prices and drive down yields. So with good Fed policy, I don't see why that scenario should ever come to fruition. And just what makes you think that bond prices are at "unsustainable"levels?

And derivatives have nothing to do with this, derivative trading is something else altogether, you are mixing apples and horses.

 

You don’t seem to realise what a small minority this opinion puts you in. Anyone who has studied this subject knows how tricky it is to decide what should be counted in what category. It is an area of permanent controversy. Anywhere the problem of measuring money is discussed one soon delves into anomalies, unresolved problems and ad hoc solutions. Not to mention Austrians who see the whole thing differently! Measuring money is pretty much in the same class as the famously difficult problem of assessing profit. See for example:
http://globaleconomicanalysis.blogspot.co.uk/2009/11/what-is-money-and-how-does-one-measure.html
http://2012books.lardbucket.org/books/finance-banking-and-money-v2.0/s06-05-measuring-money.html

PS Good to have you aboard, Sarkus!

 

LOL...that's funny....you reference a small financial sales group in Alaska and you assert I'm in the minority opinion....seriously? Oh, the humor....

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Average people with little to no understanding of economics or finance are often confused by money, what it is, the causes of inflation and many other issues. But professionals, and folks who have some subject matter are not. There is nothing controversial about money supply.

There is nothing "tricky" about determining what is or isn't money. Central banks have long defined what money is and they measure the money supply frequently and regularly regularly report their results. The unfortunate fact for you is money is very well defined and has been for a very long time. There is no controversy among those who have some subject matter knowledge. The only controversy you see in this area is with those who have little, if any, subject matter knowledge.

"The money supply is commonly defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments. For example, U.S. currency and balances held in checking accounts and savings accounts are included in many measures of the money supply.

There are several standard measures of the money supply, including the monetary base, M1, and M2. The monetary base is defined as the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve). M1 is defined as the sum of currency held by the public and transaction deposits at depository institutions (which are financial institutions that obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions). M2 is defined as M1 plus savings deposits, small-denomination time deposits (those issued in amounts of less than $100,000), and retail money market mutual fund shares. Data on monetary aggregates are reported in the Federal Reserve's H.3 statistical release ("Aggregate Reserves of Depository Institutions and the Monetary Base") and H.6 statistical release ("Money Stock Measures"). " - US Federal Reserve

http://www.federalreserve.gov/faqs/money_12845.htm

http://www.federalreserve.gov/econresdata/statisticsdata.htm

And the Federal Reserve goes on to explain in detail what is and what isn't money.

 

Maybe I am a poor teacher, jo, though I have delivered seminars at University College London (not on economics). But I am beginning to find you almost wilfully obtuse. Or maybe it is me in my inability to relate your comments to what I have actually written. Getting near time to give up, I guess.
However, to pick up on one specific -- perhaps the most important.

Well, negative yields on German 5-year bonds?
Or maybe take a look at Canada. I hear many Canadians simply don’t believe the latest figures that put prices only 2% up on a year ago. Following the slide of C$ against US$, that figure could be up to 5% before the year is out. Now take a look at the yields on Canadian bonds!
We have never seen anything like this before and I do not see it continuing.
Or you could just go to YouTube and search for “Bond Bubble” and hear the opinions of a dozen economic pundits, not all of them peddling gold, and some of them quite convincing.

As for my mention of derivatives, do you not suppose that there are a few $billions at stake in contracts over the price of bonds? Derivatives can be used to mitigate risk, but it is also an area where some of the most dangerous bets are placed and the area most likely to see defaults, especially in extraordinary times when the limits of expectation are exceeded. If defaults start happening confidence in the entire financial system will be at risk.

 

Jo, I know all that stuff about M1, M2, etc. And I don’t suppose the Federal Reserve site wants to stress the ad hoc ness of the actual business of compiling its statistics. You cannot measure money like you can measure someone’s height. I measure 175cm in any country in the world. The rules for measuring money vary from country to country, not indicative of an exact science.

“savings accounts”
How savings accounts are treated tends to depend on their accessibility, e.g. 30 days notice, etc. An arbitrary decision has to be taken on where to draw the line. It won’t be the same in every country. Does money really transform by being one side or other of a line?
How about the balance I hold with my bookmaker? I doubt if the economic logic of how it should be treated corresponds with the practice.
How about quantification of lost notes and coins? Inevitably a matter for guesswork.
How about my balance with PayPal; what country is it treated as being in? And should the charges I face from eBay at the end of the month be netted off ahead of time to produce the available balance, because I must leave that eBay amount in there?
How about funds belonging to deceased persons? Are they treated in a manner such a decrease in liquidity dictates? I wouldn't bet on it.
How about the black economy; would that figure at all?

“(those issued in amounts of less than $100,000)”
An arbitrary cut off point, and not likely to apply anywhere but in the US. Some might think it needs to be lower or higher, or even adjusted annually. There have to be ad hoc limits, rules of thumb, guesswork and approximations because we live in a messy world.
How about the rules for funds held abroad? How about their treatment depending upon whether the individual holds dual citizenship or where he/she actually lives and for what proportion of the year. Someone will have made some ad hoc rules and tried to keep them reasonably simple.
How about foreign currency? The liquidity of Pesos might be higher in El Paso than Pittsburgh.

You may even have half-decent answers to some of these questions.
But one could go on almost indefinitely.
Very fuzzy! You would be hard pressed to find many economists who thought differently.

 

And maybe I'm the Queen of Sheba.

Negative yields are not a systemic threat. It's a play on inflation expectations and the result of central bank bond buying. If the actual inflation rate on the bond is lower than the interest rate on the bond, the bond owner makes money. Negative yields in and of themselves aren't the systemic threat you think they are. Negative yields are the result of quantitative easing (i.e. central bank bond buying). It's stimulative to the economy. Now why you think that is a threat is beyond me.

"In a nutshell, bonds that investors have to pay to own before adjusting for inflation. That might seem like a dud investment, but whether an investor actually loses money by holding the bond depends on what exactly happens to inflation. If it is lower than the yield on the bond, then investors can still make money in real terms. An investor can also make money by re-selling the bond at an even higher price than where they bought it." http://blogs.wsj.com/moneybeat/2015/02/02/why-all-the-talk-of-negative-bond-yields/

Some central banks are experimenting with negative interest rates, where central banks charge depositing banks interest. Now that's a little more scary because we are indeed moving into uncharted waters at that point. But that's not what we are talking about here. Personally, I have seen little evidence negative interest rates work. It's an unproven idea and it brings new risks to the table. It takes money out of the economy at a time when central banks should want to increase liquidity. I think negative interest rates might be a step too far. In my view this is an attempt by central banks to replace responsible fiscal policy. It's likely a step too far. But a few central banks are experimenting with negative interest rates.

When interest rates fall, bond holders win. When interest rates rise, bond holders lose. It's nothing radical. It's nothing threatening unless you happen to be a bond holder. It's just the way it is. There is no "bond bubble", and even if there were it wouldn't be a problem. This is basic monetary policy blocking and tackling.

And I don't do specious web sites. Lord knows there are plenty of them on youtube and on the internet. I don't do salespeople either. The trouble is too many people do. They become zealous advocates, and they pepper the internet with nonsense and it inevitably spills over into politics. And that is one, if not THE reason why governments have been unable to effect responsible fiscal policies - especially in the US.

Derivatives are a risk, there is no doubt of that. They caused the 2007-2009 crisis. But in the US banks have been recapitalized, re regulated, and the central bank is now responsible for monitoring and managing all systemic risks. In Europe, Europe have followed suit but to a much lesser degree and that is where the real derivative risks are today. But that's a risk that will always be there unless and until the EU takes more measures to strengthen its banking system. And it's going to take more than just a few billion to bring down the European banking system. Much of the market turmoil of the last few weeks has been attributable to speculation related to European commodity debt and derivative trading (i.e. banking integrity).

But we are getting a little off topic. How does this all tie into the new word you want to create?

 

Well, Sheba (sorry, I mean, Your Majesty), you don't like the sites I point you to in relation to the fuzziness of money, so you don't actually reply to the points that are being made there. You don't watch "specious" videos (does that include Alan Greenspan interviews?), so you don't actually reply to the points that are being made there.

Not exactly true; think about it! Practically everyone who has a pension is an indirect bond holder. And your bank is a bond holder.

Anyway, you reckon that there is no bond bubble and that if there were it would not be a problem -- a fact I would be bright enough to comprehend if only I understood how these things are managed. I reckon there is a bond bubble, and there is a likelihood that its collapse will have a far-reaching negative impact. Well, history will be our judge! (The fall in bond prices I regard as a certainty. Some negative consequences I regard as a certainty. The degree of shock administered to the system, an uncertainy.)

My New Word
I will be honest with you. I know I am not going to wean the media and the man in the street off using the word inflation in a casual and imprecise manner. But science often needs to use its own specialised terms, and there are plenty of academic papers which start off by defining what is it going to mean by what. ("I am going to use such-and-such in the Higgsian sense," etc). Inflation cannot be both a volume term applied to money supply and a level term applied to prices if we are doing to promote meaningful economic analysis. Even by hyphenating (not necessarily literally) the word with another, we create a tweedledee-tweedledum linkage that is inappropriate. Because inflation is a volume word, I choose to use it in regard to money supply. This was indeed the original usage. In regard to consumer prices, I want a level or height word, and suggest levation. It emphasises how different the two things they are.
I will be honest with you. It is not going to catch on. But that is a shame, because in my opinion it would help clarify people's thought processes. There has been what I regard as a reckless degree of inflation (that's money inflation to you) to which the media has not attached the word "inflation" because (almost uniquely and for reasons I have suggested) it has not shown up in the retail price index, rendering it unobserved.
In a nutshell, I believe that inflation (that's money inflation to you) is something that "comes home to roost", so to speak. If bond prices collapse, then it will have done -- a foreseeable result.

As Mr Asquith used to say, "Wait and see!"

 

Yes, I don't waste time on reading specious web sites. I have read enough of them over the years. I don't need to read more of the same. The irony here is you referenced a small financial sales company in Alaska, a state with a population of 600k-800k people and I referenced the Federal Reserve and you accuse me of being in the minority opinion....seriously? You referenced a specious minority ideology, the self proclaimed Austrians, the crystal ballers, the people who don't believe in the empiricism of science, and you accuse me of being in the minority opinion...seriously?

Alan Greenspan, you mean the same Alan Greenspan who brought us The Great Recession through his deregulation advocacy...the guy who is responsible to a large degree for allowing banks to freely and without regulation trade derivatives...that Greenspan?

It's exactly true, you need to think about it, especially before you tell someone else to think about it. Pensions benefits are not tied to investment performance. Pensions offer fixed benefits which are not tied to investment performance. And lets not forget pension benefits are generally insured. In the US all pensions are insured by the federal government. So contrary to your assertion, my statement is exactly true.

Just because bond prices are high, it doesn't mean there is a "bubble". Too many people have a chronic case of bubble on the brain. They see bubbles everywhere, under every rug and behind every door. Bond prices are high today for very good reasons. Two, bond prices are easily managed by central banks. As has been repeatedly pointed out to you central banks have a number of powerful tools to manage interest rates and money supply.

I don't think bond investors are going to panic and jump from the fire and into the frying pan (e.g. gold) as you have asserted. There will come a time when bond prices (i.e. interest rates normalize). In the US the central bank has already begun to normalize interest rates (i.e. bond prices). There is no reason to believe bond prices cannot or will not be managed in an orderly fashion as they have been. There is no reason to believe, short of a dramatic change in politics (e.g. a Cruz victory in the US) that will change.

The man on the street is the least of your worries. Your biggest challenge is weaning the academic and business communities and getting them to accept your new word. Win those communities, and the man on the street will follow. But you haven't been able to define you new word in any meaningful way. If you want your new word to become accepted in academia and in business, you will need to offer a meaningful definition and offer a cogent reason for it - things you have thus far been unable to do. You have this nebulous idea, based on some very fallacious reasoning, and you will need much more than that if you want to introduce this new word of yours into the lexicon.

The facts are, despite your beliefs, with more than 7 years of the quantitative easing (i.e. monetary expansion) you so abhor, we have seen virtually no inflation for the reasons previously and repeatedly explained to you. Those are the hard facts. And because the facts don't comport with your beliefs, you want to change the lexicon and invent new words. From an economic perspective, that doesn't make sense. And that's why your attempt to rewrite the lexicon is doomed.