Conflation: The New Economic Circumstance?
August 8th, 2008 by Chris KinnanEnergy and food prices have risen at an astonishing clip. That means the U.S. economy is in inflation, right?
But the price of a key asset class, housing, is declining at 15 percent annual rate. That means deflation, right?
So what’s the word for an economic condition that contains relatively disruptive levels of both inflation and deflation simultaneously in different sectors of the economy?
Lousy public policies are a major driver of our current problems, of course. In particular, the Federal Reserve, led by Chairman Ben Bernanke, has cut interest rates far below the real cost of capital, weakening the dollar and causing a significant part of the increase in commodity prices.
Congress, not to be outdone, recklessly expanded the ethanol fuel mandate and continues to limit energy production, putting further upward pressure on both food and fuel prices.
In housing, a combination of tax breaks, conflicted ratings agencies, and government backstops for reckless (and in some cases fraudulent) lenders like Countrywide and Indymac Bank helped spur a bubble that is now correcting.
So some of the folks at FreedomWorks kicked around a few possible names for this unhappy outcome that seems different from traditional inflation or deflation (at least so far…).
Multiflation
Dumbflation (nod to bad policy)
Bailflation (nod to the bailout)
Fedflation (for our friends at the Federal Reserve)
Bearflation
Schizoflation
Scareflation
Badflation
Sadflation
WTF-flation
If you want to lay it at Bernanke’s feet, “Benflation” has a nice ring.
Biflation
Dissflation
Price Dissonance (already has microeconomic meaning though)
Greenflation (nod to former Fed Chairman Alan Greenspan’s role)
Coflation
Simulflation
Fragflation
Chipflation
Dieflation
I rather like Conflation, which captures both the conflated nature of the current economy, the role Congress plays, and the “con” involved in shifting housing market losses to the taxpayer.
What do you think? Share your own ideas in the comments below!
August 8th, 2008 at 4:35 pm
I don’t get this at all. What you’re talking about doesn’t rise to a nationwide “economic condition,” just price points in certain market segments. And the weak dollar has been a feature of the entire Bush administration, not just something that suddenly happened under Bernanke.
And it’s far too simplistic to say that the weak dollar is a “significant part” of the increase in commodities prices. It’s a part, in some markets it’s significant, but futures trading also plays a significant role in commodities, particularly finite natural resources. Ironically, Dick Armey himself was instrumental in deregulating the energy futures market in 2000—a move which allowed Enron to manipulate energy markets throughout the Western U.S. for years without oversight.
And although it’s easy to blame ethanol subsidies for corn prices, it’s also important to note how deeply the food industry is invested in corn products and how those businesses were not prepared to deal with a spike in corn. Organic farms and food companies not relying on corn products have not seen a corresponding rise in food prices from the ethanol subsidies, for example.
I also find it rather telling that even Dick Armey admits that the solution to the lending and rating practices that led to the housing crisis is (wait for it) additional regulation.
One of my main problems with this website is that, for an economic policy “think tank,” the posters here don’t really seem to understand how the economy actually works, but rather push talking points about what big energy companies would like us to believe about how the economy works. It’s a little insulting to those of us who have some know-how around this.
August 8th, 2008 at 4:43 pm
I’m surprised none of you noted who helped deregulate the lending industry to begin with. So-called “subprime” loans didn’t used to be allowed. But a few Republican congressmen (including McCain’s man Gramm) decided that banks desperately needed to be able to lend money to people who couldn’t afford to pay it back.
Can you guess who else was involved?
August 9th, 2008 at 10:42 pm
Awesome Sickle…just awesome…
How about Bushflation?
August 11th, 2008 at 2:45 pm
I think we as republicans need to return to offering solutions and ideas rather than blame. Real estate and oil are cyclical. Loans are freely given until they hurt the borrower. Oil rises and falls based on demand. Markets work.
This cyclical mess isn’t going away anytime soon. Maybe we should let the Democrats have the wheel for a while and let them have the heat.
Then, after a Carteresque administration reveals the true weakness in liberal policy, we will remember what inflation and bad economic times are really like.
August 12th, 2008 at 12:37 pm
Hi Sickle, I think you’re taking the post a little too seriously. I actually like Mike’s “Bushflation.”
On the topic of oil futures markets, its clear that sustained high prices are destroying demand around the globe…from Americans driving and flying less to several nations cutting fuel subsidies, we’re seeing dramatically reduced demand at the margin. As they say, the solution to high prices is high prices…
August 12th, 2008 at 1:05 pm
Who’s “Mike”? You mean Mister Guy?
Um, did you have something to say on that topic? Because if you track the divestment of oil up positions over the past few weeks, I think you’d see a far more accurate picture of what’s driving the market. The demand reductions are, as you say, at the margins, and therefore are a lagging factor in setting real-time price points.
I might have taken your post “too seriously.” Perhaps that’s not unexpected, though—given the context of Nan’s recent breathless posts about real-world Americans and hero-worship of brave Republicans hanging out in the dark telling ghost stories.
But it tells a story, though, Chris. So far this blog has not once discussed the role of speculative markets in setting commodities prices. And now we have the third explanation for falling oil prices: first it was “psychological” because Bush lifted the drilling moratorium; then it was “psychological” because Republicans in Congress were signaling that “something” would be done; and now it’s because of “dramatically reduced demand at the margin.”
You even said, “On the topic of oil futures markets…” without saying anything about oil futures markets at all. In other words, you have repeatedly ignored the most important factor in rising oil and fuel prices over the past several months, and continue to do so now. That begs the question: do you folks actually know what you’re talking about or not?
August 12th, 2008 at 1:25 pm
Yeah I meant Mister Guy. Busy day here.
Because pricing occurs at the margin, and these markets are very tight, small changes in supply and demand can result in dramatic changes in prices.
Several factors are driving the market. I just googled some news– China’s demand for fuel is down 7% year over year, and the International Energy Agency says global demand is down 1.3% YoY. Plus, the dollar is strengthening for unrelated reasons, which is another major component of oil and all global commodity prices (and which I’ve blogged about) . Psychology matters as well– the sense that Bush and Congress are going to take some action to release strategic supplies or increase drilling does put downward pressure on futures prices.
All of these reasons are components of futures market “speculation” about the future price of oil. There are also people in the market who were buying just because oil was going up…these folks are now getting drilled (pun intended!).
August 12th, 2008 at 1:49 pm
So produce evidence that that’s what happened. I have to admit, it’s a little troubling to see FreedomWorks trumpeting “drill now!” for weeks, only to have one of its longtime VPs just now decide to google about for information on market pressures.
I would also point out that everything you’ve said in this thread in response to my observations and queries undercuts FreedomWorks’ “drill now” imperative.
August 12th, 2008 at 10:46 pm
“Maybe we should let the Democrats have the wheel for a while and let them have the heat.”
That’s nice of you…you’re going to let us “have the wheel for a while”…not, the Dems are going to continue to steamroll over you because most of your policies have failed & the American public are finally sick of it…sure, sure…
Oh, and I love the Obama = Carter baloney too…just more noise from the Right-wing noise machine.
“do you folks actually know what you’re talking about or not?”
Come on…don’t we already know the answer to this by now?? LOL…
“China’s demand”……China’s demand in general is less than ONE-THIRD of ours…wake up!
August 13th, 2008 at 7:02 pm
To All
Could I be so bold as to make points on domestic drilling and using the lease fees and royalties to fund research and development projects for new technologies and alternative fuel sources to be used for everyone’s future not just America’s future.
The second benefit would be related to “National Security” so many hot spots around the world interruption in the flow of crude as well as refined products is not an “IF” I propose it is a “WHEN.” Drill Now!!
An additional benefit recognized in short term, the creation of “American Jobs” jobs that cannot be sent overseas or outsourced. How about revitalizing some industries in the U.S. domestic market such as our withered up nuclear energy industry.
I not sure, U.S. production of nuclear generated electric power is around approx 20% France enjoys in their national power grid approx.70% nuclear.
So therefore I respectfully submit a healthy debate on energy issues with regard to how, what, when, where, to delay is to ask for certainly more hardships and fewer real time solutions to empower We Americans with the sense that we are moving forward priceless
JB
August 13th, 2008 at 8:14 pm
EIA has better numbers on U.S. Nuclear Energy Generation 8%
However we do definitely need to bring our nuclear power generation up!
Also streamline the permit and the construction processes to expedite more generation of electricity, without compromising environmental impact severely.
A comprehensive program of loan guarantee and future regulations guarantee for nuclear energy investors is needed to accelerate the of funding and full capacity generation of plant(s) going on line.
JB##
August 17th, 2008 at 9:40 am
“our withered up nuclear energy industry.”
Why did it whither up?? Because it is viewed (and rightly so IMO) as a danger to the public…good luck changing that view anytime soon…
Ah, the ole French nuclear canard…what you leave out is that the French are running out of nuclear fuel and fast. Viable uranium resources worldwide have a lifespan of about another 70-80 years.
There are pretty much two clear paths for us to go with respect to future energy generation in the USA. One path leads down the “more of the same old” finite sources of energy…oil, coal, nuclear, etc.. This path will definitely make a heck of a lot of money for certain portions of the business community, and it will also generate reliable energy for a relatively short period of time. The other path involves energy conservation & efficiency along with the future development & implementation of renewable, infinite, alternative energy sources…solar, wind, hydro, etc.. This path has a proven track record in this country (and especially around the world) of yeilding the result of less energy consumption & reliable energy production over the longer term. Also, it is a developing business market that has *almost* no ceiling to it.
We can focus our efforts in either of these two areas. One will result in some short-term gains and put us in a position where will have a bunch of holes in the ground with no energy resources at the bottom of them anymore at some point in the near future. The other will take some more time & money upfront, but it will end up providing a longer-term solution for our energy needs. Some say that we can explore both these paths at once, but I say that we’ve basically been trying to do that up until this point with little good result.
August 18th, 2008 at 6:25 pm
Mister Guy
Could one benefit of using nuclear energy for generating power be less radioactive materials for weapons purposes?
And do you not think that 70 or 80 years gives us enough time to develop renewable and alternative energy sources?
Also I think your missing the “Strategic National Security” issues here and now and especially in the time frame that conventional fuels are depleted. There is going to be an energy war, a fight for the last bit of energy. If we could just find the magic replacement and share it with the world the energy war could be turned into al long period of peaceful prosperity.
I think we need an adjustment period of 2 to 3 decades and let us setout to accomplish running the economy and our military during the interim?
I personally think retooling life as we now know it is a much larger task than we can conceive. There will be adjustment to what ever plan(s) we puruse.
And likely adjustments to those adjustments, we are in uncharted territory here with many lives and the welfare of many nations and peoples at stake.
That is why I suggest doing everything we can!
Respectfully submitted Sir
JB##
August 18th, 2008 at 6:46 pm
Mister Guy
You left out Geothermal Energy I particularly like that one, the wind doesn’t necessarily have to blow at a certain rate with solar nightfall and overcast conditions can have an effect and with hydroelectric we depend on rainfall as a driving force don’t discount drought, so it will take all alternative sources to bring us within even 30% renewable in the near term. I am just begging you to be realistic Sir.
JB##
August 19th, 2008 at 8:27 pm
Sickle:
Do not misunderstand I want domestic drilling, plus research and development on alternative energies and research and development on renewable energies.
I just happened to believe America has ridden out the supply of cheap oil too far.
We have up until recently been complacent with regard to energy policy ,it is time for a change in policy!
Much of what we have accomplished is short sighted energy dependency and a lazy sort of “Devil May Care Attitude” with regard to our energy future!
Wake the sleeping giant before it is too late!
America can be the new supplier of alternative energy sources technology and renewable energy sources technology: however we must survive and profit from the transition period and emerge on top. DRILL NOW!!!
We are capable of funding the afore mentioned research and development projects by being less dependant on foreign oil and creating American Wealth!
YOU KNOW WHY…; BECAUSE THAT’S THE WAY WE DO!!!!!!!!!!
GOD BLESSES THE U.S.A.
JB##
August 22nd, 2008 at 10:06 pm
“And do you not think that 70 or 80 years gives us enough time to develop renewable and alternative energy sources?”
That’s the point…we don’t need very much more “development” as of RIGHT NOW. All of this talk on the energy sources of the past just wastes time that we should be using to move forward with how we generate energy, not backward.
“There is going to be an energy war, a fight for the last bit of energy.”
Not if we convert to using clean, renewable energy sources there won’t! There is no “retooling life” necessary!
“You left out Geothermal Energy I particularly like that one, the wind doesn’t necessarily have to blow at a certain rate with solar nightfall and overcast conditions can have an effect and with hydroelectric we depend on rainfall as a driving force don’t discount drought, so it will take all alternative sources to bring us within even 30% renewable in the near term.”
Current (actually 10-year-old) solar technologies work in cloudy regions of the country. We currently get well over a third of our energy in VT from hydro power (most of it comes from a world leader in hydro, Canada). 100% renewable energy sources of power is completely possible within the next several decades.