Saturday, December 27, 2008
Hanke Spanks Bernake-3
"In October the Producer Price Index sank 2.8%, it's biggest one-month drop since the Labor Department began measuring it in 1947. At the same time, the Consumer Price Index fell by 1%. It's no surprise that everyone in the U.S. is talking about deflation. Indeed, the bond market is pricing in deflation. The fact that the yield on five-year Treasurys with no inflation adjustment is 2% while that on five-year Treasury inflation-protected securities is 2.4% implies that the bond market expects annual average inflation to be a negative 0.4%. ... However, the Fed has put the money pump into overdrive, and it is hard to see any way in which deflation could be a headline-grabber for many more months, let alone five years. U.S. Treasury-indexed securities remain a buy. ... In the absence of good official numbers, I've developed my own hyperinflation index for Zimbabwe. I derive it from market-based price data starting in January 2007. The index tells us that Zimbabwe's annual inflation rate peaked at 80 billion percent a month. That means about 6.5 quidecillion novemdecillion percent a year--or 65 followed by 107 zeros. To get a handle on it, realize that it's equivalent to inflation of 98% a day. ... No hyperinflation has ever been recorded when money was based on or convertible into a commodity. The first hyperinflation happened during the French Revolution. There were 28 other hyperinflatons before Zimbabwe's, all in the 20th century", my emphasis, Steve Hanke (SH) at Forbes, 22 Dercember 2008.
I'm not "everybody"; I don't talk of deflation. Bonds are a bigger bubble than real estate was in 2006. I wouldn't touch TIPS, disagreeing with SH. SH must think the US has "good official numbers". I'm sure they're good. For Uncle Sam! I think all of Unc's statistical measures have a political component. 28 of 29 hyperinflations occured in the 20th century. I wonder why.