Category: Inflation

It’s Jobless Thursday!

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Initial unemployment claims fell from fell to 376,000 from 385,000 last week, which is obviously good news, but year over year inflation jumped to 5%, which means the the usual suspects are going to start screaming for austerity.

As always, I’ll note that with 20+ states rolling back unemployment benefits, stimulus is going away sooner rather than later in those states, and in all 50 states at the end of September, so I will expect back-sliding when that happens.

As to the inflation, the core rate, which excludes food and energy is a lower at 3.8%, and it is dominated by a spike in used car prices, which are in turn driven by a massive shortage of new cars, which is in turn driven by an even more massive shortage of computer chips that go into new cars.

It’s a recovery, and inflation will spike, and quite honestly, with wages going up for people at the bottom end of the scale, it’s a good thing.

I’m waiting for the “Very Serious People” to try to start to screwing things up.

Not this Sh%$ Again!

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The stupid people in economics have been bleating about inflation since, well, forever, and last month’s CIP numbers will only elicit more wankerhood from the pundits:

US consumer prices soared in April as post-lockdown demand and shortages drove up the cost of a wide range of goods, from used cars and home furnishings to airline tickets.

The news triggered a further slide in markets unsettled this week by the threat of rising prices, which could force central banks to abandon zero0-interest rate policies that have helped stoke share prices. The Dow Jones index fell 1.3% in early trading and the tech-heavy Nasdaq lost 2.5%.

The Consumer Price Index (CPI) climbed 4.2% during the month from a year earlier, the labor department said, the biggest 12-month increase since September 2008, the height of the financial crisis. The figure was significantly higher than economists had predicted.

CPI measures the prices consumers pay for goods and services, including clothes, groceries, restaurant meals, recreational activities and vehicles. This month’s rise saw increases across the board and was driven by many factors.

The Biden administration’s economic stimulus package has pumped money into the economy just as it reopens from coronavirus lockdown measures. Fresh demand for goods and services has also outpaced supply, which is still recovering from the lockdowns at the start of the pandemic, leading to shortages for a broad range of goods from lumber and steel to ketchup.

Speaking of wankers, the Sultan of Schmuck, the Patron of Pissants, the Don of Dickheads, the ……… Never mind, enough alliteration, Lawrence “Larry” Summers has weighted in:

Others are more concerned. Former treasury secretary Larry Summers has warned the US could face a period of high inflation unseen since the 1970s. Talking to Bloomberg TV he said it was “plain wrong” to suggest that inflation cannot surge unexpectedly.

“It may be that a way will be found to bring it under control,” he said. “But as I look at $3tn of stimulus, $2tn of savings overhang, a major acceleration coming from Covid in the rear-view mirror, rates expected by the Federal Reserve to be at zero for three years even in a booming economy, record growth this year, major expansion of the Fed balance sheet, and much new fiscal stimulus to come – I’m worried.”

It’s nice that you are worried, Larry, but you have been wrong about everything since  ……… Well ……… Forever, so how about a nice hot cup of shut the f%$# up!

But now we will hear the wankers wanking about inflation for at least 18 months, and they will be on you teevee and your editorial pages.

Jimmy McMillan Was Right

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The divergance becomes


A convergence when rent is removed

Over at the Wall Steet Journal, they note that reason for the divergence between the CPI and PCE when juxtaposed wit the PPI is that the PPI does not include rent:

Prices in the U.S. are either rising or falling, depending on how you measure them.

The best-known measure of consumer inflation, the Labor Department’s consumer-price index, rose 0.5% from a year earlier in November. The Federal Reserve prefers to use the Commerce Department’s personal-consumption expenditures price index, which rose 0.4% on the year in November.

So why did another Labor Department inflation yardstick, the producer-price index, decline 1.1% on the year in November? The answer may be simple: Housing costs are rising faster than pretty much anything else, and they’re not part of the PPI.

A little background first. The PPI tracks price changes at the business level, and it was overhauled two years ago to cover a broader base of goods and services. In some cases, it can reveal inflationary pressures in the pipeline before they show up in consumer prices.

It also happens to be first broad inflation gauge released each month, earning it extra attention from economists and investors. The December PPI report will be released Friday morning, while the CPI won’t be out until next Wednesday and the PCE price index won’t be available until Feb. 1.

The PPI has generally moved in tandem with the two consumer-facing price gauges, but it has diverged from both measures over the past year. All three inflation gauges fell toward zero after oil prices began to tumble in mid-2014. The PPI kept going, dropping into negative annual territory and staying there, while the CPI and PCE measures have stabilized at low levels.

The likely culprit: rising rents. The cost of shelter, as measured by the CPI, rose 3.2% in November from a year earlier for the third consecutive month—the fastest growth in eight years. But while rent (and its equivalent for homeowners) makes up nearly a third of the CPI basket and a smaller but still substantial share of the PCE index, it’s absent from the PPI. That may explain why the path for PPI looks a lot like the path of CPI if you exclude shelter costs from the latter index.

There are a number of take aways here.

First, and most obvious is (of course) that the rent is too damn high.

The second is that an increasing proportion of our economy is going to rents of various forms rather than productive activities, which does nto indicate an economy that is progressing.

The third, and most important take away is that we are actually in a deflationary economy, like the Great Depression of the 1930s.

The reason that our economic recovery doesn’t feel like an economic recovery is because it really isn’t one.

We are in a deflationary spiral.

Crap, the Fed is Going to Go all Neanderthal Now

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You see, we have pretty good news for October on the job front, which means that the Federal Reserve is now much more likely to raise rates:

Hiring at American companies shifted into higher gear in October, helping to lift wages and clearing the path for the Federal Reserve to raise interest rates next month.

The 271,000 jump in payrolls reported by the Labor Department on Friday was much more robust than expected and suggested that economic growth had enough momentum to allow the central bank to begin its move away from the ultralow, crisis-level interest-rate policy it has been following for seven years.

Along with altering the landscape for policy makers in Washington and traders on Wall Street, the strength in the labor market, if it persists, is expected to shift the political debate as the 2016 presidential campaign heats up.

While there is still a possibility the Fed could hold back, the underlying solidity evident in the latest jobs report will strengthen the hand of monetary policy hawks who have long favored an increase in short-term rates. At the same time, it should reassure Janet L. Yellen, the chairwoman of the Federal Reserve, and a majority of her colleagues at the central bank that the economy can handle modestly higher borrowing costs without stress.

“It was pretty much everything you could ask for in a jobs report,” said Michelle Meyer, deputy head of United States economics at Bank of America Merrill Lynch. “Not only was the headline number strong, but there were upward revisions for prior months, the unemployment rate fell and wage growth accelerated.”

I don’t know when the Fed will raise rate, but I am almost certain that when they do, it will be too soon.

The cultural imperative of central banks, including the Fed are such that they always err on the side of mindless inflation concerns.

Our Broken Healthcare System: Vaccine Edition

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Not it appears that vaccine prices are the latest case of looting by corporate medicine:

There is little that Dr. Lindsay Irvin has not done for the children’s vaccines in her office refrigerator: She remortgaged her home to afford their rising prices. She packed them in ice chests and moved them when her office flooded this year. She pays a company to monitor the fridge in case the temperature rises.

“The security company can call me any time of the day or night so I can go save my vaccines,” said Dr. Irvin, a pediatrician. Those in the refrigerator recently cost $70,000, she said — “more than I paid for four years of medical school.”

Vaccination prices have gone from single digits to sometimes triple digits in the last two decades, creating dilemmas for doctors and their patients as well as straining public health budgets. Here in San Antonio and elsewhere, some doctors have stopped offering immunizations because they say they cannot afford to buy these potentially lifesaving preventive treatments that insurers often reimburse poorly, sometimes even at a loss.

Childhood immunizations are so vital to public health that the Affordable Care Act mandates their coverage at no out-of-pocket cost and they are generally required for school entry. Once a loss leader for manufacturers, because they are often more expensive to produce than conventional drugs, vaccines now can be very profitable.

Old vaccines have been reformulated with higher costs. New ones have entered the market at once-unthinkable prices. Together, since 1986, they have pushed up the average cost to fully vaccinate a child with private insurance to the age of 18 to $2,192 from $100, according to data from the Centers for Disease Control and Prevention. Even with deep discounts, the costs for the federal government, which buys half of all vaccines for the nation’s children, have increased 15-fold during that period. The most expensive shot for young children in Dr. Irvin’s refrigerator is Prevnar 13, which prevents diseases caused by pneumococcal bacteria, from ear infections to pneumonia.

And Prevnar started expensive, and the cost has gone up from there, and it had to nothing to do with the cost of the product:

The value of that “school mandate” is also apparent in the pricing. When Singapore’s national vaccine advisory group evaluated Prevnar 7 for mandated use, its price was about $80, said Karen Tyo, a researcher from Brandeis University, who was advising the government. After the government included it in the required national schedule, “the price jumped immediately” to about $120, she said. “Nothing had changed,” she noted. “It didn’t make any sense.”

………

The Swiss Agency for Therapeutic Products pays $101, a price that has not changed over time. In Britain, the small private health care market sells prefilled syringes of Prevnar 13 for an average of $82 at pharmacies; the National Health Service pays even less, experts say. Prefilled syringes cost an average of $136 in the United States, and even the C.D.C. — which buys vaccines for the Medicaid program at a discount — pays $112.84.

If the US government grants a monopoly in the form of patents, perhaps compulsory licensing, something allowed for in all of international IP agreements.

It might be a good for the US government to take advantage of this.

Simply paying for price gouging is not working.

Queue the Inflation Trolls

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The Producer Price Index rose by 0.6% in April:

U.S. producer prices recorded their largest increase in 1-1/2 years in April as food prices surged, in a potential sign inflation pressures may be creeping up.

The Labor Department said on Wednesday its producer price index rose 0.6 percent, the biggest gain since September 2012. That built on a March increase that was nearly as large.

The department revamped it PPI series at the start of the year to include services and construction. Since then, it has been surprisingly volatile, largely because of big swings in prices received for trade services.

Still, economists, who had expected only a 0.2 percent gain, saw the latest rise as an indication that price pressure may be building. Officials at the Federal Reserve have long worried that inflation was running too low.

I will note that the trend for this year is still less than 6%, which is where I would set the target, and it appears that their statistical set is kind of hinky, but expect the inflation gnomes to come out and run around with their hair on fire.

Where Maryland Gets Healthcare Right

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Proving once again, that the first problem is not cost it’s price

The Free State is expand an existing plan of price controls for healthcare:

The Obama administration is set to announce Friday an ambitious health-care experiment that will make Maryland a test case for whether aggressive government regulation of medical prices can dramatically cut health spending.

 Under the experiment, Maryland will cap hospital spending and set prices — and, if all goes as planned, cut $330 million in federal spending. The new plan, which has been under negotiation for more than a year, could leave Maryland looking more like Germany and Switzerland, which aggressively regulate prices, than its neighboring states. And it could serve as a model – or cautionary tale – for other states looking to follow in its footsteps.

 “You can put Maryland in the company of Massachusetts and perhaps Vermont as the three states furthest out in trying to invent a new future for cost accountability in health care spending,” added Harvard University’s John McDonough. “Success creates a model that other states will want to look at emulating. And failure means it’s an option more likely to be crossed off the list.”

 For Maryland, the new rules build on past success. Since the mid-1970s, it has been the only state to set the prices that hospitals charge patients. Typically, hospitals negotiate with each health insurer individually, leading to disparate rates. In Maryland, all customers — whether a private insurance plan, public program or uninsured patient — pay the same price. Researchers estimate the system has saved $45 billion for consumers over four decades and prices have grown more slowly in the state.

What they are adding is changing the billing to reduce incentives to provide unnecessary services:

Under the old system, prices in Maryland couldn’t grow faster than the prices set by the Medicare program. But as the cost of health care rose rapidly in recent years, the state struggled to hit that target.

 State officials also worried about the old system creating perverse incentives: The best way for a hospital to make money was to provide the highest volume of services, regardless of whether that care made patients healthier. That meant payers would simply sign checks for as many treatments as the hospitals recommended. The new system intends to end that revenue strategy by capping total spending.

 “It’s essentially moving away from a system that is focused on volume to one that is focused on value,” says John M. Colmers, executive director of Maryland’s Health Services Cost Review Commission, which will oversee the effort.”

 The Centers for Medicare and Medicaid Services approved Friday Maryland’s proposal to continue setting hospital prices while adding in a cap on all hospital spending. The state will limit hospital spending growth to 3.58 percent for the next five years, largely by giving each of the state’s 46 hospitals a firm budget to work within. That level of growth would be tied to the projected, overall growth of the state economy.

I’m not particularly excited about this second part. I just do not know enough about the healthcare market to know if it works, but if it provides an incentive for other states to implement price controls, this would be a good thing.

The free market is not, and will never be, the salvation of our healthcare system.  That is what the past 60 years has shown.

You Know that Whole Inflation Running Wild Thing?

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Not so much:

Wholesale prices in the U.S. declined for a third month in November, reflecting lower costs for energy and cars.

The 0.1 percent drop in the producer-price index followed a 0.2 percent decrease the prior month, a Labor Department report showed today in Washington. The median estimate in a Bloomberg survey of 77 economists called for no change. The so-called core measure, which excludes food and energy, rose 0.1 percent.

Prices of goods and materials used in the earlier stages of production fell for a second month as slow improvement in global markets limits demand. Scant signs of accelerating inflation indicate Federal Reserve policy makers meeting next week have more room to maintain their unprecedented $85 billion in monthly asset purchases in order to help spur the expansion.

“Inflation remains quite tame,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, who correctly projected the drop in prices. “Over the course of the next year, the core numbers will drift up a little bit as the economy remains healthy and unemployment keeps falling.”

An important thing to note is that the inflation hawks have been wrong on everything this time around.

Abenomics is Working

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If you believe, as I do, that much of the cause of the lost decade(s) in Japan is deflation/disinflation, then the news of consumer prices rising in Japan is an unalloyed good:

Consumer prices in Japan rose at the fastest pace in five years in October, suggesting policymakers’ attempts to end years of deflation are working.

Consumer prices, excluding food, rose 0.9% from a year earlier. Prices have now risen for five months in a row.

Japan has been battling deflation, or falling prices, for best part of the past 20 years.

It is seen as a major drag on its economy and policymakers have unveiled a series of measures to end the cycle.

While falling prices may sound good to those experiencing inflation, they hold back economic growth as consumers and businesses tend to put off purchases in the hope of getting a cheaper deal later on, which hurts domestic demand.

………

Japan’s central bank has set a target of achieving an inflation rate of 2%.

I think that the central bank is being too timid. I think that their target, at least over the next 2-5 years, should be more, somewhere between 4% and 6%, but the admittedly anemic 0.9% rate is better that what has been the trend for a very long time.

Economists Finally Get a Clue

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I called for this at the start of the financial crisis, and finally many economists have begun to realize that there is such a thing as inflation is too low:

Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.

 Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.

 The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.

 The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers’ wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record.

 “Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about,” Kenneth S. Rogoff, a Harvard economist, wrote recently. “It should be embraced.”

Low inflation favors the rentiers over the producers.

Of course, the economists, are talking about maybe moving the targeting from 2% to 3%, and I think that we should target 6%, but I’m an engineer, not an economist, dammit!*

*I LOVE IT when I get to go all Doctor McCoy!!!

Remember When I Said that It’s Not the Cost of Healthcare, It’s the Price of Healthcare*

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Well, the New York Times just looked at the price of a 1 liter bag of saline solution, and it ain’t pretty:

It is one of the most common components of emergency medicine: an intravenous bag of sterile saltwater.

Luckily for anyone who has ever needed an IV bag to replenish lost fluids or to receive medication, it is also one of the least expensive. The average manufacturer’s price, according to government data, has fluctuated in recent years from 44 cents to $1.

Yet there is nothing either cheap or simple about its ultimate cost, as I learned when I tried to trace the commercial path of IV bags from the factory to the veins of more than 100 patients struck by a May 2012 outbreak of food poisoning in upstate New York.

Some of the patients’ bills would later include markups of 100 to 200 times the manufacturer’s price, not counting separate charges for “IV administration.”

And on other bills, a bundled charge for “IV therapy” was almost 1,000 times the official cost of the solution.

It is no secret that medical care in the United States is overpriced. But as the tale of the humble IV bag shows all too clearly, it is secrecy that helps keep prices high: hidden in the underbrush of transactions among multiple buyers and sellers, and in the hieroglyphics of hospital bills.

At every step from manufacturer to patient, there are confidential deals among the major players, including drug companies, purchasing organizations and distributors, and insurers. These deals so obscure prices and profits that even participants cannot say what the simplest component of care actually costs, let alone what it should cost.

And that leaves taxpayers and patients alike with an inflated bottom line and little or no way to challenge it.

………

But even before the finished product is sold by the case or the truckload, the real cost of a bag of normal saline, like the true cost of medical supplies from gauze to heart implants, disappears into an opaque realm of byzantine contracts, confidential rebates and fees that would be considered illegal kickbacks in many other industries.

………

The charges included “IV therapy,” billed at $787 for the adult and $393 for the child, which suggests that the difference in the amount of saline infused, typically less than a liter, could alone account for several hundred dollars.

………

Eventually the head of the family, an electrician’s helper who speaks little English, complained to HealthFirst, the Medicaid H.M.O. It paid $119 to settle the grandmother’s $2,168 bill, without specifying how much of the payment was for the IV. It paid $66.50 to the doctor, who had billed $606.

Ms. O’Neill defended the markup as “consistent with industry standards.” She said it reflected “not only the cost of the solution but a variety of related services and processes,” like procurement, biomedical handling and storage, apparently not included in a charge of $127 for administering the IV and $893 for emergency-room services.

The patient, a financial services professional in her 50s, ended up paying $100 for her visit. “Honestly, I don’t understand the system at all,” said the woman, who shared the information on the condition that she not be named.

Dr. Frost, the anesthesiologist, spent three days in the same hospital and owed only $8, thanks to insurance coverage by United HealthCare. Still, she was baffled by the charges: $6,844, including $546 for six liters of saline that cost the hospital $5.16.

At White Plains Hospital, a patient with private insurance from Aetna was charged $91 for one unit of Hospira IV [saline] that cost the hospital 86 cents, according to a hospital spokeswoman, Eliza O’Neill.

The charges all stem from a case of food poisoning  in upstate New York, where people were collected by ambulances and sent to emergency rooms.

This is why price controls are necessary.  When you are, “lying on the ground barely conscious,” the market ceases to function.

*Here, and a lot on the Stellar Parthenon BBS as well.

I Think that We May Have Identified Why College is So Expensive

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And the truth from the most unlikely of sources, the New York Post:

City College President Lisa Coico’s Upper West Side home is just four subway stops from the Manhattanville campus, but Coico is chauffeured the two miles to work and back every day in a state-issued Buick.

Coico, whose salary is $300,000, is among nearly 70 SUNY and CUNY officials who enjoy the use of taxpayer-funded wheels and sometimes a driver. In Coico’s case the driver is a college public-safety officer.

In 2009, after The Post exposed the number of commissioners chauffeured to their jobs, the state cracked down on the practice, as well as the personal use of vehicles by agency heads. But the university systems set their own policies.

Both the SUNY and CUNY chancellors have cars and drivers. CUNY Chancellor Matthew Goldstein valued the personal use of his car last year at $14,985, the highest in the state.

College presidents are entitled to cars, as well.

The Ivory Tower execs are joyriding while students are struggling to meet soaring tuition, after trustees in 2011 approved $300-per-student increases for five years for the state and city college systems. CUNY students now pay more than $5,000 per year.

This is kind of a classic result of anti-competitive cartels.

The top universities in the nation have been colluding on tuition, fees, and financial aid for decades, they started in the 1960s, when the alternative to college was the Vietnam war, and once they stopped competing on price, they bid for professors, they build gold plated housing, and they overpaid administrators.

This is what happens with a cartel. They continue to compete, they just no longer compete on price, which leads to more spending on non core “bling”, which increases costs, which increases tuition.

Rinse, lather, repeat.

It doesn’t help that the US government is playing banker for all this, and refuses to institute meaningful cost controls.

H/t Atrios.

The Germans Used the Euro to Exported Inflation

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Paul Krugman looks at the German economy at the start of the Euro, and compares it to the Spanish economy now, and observes that the Germans painlessly devalued relative to Europe as the Euro created inflation in the periphery:

1. Thanks to the giant housing bubble, Spanish costs got much further out of line than Germany’s ever did, so the required adjustment is much bigger.

 2. Germany got to do its adjustment in the face of a relatively strong European economy; Spain is being asked to adjust in the face of a depressed Europe sliding back into recession.

 3. In part because of this difference in overall macro conditions, but also because Germany doesn’t have a housing boom and is actually engaging in a bit of austerity on its own, the burden of adjustment this time around is falling much more on deflation by the overvalued country.

 ………

 You can see just how much harsher Spain’s adjustment is, and how much less help it’s getting from rising wages in the rest of the eurozone. Basically, Germany is refusing to do for Spain what Spain did for Germany in the past.

 And the result of all that is incredibly high unemployment.

German banks fueled speculative bubbles in the periphery, which raised costs relative Germany, and so made Germany’s labor markets relatively cheap.

I’m beginning to think that ending the Euro is the only way to save the EU.

Platinum Coin Seigniorage Is Starting to Get Mainstream Coverage

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Joe Firestone notes that we are starting to see coverage in the media of the trillion dollar platinum coin:

Did the MSM’s new wave of commentaries on platinum coin seigniorage (PCS) miss the really big story about it? Of course, I think it did, and I’ll continue my review of the MSM commentaries with the efforts of Chris Hayes at MSNBC, substituting as host on the Rachel Maddow show (12/05 at 9:20 PM); and John Carney at CNBC (12/06 at 11:54 AM). This is my second review post on this subject.

Platinum Coin Seigniorage is the idea that the US Treasury can use its right to print coins or arbitrary value, (the Federal Reserve has this power with regard to paper and electronic currency) which can then be used to pay down the debt by depositing at the Federal Reserve.

I think that this is a good thing, and so does Firestone, but he takes issue with a couple of points made by Hayes and Carney.

First, he objects to their characterization that such an action is unlikely to happen. I disagree.

I understand his point, that the legal and economic barriers to doing this are not great, but the psychological and political barriers, particularly for two people as wedded to economic and financial orthodoxy as Barack Obama and Timothy Geithner does make the possibility that this strategy would be implemented to be vanishingly small.

The area where I disagree is his argument that using the coin won’t cause inflation.

While it is clear that if the coins are used exclusively to retire debt held by the Fed will not have much inflationary effect, Federal Reserve held Treasury Bonds are basically an accounting trick.

That being said, if you start retiring other debt, that money has to go somewhere, and if the trillions parked in US government securities need to find another place to park, one could expect these funds to slosh around and this would have an inflationary effect.

My more significant area of disagreement is his assumption that inflation is a bad thing, which is why he argues against the potential inflationary impacts.

I do not think that inflation right now is a bad thing. Given that we have a significant debt overhang, and inflation serves to devalue debt, favoring the debtor over the creditor, I think that inflation is a good thing.

In a very real way, we are in a position very similar to that at the end of the 1800s, when William Jennings Bryan gave his “Cross of Gold” speech.

Seigniorage is today’s free silver, and much like free silver, it is not a likely to be implemented, except as a bargaining strategy.

Another ½%!!!! Woot!!!!

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The Federal Reserve has made a major change in its targeting, raising its inflation target tfrom 2% to 2½% and stating that they will continue quantitative easing until unemployment drops below 6½%.

This is a very big deal for two reasons, first, it’s the first time that the Fed has ever linked its rates to employment levels, and second, it’s a marked departure from their previous statements which said stuff like, “ZIRP for the nest 6 months, and then we reevaluate”.

What they are doing now is much clearer, and makes it much easier to determine near term behavior.

I’m not a big fan of the “confidence fairy” theory of economics, particularly when used to justify “expansionary austerity”, but the opacity of the Fed has not served the economy; all it has done is to reinforce the “high priesthood” aspects of the Federal Reserve’s reputation.

Fed statement after the break:

Press Release

Federal Reserve Press Release

Release Date: December 12, 2012

For immediate release

Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

 Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

 To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

 The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

 To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

 Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed the asset purchase program and the characterization of the conditions under which an exceptionally low range for the federal funds rate will be appropriate.

What Atrios Said

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The basic thinking seems to have been that it was wonderful for university to be free back when most people who attended were quite wealthy, but once the masses started getting ideas about going it was time to force them to pay. And there again is your generational divide.

—Atrios, on the institution of penury inducing tuitions at British colleges

It’s actually a bit more contemptible than that.

The skyrocketing college costs began with two things:

  • Collusion by the Ivies and similar elite institutions on tuition and financial aid.
  • It started in the 1960s, when the alternative to going to college was getting drafted, and playing hide and seek with a really angry guy with an AK-47 in rice paddies.

OK, this has Been a Good Week for Economic News

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Yesterday, we saw the best number for initial jobless claims in 3½ years, dropping to 366,000, with the 4-week moving average dropping to 387,750, though continuing claims rose marginally, and extended claims jumped by almost 10%.

Still, overall, this is good news, particularly when juxtaposed with the fact that inflation is still nowhere to be seen, though the “very serious” central bankers are still chasing that phantom.