Tags: Stockman | Fed | inflation | consumer

David Stockman: The Fed's 2 Percent Inflation Goal Is a Con Job on America

By    |   Monday, 13 October 2014 06:26 PM

The Federal Reserve mantra that inflation needs to be higher is a "con job" — more inflation just means more declines in Americans' already depleted purchasing power, according to Reagan White House budget chief David Stockman.

In his Contra Corner blog, Stockman said that even after the Fed has missed its 2 percent inflation goal for 28 straight months, consumers' savings and paychecks have still lost 3.3 percent of their value during that time.

How could it be better if inflation had been higher and consumer wallets had shrunk even more, Stockman asks.

"Indeed, the very idea that the hard-pressed main street consumers of America — most of whom have virtually no discretionary income to spend after the basics anyway — will go on a buyer's strike if they don't get enough inflation is just plain ludicrous," he wrote.

Stockman said that journalists, economists and Wall Street types who parrot the central bank line on the need for more inflation should examine their reasoning.

"Supposedly, if inflation is a tad on the weak side, or even remotely veers off in the direction of the dreaded 'deflation' zone, consumers will sit on their wallets waiting for prices to fall further. Soon you are sliding down the slippery slope into the maws of a deflationary malaise, and then Great Depression 2.0."

According to Stockman, the success of Wal-Mart alone, which can be attributed to its lower-priced goods, proves his point.

"It is absolutely certain that Wal-Mart’s average prices did not grow anything close to the 2.4 percent CAGR [compound annual growth rate] embedded in the BLS [Bureau of Labor Statistics wholesale price index for all finished consumer goods less food]. Yet its domestic sales nevertheless soared by orders of magnitude more than the growth of consumer spending during the same period," he explained.

"The Wal-Mart saga alone knocks the 2 percent inflation story into a cocked hat. The latter is a complete myth made of whole cloth."

In a column for Project Syndicate, Nobel laureate economist Joseph Stiglitz said new government data show that spite the economy's "supposed recovery" from the Great Recession, U.S. median household income, adjusted for inflation, is now below the level it was a quarter century ago.

"In the U.S., upward mobility is more myth than reality, whereas downward mobility and vulnerability is a widely shared experience. This is partly because of America's healthcare system, which still leaves poor Americans in a precarious position, despite President Barack Obama's reforms," Stiglitz wrote.

"Those at the bottom are only a short step away from bankruptcy with all that that entails. Illness, divorce, or the loss of a job often is enough to push them over the brink."

Stiglitz pointed to the latest Census Bureau annual income and poverty report, which shows ordinary Americans' incomes are stuck in a quagmire.

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The Federal Reserve mantra that inflation needs to be higher is a "con job" — more inflation just means more declines in Americans' already depleted purchasing power, according to Reagan White House budget chief David Stockman.
Stockman, Fed, inflation, consumer
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2014-26-13
Monday, 13 October 2014 06:26 PM
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