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December 13, 2016 | Economists on Verge of Cheering

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

The Bureau of Labor Statistics report on Import and Export Prices shows import prices fell 0.3 percent in November following increases of 0.4 percent and 0.1 percent the 2 previous months. The drop in November was primarily led by decreasing fuel prices.

U.S. export prices also declined in November, edging down 0.1 percent, after a 0.2-percent increase the previous month.

Year over year, import prices are down only 0.1%. Economists have bells and whistles in hand, ready to cheer the moment consumers have to spend more money to get less goods. According to economists, paying more to receive less is a good thing.

The chart below shows clear “progress“.

Import Prices

import-export-prices-2016-12-13

Export Prices

import-export-prices-2016-12-13a

Easy to Predict

Anyone watching oil should have known import prices would decline this month. Yet, the range of guesses by economists sampled by Bloomberg Econoday was amazingly wide.

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The Econoday parrot was of course squawking about the good economic news regarding import prices: “There is one area of improvement and that’s the total year-on-year rate which is also flat, at minus 0.1 percent, but still posting the best result in 2-1/2 years.”

Hooray! Economists on Verge of Cheering

I refuted such economic illiteracy earlier today in Oh No! Deflation Worsens in Switzerland.

This is a very important topic, and completely misunderstood by economists and writers who do nothing but parrot alleged academic wisdom. I repeat what I said earlier.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

  1. My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
  2. My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Meanwhile economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

Mike “Mish” Shedlock

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December 13th, 2016

Posted In: Mish Talk

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