November 18, 2016

"The dollar held a nine-day advance against the euro, its longest winning streak since the shared currency’s debut in 1999."

"The U.S. currency touched its strongest level in almost a year, driven by expectations for U.S. President-elect Donald Trump’s reflationary economic policies...."

Reflationary? Did we just vote for inflation?

57 comments:

Mac McConnell said...

This might be a good time to replace my Burberry trench coat.

David Begley said...

A little inflation is good. Zero interest rates are bad. But what we really, really need is 3-4% growth.

rhhardin said...

The headline would be the value of the dollar going up, which would be the opposite of inflation, but it's all nonsense yo-yo news anyway. Stock market is up, stock market is down.

If the government spends by selling debt, it's not inflationary. It takes the dollars out of circulation before spending them back into circulation. Taxing has the same effect, of taking the dollars out of circulation before spending them back.

robother said...

Just reflating the economic football to its proper size, Ann, an economy that is competitive.

Quaestor said...

Having something people are willing to pay interest to borrow is the difference between a national fiat currency and Monopoly money.

Todd said...

Among other things, you can expect the press to suddenly notice that these low/no interest rates that have been the product of the current administration as well as the policy of "quantitative easing" (printing money like it grows on trees) is suddenly not so good. That it hurts the poor and retired. That it eliminates earned interest on savings. That it erodes the value of the dollar.

Isn't it funny how when rates are low and a D is in control, that is good because businesses can borrow cheap but when an R is in control, it is bad because it tanks earned interest on savings. When rates are high and a D is in control, that is good because retired folks earn more interest but when an R is in control, is bad because the lending market is too tight. Once could almost be forgiven for believing there is some sort of agenda behind reporting the news...

dreams said...

That's what the fed has been trying and failing to produce for years with their low interest rates. I suggest some morning viewing of CNBC or Fox business to become more financially literate.

Ignorance is Bliss said...

Reinflationary? Did we just vote for inflation?

Reflationary, not reinflationary.

Reflation:

A fiscal or monetary policy, designed to expand a country's output and curb the effects of deflation. Reflation policies can include reducing taxes, changing the money supply and lowering interest rates.

Sebastian said...

"Did we just vote for inflation?" We will find out we voted for a lot of things, including some things we voted for.

rehajm said...

Funny how the new normal and secular stagnation are no longer in fashion, as if they disappeared overnight for some reason.

Since they don't have a stock market crash to hang around Trump's neck they'll try 'stagflation' for a quarter or two until the huuuge GDP growth numbers roll in.

traditionalguy said...

The dollar buys more foreign goods. Ford's just voted for the new TrumpAmerica as a good plant location And sure enough some already feel tired of winning so much.

320Busdriver said...

A growing economy and moderate inflation help to minimize the impact of the enormous national debt and minimize the likelihood of a debt crisis.

Quaestor said...

With Obama's encouragement Yellen has been deflating the dollar in the vain hope of stimulating growth. The problem with that policy is the effect it has on cash reserves. Money migrates where it can grow. By holding down interest rates Yellen was bleeding cash out of the US economy and into foreign money markets. Fixing that stupid policy means a bit of inflation.

Skipper said...

Today's crisis du jour.

dreams said...

"With Obama's encouragement Yellen has been deflating the dollar in the vain hope of stimulating growth. The problem with that policy is the effect it has on cash reserves."

That's rich, if Obama and his incompetent hacks were more pro growth then the Fed wouldn't have had to do all the heavy lifting. Look for eventual 3 to 4% growth the next few with Trump.

PrincetonAl said...

Inflation - as a monetary phenomenon - is reflected by a weakening currency not a strengthening one. Printing more money causes inflation. Taking on a lot of government debt can cause devaluation of currency because of anticipation of printing more currency to pay off debt.

Printing currency devalues it and would cause a drop against the currency. Highly inflationary countries (Argentina, Venezuela) have their currency drop over time. Look even at India, Turkey, etc

Maintaining a stable currency, more market oriented interest rates, low deficits will strengthen a currency.

A strengthening suggests that the market is anticipating fiscal discipline out of Trump, rising interest rates from the Fed, or something else that would suggest dollar is a better refuge (instability or other things that would Mean dollar denominated assets do better / safe haven)

Lot more could be said but hope that helps.

Bob Boyd said...

Reflation
Trump was going to try inflation, but Tom Brady called him and talked him out of it.

tcrosse said...

Wait a minute. Obama is still POTUS, right ?

dreams said...

The weak dollar never works and we should remember that we had a strong dollar under Reagan with 3 to 4% growth. A strong dollar is good. The liberals think they can game the dollar like they game everything else, liberal losers. Good riddance to Obama and his incompetent hacks.

mockturtle said...

If the dollar had lost ground, we'd be hearing about that, too. Can't win.

dreams said...

We going to see a big difference when our country is run by talented and dedicated people instead of anti-American affirmative action hacks.

Ann Althouse said...

@Ignorance is Bliss

But we haven't experience deflation, so the word must be used in the sense of getting more inflation. Or do economists call a decrease in the rate of inflation "deflation" and "reflation" is getting back to the old rate of inflation?

dreams said...
This comment has been removed by the author.
Psota said...

During the campaign (primary, not general) Trump went on one of the business channels and said the way to deal with the national debt was through either default or "printing more money." He definitely came across as approving of the "printing more money" option. We voted for inflation in some manner, even if we didn't realize it.

320Busdriver said...

Or do economists call a decrease in the rate of inflation "deflation" and "reflation" is getting back to the old rate of inflation?

No

320Busdriver said...

Were there any periods of major deflation in U.S. history? By Investopedia | April 7, 2015 — 8:11 AM EDT

A:
In historical contexts, the second half of the 20th century in the United States was unique because of how little deflation actually occurred. In fact, the dramatic and consistent price increases from 1950 to 2000 was unparalleled since the founding of the country. U.S. consumers saw dropping prices between 1817 and 1860 and again from 1865 to 1900. The most dramatic deflation in U.S. history took place between 1930 and 1933.


Read more: Were there any periods of major deflation in U.S. history? | Investopedia http://www.investopedia.com/ask/answers/040715/were-there-any-periods-major-deflation-us-history.asp#ixzz4QNH42Hv9
Follow us: Investopedia on Facebook

Ignorance is Bliss said...

Ann Althouse said...

But we haven't experience deflation, so the word must be used in the sense of getting more inflation.

I agree that the goals include mild inflation combined with strong growth.

Christopher B said...

Every "New Normal" is gonna become a "New Crisis".

Gahrie said...

We didn't vote for inflation, but it is coming, and it will be blamed on Trump and the Republicans.

Paul Zrimsek said...

There will be as much, or as little, inflation as the FRB decides there will be. Nothing Trump does will matter in that regard. If he goes for fiscal stimulus, the Fed will be contractionary. If he goes for fiscal austerity, the Fed will be expansionary.

rehajm said...

But we haven't experience(d) deflation...

The deflationary period referred to generally means the period going back to 2008-2009, where there was a meaningful reversal in the rate of inflation (here's that move vs. a longer time period, highlighting the significance).

Clearly not simply a reduction in the rate of inflation according to this measure (CPI).

Reflation here is a general reference to a possible consequence of the anticipated change in fiscal policies- lower tax rates, increased government spending via infrastructure, etc. as well as reaction to signaling from the FED of a reversal in long standing interest rate policy suggesting transition from the period of de- or low in- flation to one of higher inflationary expectations.

Qwinn said...

Did the Professor just inadvertently reveal who she voted for?

Ann Althouse said...

"Did the Professor just inadvertently reveal who she voted for?"

No. "We" is the collective pronoun for all of us Americans: We, the People.

We, the People voted for Trump.

Doesn't matter what I did. He didn't win by one vote.

wwww said...


Am hoping this works out, because the alternative is not good.

The election rhetoric didn't much discuss policy but Yes Americans voted for loose monetary policy, governmental spending on infrastructure, and no benefit cuts to medicare/ social security. Cuts in taxes but no cuts to the primary budget busters. Americans voted for repealing the mandate to purchase insurance while allowing for coverage of preconditions.

Because everybody wants a pony.

"Doesn't matter what I did. He didn't win by one vote."

It doesn't matter if you voted in California. It matters in WI, MI & Penn. He didn't win by 1 vote but it was tight. Still counting in MI. Last I saw his margin for the win was about 100,000 in MI, WI, and Penn. Lost the popular vote by more then 1 million. California is still counting because they've apparently got issues on getting this done. Last I saw there were more then 1 million votes to be counted in Los Angeles County.



Todd said...

wwww said...

California is still counting because they've apparently got issues on getting this done. Last I saw there were more then 1 million votes to be counted in Los Angeles County.

11/18/16, 10:57 AM


Is that estimate/number inclusive or exclusive of the illegal/dead-people votes?

wwww said...


The weak dollar never works and we should remember that we had a strong dollar under Reagan with 3 to 4% growth. A strong dollar is good.

You don't think the current dollar is strong? It's weak against which currency?

traditionalguy said...

Stock prices are already into inflation.

wwww said...


Is that estimate/number inclusive or exclusive of the illegal/dead-people votes?

For every Presidential election California is always a slow counter. Don't know why they can't get it together.

It sounds like you think California would have voted for Trump if not for dead people voting? That seems unlikely.

damikesc said...

Trump was going to try inflation, but Tom Brady called him and talked him out of it.

I laughed.

Darrell said...

80% chance Althouse voted for Hillary. 20% she went for Jill Stein. Nobody accuses their candidate of criminal sexual assault and then votes for them. Althouse didn't see Hillary being guilty of a single felony. Truth is not a slur. I think that Althose puts together the best remaining blog on the internet.

Todd said...

wwww said...

It sounds like you think California would have voted for Trump if not for dead people voting? That seems unlikely.

11/18/16, 11:11 AM


No. I hold out no such illusions. I do hope CA continues to get what they want, good and hard. I also hope that they (nor any other state, city, county or town) gets any sort of bail-out. Adults clean up their own messes.

HoodlumDoodlum said...

Ann Althouse said...Reflationary? Did we just vote for inflation?

Exactly how much lower did you expect rates to go, Professor?

You and I both know if interest rates had been this historically low for this historically long under Republican president there would have been incessant Media articles/stories about how difficult it is for poor ol' Grandma to live off of her life savings (held in CDs and safe long term bonds, of course) due to mean ol' Wall Street suppressing the return she can make to help boost equity prices so they can buy another Porsche or two. She's practically eating dog food! And of course it'd be a huge deal since there are so many Boomers at or very near retirement age...

Somehow under President Obama that story just never got written. Weird, huh?

HoodlumDoodlum said...

Dang, Todd beat me to it at 8:26. I second Todd.

TreeJoe said...

Let me start this comment by stating I think the stock market is overpriced right now and regardless if we enter a brief period of GDP contraction (aka recession), the market is going to correct.

Nonetheless, when you look at the dollar growing weaker and see US stock markets going up - you have to take into account that to some point the market (priced in dollars) goes up/down because the dollar is worth more/less.

So when you look at the market over the last 10 days and you see a dollar strengthened by 3.1% and US markets (priced in dollars) up ~3-4% as well - that's quite an unusual combination of market reactionary forces.

I do think it's humorous that the US markets are basically reacting as if a less regulatory administration, focused on balancing trade and improving trade markets for the US, focused on puttting a dent in chinese currency regulation and on encouraging US focused manufacturing...

That those markets, who are made up of people who don't like the words Trump says, are basically throwing a party.

It's as if people who understand how growth is achieved are happy about Trumps election, even while many of them think Trump is racist and everything-phobic.

David said...

"Did we just vote for inflation?"

Most likely, yes. Trump wants to cut taxes and increase infrastructure spending. He says he wants to do most of the infrastructure with private investment. That's a nice idea, but "for profit" infrastructure is going to work only in wealthy and economically viable areas where the projects are attractive to investors.. For the more depressed areas (Trump's core constituency) public money is going to be needed. Ditto public money with the ramping up of defense spending. And interest rates will rise (they could easily more than double at the short end of the yield curve).

All of this means larger deficits and probably an increase in economic activity. Trump will try to find ways to increase wages, which is inflationary, and a trade war (which I think he will try to avoid) could compound the pressure.

Anyway you slice it, look for spending and deficits to rise.

The theory is that this has to be done to stimulate the economy. Based on the tepid growth of the last 8 years, that theory may be correct. The additional theory is that incomes will also increase, thus increasing tax receipts and trimming the deficit.

And there is the possibility of VAT, which is a direct and immediate increase of living cost.

Much of this would have been on the horizon under Clinton as well, but with additional regulation to crush the benefits of stimulus.

We are in a tough spot. We also can't keep doing what we have been doing, and slashing federal spending is probably suicidal economically at the present time. The good news is that there are so many unmet needs worldwide the possibility of an economic boom is real also. Booms are inflationary, but not as destructive as borderline deflation (our recent past) or stagflation.

I think Trump will either accede spectacularly or fail spectacularly. Stay tuned.

lgv said...

Blogger dreams said...
The weak dollar never works and we should remember that we had a strong dollar under Reagan with 3 to 4% growth. A strong dollar is good. The liberals think they can game the dollar like they game everything else, liberal losers. Good riddance to Obama and his incompetent hacks.


A strong dollar is neither good or bad. It can be a symptom of something else that is good. Changes in exchange rate are just adjustments in the value of relative currency. A strong dollar helps some, hurts others. Depends on if you are net importer or exporter.

Reagan economic polices led to the growth, not strengthening of the dollar. The strengthening of the dollar came through the reduction in very high rates of inflation during the Carter era.



eric said...

Printing more money isn't what it used to be.

Things change. Always remember that.

Once upon a time they didn't print more money. Instead, they made their coins smaller. Then we learned about money in a different way and started to print currency. Now, we do something different. Ones and zeros on a computer screen.

You can go through life now without any currency.

You can use a credit or debit card.

But where does that money come from? The printing of currency?

Some of it. But the government gives banks the authority to turn one into many. Every dollar you give them to hold for you, they can lend it out to someone wanting to borrow. But it's not 1 to 1. The amount changes.

So, without printing more money, we increased the "money" supply and no one noticed.

Big Mike said...

We've had inflation for a while. Tell me, Professor, do you still pay the same for groceries that you did four or eight years ago?

rehajm said...

Another way to think of this: We didn't just vote for inflation but the vote did move the FED from a state of deciding if it should be concerned about deflation or inflation to one where it will be concerned only about inflation.

SukieTawdry said...

A strong dollar favors importers. A weak dollar favors exporters. Sometimes a little inflation is a good thing. Striking the right balance is always the trick.

Anyway you slice it, look for spending and deficits to rise.

Trump claimed he will have the US economy so primed that money will just roll into Washington by the truck load and there will be plenty of revenue to pay for just everything including "investment" in economically depressed areas. Spending will necessarily increase, but there will be no deficits and acceptably low levels of inflation. If he actually pulls off this hat trick, I will certainly give him credit but expanding the federal government is not something I favor.

rehajm said...

I think the stock market is overpriced right now and regardless if we enter a brief period of GDP contraction (aka recession), the market is going to correct...

Does your valuation model account for the delta in EBITDA if we move from a corporate rate of 35 to 15 percent and a repatriation rate of 10 percent?

n.n said...

We voted for economic revitalization and deficit reduction.

n.n said...

We voted against disproportionate leverage to sustain short-term development that cause recurring misalignments.

Hagar said...

Bloomberg "reflation," WSJ "disinflation." I don't think either is a word.

khesanh0802 said...

The shift to the dollar is an indicator that many believe the US will be in better financial shape than Europe or other countries. If it were a reflection of inflation fears people would be leaving the dollar because it would be losing its purchasing power.

I have very little respect for financial writers who have to report on a daily basis. What they write today they will more than likely retract tomorrow. They generally have little more clue of what is moving the markets in the short term than casual observers like you and I.

JaimeRoberto said...

Somebody must be confused by the meaning of reflationary. Inflation causes a currency to weaken not gain strength.

Sayyid said...

"Did we just vote for inflation?"

Not really, at least as long as the Fed exists and doesn't go crazy.

Tariffs and trade wars would be a mixed bag: inflationary in that you can't produce products in America as cheaply as you can elsewhere, but deflationary in that they would slow growth and/or prompt a recession. A trillion dollar stimulus plan would be inflationary, and potentially pro-growth depending on how it's spent. Cutting taxes would be inflationary and pro-growth. Cutting regulations would be pro-growth, and growth is inflationary. Our now-overdue recession (speaking purely in terms of average time between them -- our pathetic growth rate under Obama has postponed it) will be deflationary.

But whatever ends up happening, the Fed would be expected to raise or lower rates to compensate. One would expect that they would try to get inflation into the 1-3% range and keep it there as long as the economy is growing. We might experience stagflation if they open the floodgates in response to a negative growth shock, though.

Ahh, macroeconomics. The world where "stuff happens, and then the Fed makes it unhappen."