Comments on: ‘Output Gap’ Indicates There Won’t be any Inflation

By: Tony

Tony — Fri, 30 Oct 2009 09:14:03 +0000

There is a feeling of “Iknew it!” as all my gut feelings and home made suspicions and theories are eloquently? and decisively bounced back at me through the writings of the Daily Reckoning and Money Morning writers. Sooo good to read some straight talk, that makes sense! . . .

By: Stan

Stan — Fri, 24 Jul 2009 07:21:37 +0000

This is my first time that I have been able to browse around and have found it very enjoyable Kind regards Stan

By: Stan

Stan — Fri, 24 Jul 2009 07:07:51 +0000

Your doing a great job

By: Reesaroo

Reesaroo — Tue, 30 Jun 2009 03:15:39 +0000

Kris,
First off, don’t get me wrong, I’m with you all the way that this Potential GDP guff sounds like utter rubbish. I’ve seen first hand the inflationary effects that drastically cutting production and productivity can have … you see, quite often it is very hard to turn it back on like a switch (especially if you have retrenched a number of skilled people from say the mining industry and they have now moved out of town and drive taxis or bag groceries).
However, I do disagree with your argument about inflation in Zimbabwe. Yes, their past GDP has been significantly higher than it is today, but it will take a great deal for its “Potential” GDP to rise out of the ashes. Also, if you consider Zimbabwe from a USD perspective, I’m sure things are a lot cheaper today than they were when I travelled there in 1999 (still, it might be difficult to buy a litre of petrol and buy a loaf of bread, even if you have USD).
Love your work … keep it up!

By: Ciao

Ciao — Tue, 30 Jun 2009 01:56:13 +0000

Inventory and demand are being ignored by both sides of the argument here. Juxtaposing retail sales having kept up better than expected and sharply lower merchandise import figures tells you what? A: Firesale prices of excessive inventories or goods in transit. This effect is enflamed by the withdrawal or sharply increased cost of inventory finance as banks and govt desperately seeks to protect just two classes of asset & underlying industry being real estate and financial services.
The merchandise economy is yet to be remeasured at the cash register in volume terms with cash accounting prices after the reduced supply side kicks in and the funny money supported commodity base of the AUD takes its due to increase import costs.
For mine all the short term focus is from the desperate spruikers knowing full well that it is the services economy is yet to feel the full weight once the firesale of excess inventory is removed.

By: Nick99

Nick99 — Mon, 29 Jun 2009 11:10:43 +0000

ref previous email please read PGTP and PTGP as PGDP – Potential GDP.

Senior moments coming up faster than expected

By: Nick99

Nick99 — Mon, 29 Jun 2009 07:42:39 +0000

Chris,

I can just about see how in an enclosed system (no exports, no imports) GDP could be less than a countries ‘potential GDP’ (whatever that is) but utterly fail to grasp how GDP can be greater than PGTP.

It is true that in the short term manufacturers can temporarily overproduce (>PTGP) and be forced to sell goods at a lower price but this would surely produce deflation and in very short order bankruptcy for the producer.

It is unfortunately all too obvious that the American building industry produced surplus housing along with inflation in that particular marketplace but that was entirely due to the increasing supply 0f cheap credit – another form of money printing – not because it produced a magical ‘positive output gap’.

This is one of the most blatant circular arguments I have ever heard and is another example of grasping at straws to support a position.

Bankthink of this type is precisely the half baked economic theory that got us into the current mess.