Submitted by EconMatters on 08/19/2014 15:01 -0400
Welcome to Middle-Income Family American Style
Yesterday the USDA`s annual report laid out another 2% increase in the cost to raise a child in the United States, and this only includes the costs associated with the age of 18, which any modern family realizes doesn`t include college, and the fact that many kids either live at home, or require financial help long after the age of 18.
So just as it has become a modern necessity for many Americans to have both parents working, unlike the 1950s era where one parent could support an entire family, not only do both parents have to work to afford the increased costs of modern living, but most Americans based upon these figures cannot rationally afford to have kids!
Fed doing God`s Work Raising Prices
So the Federal Reserve can think they are doing God`s work by trying to raise inflation in the economy, a measure that we have said under-reports the real inflation in the economy due to constant 'reporting measure adjustments' but every year it costs more and more to raise a child these days, regardless of recession or not, real prices never drop in the overall economy.
Inevitable Mismatch
This is just another example of the failure of print and expect wages to keep up with inflation Federal Reserve policy, the methodology is flawed, wages will never keep up with inflation, if inflation is artificially manipulated by the Central Bank, because it doesn`t reflect the market forces in the economy, which will always reflect the wages side of the equation, resulting in the mismatch that we have had in this area for such a long time that it has become a discernable trend in society.
Inflation Levels Should Reflect Economic Conditions
Inflation should actually have been negative during the recession and the financial crisis, prices should have reflected the slowdown in the economy for many years, but the Federal Reserve in all their wisdom printed like paper was going out of style, and caused prices to go up on average at a 2% clip, even during an economic slowdown with high unemployment. How the hell are wages ever going to keep up with inflation if one measure is manipulated by the Federal Reserve through artificial means, and the other measure reflects the actual economic conditions of a financial slowdown?
Logical Policy Flaw
This is the crucial point that central bankers of today, and the question that ultra-dovish central bankers like Janet Yellen and Ben Bernanke fail to answer, it is the biggest flaw in their entire economic methodology, and what they believe in from an economic theory standpoint! Wages can never keep up with inflation unless both parts of the equation are a true reflection of actual market forces, and the up and down variances of the natural business cycle.
Do Prices stay constant once there is 'substantial Spike' in Wages?
So the Federal Reserve wants wages to keep up with the rate of inflation, and they cannot raise interest rates, i.e., more cheap stimulus which raises inflation even more, until they see a 'substantial spike' in wages? What does the Fed think will happen to prices if wages do substantially spike? Do they think inflation will stay constant, and wages will increase, and the gap will narrow? What will happen is that once wages spike substantially, then prices will spike even more, so in relative terms wages will never narrow the gap between wages and inflation, if anything it will widen! This has been proven by the last 35 years of central bank economics in the United States. This isn't some theoretical economic white paper, we have actual real world evidence of cause and effect regarding failed central bank policy.
Read More >>> The Bond Market Explained for Mohamed El-Erian
Get the Stimulus Equation Balanced if Goal is to have Wages Keep Pace with Inflation
If Janet Yellen really wants wages to keep up with inflation, that is fine I am all aboard, but then you need to change central bank policy, instead of asset purchases meant to juice up markets and inflation, take this same money and start sending out stipend checks to workers and consumers, or at least take half the stimulus, so $2.25 Trillion and send this out in the form of "Keep Up With Inflation Checks" to workers to balance out the artificial inflation component which would then come down to around $2.25 Trillion of asset purchases under my revised plan, that is if the Fed really cares about wages truly keeping up with the rise in inflation each year!
Either Complete Propaganda or A and Not A Invalid Argument
The Federal Reserve just isn`t very logical in what they are saying on one hand, and their actual policy decisions on the other hand. It seems before my lifetime ends it is going to cost over $1 million by the USDA`s measure to raise a child, but yeah there is no inflation in the economy, yeah I am sure employers are going to subsidize this cost in the future, this is the fallacy of consistent artificially, government mandated inflation to monetize the debt by the Federal Reserve, overall it lowers the 'quality' of standard of living in the United States for the middle class everything else being equal.
Only the Wealthy Retire at 55 these days!
The main reason is that it is not reflective of actual market forces in the economy, and consistent artificially manipulated inflation, which is bad enough on its own without government intervention, makes it more and more difficult for middle class Americans to afford their own home, and raise three kids these days without sacrificing something along the way, like the kids actually being supervised by family, and not being farmed out to outsourced daycare.
Read More >>> Why 401K Investors Should Move to Cash
When Fed does worry about Inflation, due to 'under-selling' basically end of world scenario!
Good thing the Federal Reserve isn`t worried about inflation pressures in the economy, another 2% rise is just noise, but I will now know when the Fed is worried about inflation, that it is an extreme epidemic and take extreme measures in the financial markets for Armageddon, because the Fed`s Disney World just ended! Moreover, it is obvious that when the Fed does start worrying about inflation, not only is it too late, but it is 1970s too late!
via Zero Hedge
