Let me take this post to write an open letter to Fed chief Janet Yellen to explain what is going on in the US economy. It appears she needs it
At her press conference on Wednesday Yellen said of the inflation rate being suppressed. “I will not say that the committee clearly understands what the causes are of that.”
Dear Chair Yellen,
I am confounded by your committee’s lack of basic understanding of the velocity of money and it’s effect’s on the inflation rate.
Over the last 10 years wages for the great unwashed middle class are flat. Some studies suggest that when inflation is figured in wages are at the same level as 1995.
A large minority of the American workforce over the last eight years have lost decent paying jobs that supported them having a house and a car and medical insurance, and now they are forced to take multiple part-time jobs with no benefits.
Many of this group have been put on disability, due to “injury at work” before their expanded jobless benefits ran out.
These two asterisks above allow for the Bureau of Labor Statistics to state that the unemployment rate is at the unrealistic level we have today.
Another aspect under your purview is the lack of interest paid on the meager savings for middle America. Banks have been forcing their depositors to get pennies for each $100 they put in a savings account. While at the same time the banks are putting their cash on the Fed’s balance sheet and collecting a handsome (comparatively) rate of return.
Unlike the people you and your committee members interact with, most of Americans cited above are not in the stock market. So now I can see why you feel it’s “a mystery” why inflation is subdued.
Another point of contention. It’s a convenient narrative for you and your committee members to allow the press to say that Amazon is decimating the US retail sector. But let’s face it, many Americans who used to shop at the malls can no longer aspire to own a new set of clothes each season.
First of all, they no longer have a job that requires anything more than a pair of stretch pants and a shirt or a pair of jeans and a team jersey. So why would they need to buy expensive clothes. They are not doing any fine dining or entertaining on their depressed wages.
These Americans have hard decisions each and every week on how to spend their meager wages or monthly check.
They shop the rim of grocery stores. The outside of the store where cheap protein lives. Milk, cheese, eggs and whatever meat is on sale. This is how they survive, not thrive.
Ms. Yellen, nothing I have laid out in this letter suggests that money has any velocity. So if a dollar earned does not translate into many dollars spent as it moves through the system, because many members in that system are either fearful of the future or struggling with the present, then you have stagflation, not inflation.
It’s no mystery to me why there is a lack of inflation, all the policies over the last decade have been put forth to curb economic growth and keep a tight reign on inflation. Just ask anyone you see shopping the rim of the grocery store, if you even go there, yourself.