If it is a small crisis then yes you are probably right. But if it means hundreds of trillions then there will be no crisis as these numbers are just absurd. And hats why it is such a high number because each bank knows no one will pay.
Its kinda like making a bet for a million zillion dollars with your buddy. These are just gentlemens bets. Neither party would ever or even be forced to pay out.
<< <i>If it is a small crisis then yes you are probably right. But if it means hundreds of trillions then there will be no crisis as these numbers are just absurd. And hats why it is such a high number because each bank knows no one will pay.
Its kinda like making a bet for a million zillion dollars with your buddy. These are just gentlemens bets. Neither party would ever or even be forced to pay out. >>
Bets with a buddy require no down payment. Bets with derivatives (risk insurance) require expensive, payable premiums. The fact that they continue to place the expensive bets (with real money) indicates that they expect to collect on the insurance. Would you make monthly payments on a life insurance policy for a loved one if you didn't expect the policy to be honored?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
A hundred billion dollars will buy a whole lot of Senators, Representatives, lawyers and paralegals for crony legislation. And there's even enough money left over for a few well-placed folks in the Judiciary to make things work out a bit smoother in the long run. If you think that these derivatives are being torn up, you are simply wrong.
That's how a million zillion dollars gets stuck onto the national debt and socialized through things like the obamacare tax fiasco. (Remember - it wasn't a tax, until the Supreme Court suddenly said that it was a tax. Then it was no longer about healthcare and it was simply a coerced purchase of a crap product, for the first time in our history). The insurance execs that own and control their very own Senators and Representatives are happy to have another 20 or 30 million new customers, compliments of free tax money. Makes for great bonuses, once again. And this is so very, very wrong on every level.
If you believe that 2700 pages of the Dodd-Frank legislation was only to put a cap on certain consumer credit card interest rates, you are simply wrong. How hard would it have been to re-enact Glass Steagall by rescinding Graham-Leach-Bliley? Nope, couldn't do something that easy because the bigwig owners of our Senators and Representatives would never allow it.
The only mulligans being given out in banking finance are to the bankers. The taxpayers, i.e., actual "workers" are in their sights, every day. The system is 98% corrupt and it isn't going to change. Laws don't matter unless you are non-banking, or non-government.
You have to ask yourself, "how can I, with any conscience whatsoever possibly support this corrupt system?" Trading in paper supports the criminals and hurts people who work. Paper "profits"" are just a ploy.
Q: Are You Printing Money? Bernanke: Not Literally
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>The USD is still the #1 and will probably get even stronger with Europe falling apart. No loss of confidence in the currency means to me no hyperinflation. >>
True, but how long will the world or this country have confidence in a currency backed by nothing with exponentially growing debt and interest rates that can do nothing but increase? Don't know about you, but I don't see any scenario where the US debt starts to shrink back to any manageable size (or even just maintain). What about when interest payments on the debt total 50% or more of the US budget? Eventually the debt spiral will get out of control. I don't know when this will happen, but it seems like a certainty to me. Would like to hear the scenarios under which people here think the US can bring the growing debt problem under control. there's a limit to how much strength a nation can have - even if it is relative - when the debt becomes a crushing burden. >>
Come on guys, no one has an answer? I want to understand this no-hyperinflation viewpoint and how you reconcile this view with a huge national debt that is growing at an ever increasing rate. Do you think the US will get its debt problem under control either by spending less or increasing revenue (and how do you see this happening)? Or why do you think that an ever-increasing debt load (as % of GDP) will not cause a failure of the currency? I'm not suggesting that failure is imminent, but the time frame is certainly limited.
<< <i>Come on guys, no one has an answer? I want to understand this no-hyperinflation viewpoint and how you reconcile this view with a huge national debt that is growing at an ever increasing rate. Do you think the US will get its debt problem under control either by spending less or increasing revenue (and how do you see this happening)? Or why do you think that an ever-increasing debt load (as % of GDP) will not cause a failure of the currency? I'm not suggesting that failure is imminent, but the time frame is certainly limited. >>
Hyperinflation is not possible as long as deflation is strong and money velocity (spending) is weak. IMO an increase in money velocity is the key to inflationary pressure. This lack of spending (money moving through the economy over and over) is responsible for holding prices down. An increase in velocity is heavily dependent on quality jobs and on confidence in the economy.
It is also my opinion that if money velocity was at normal levels inflation would be gathering steam. Continuing existing FED policy will add to inflationary pressure.
Hyperinflation is the result of a destroyed currency. We are still in the early stages of currency destruction. FED is walking a tight rope.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I want to understand this no-hyperinflation viewpoint and how you reconcile this view with a huge national debt that is growing at an ever increasing rate. Do you think the US will get its debt problem under control either by spending less or increasing revenue (and how do you see this happening)? Or why do you think that an ever-increasing debt load (as % of GDP) will not cause a failure of the currency? I'm not suggesting that failure is imminent, but the time frame is certainly limited.
It's useful to remember that hyperinflation isn't caused by monetary inflation. It's caused by a complete loss of confidence in the currency. The two are related, but it isn't a linear relationship. The Gov is doing everything to keep the imaginary worth of the dollar propped up, including changing of every measure of the economy. It's 1955 USSR in that regard. It's Winston Smith in the Bureau of Truth, all over again. And now we are in the electronic, and wireless age so the manipulation and intrusion are probably worse than any fiction ever was. As a people, we've only just begun to realize the impacts.
derryb is correct on the velocity of money being one factor. But there are other variables as well. There's a definite transfer of wealth going on between various groups, and my impression is that the banks are using their free money to further their relative position in the only hard assets that they understand, real estate mortgages. The trends have been away from home ownership and toward rental. This plays directly into the hands of the banks. All while a "housing recovery" is being touted even though the "recovery" is totally financed by QE.
Same goes for the stock market. There are 21 primary dealers who get Fed support, and my thought is that the reason for the strength in the stock market is because the transfer of stock shares is taking place all within the circle of primary dealers, then the secondary gains emanate out like a pebble in the pond. The good assets are being picked over by the insiders within the banking system using QE money to do it, and the rest will be thrown back. The wealth is being concentrated into fewer hands methodically. My understanding is that individual investors are out of the stock market, and without inside information you would be crazy not to be out. There are no underlying fundamentals driving stocks, so there will be no warning when revaluation time rolls around.
Regarding the debt load, Japan is leading the pack by a wide margin with something like 270% debt over GDP. The US is around 120% or so, which is bad enough. When the debt fails, it will begin with Japan. The reason that debt hasn't crushed sovereign currencies (yet) is not only because of low money velocity, but also because of low interest rates. Now, rates have jumped so the financing stress in the system will become much more apparent as financing demands build in order to maintain government spending levels.
The answer to your question is that these diverging trends simply cannot be reconciled honestly. Since our economy is huge, it still takes time before the impact of rising rates will demand action. But the impacts are happening right now. Action will come in the form of higher taxes (which we already know are coming), in the form of even MORE monetary inflation, QE or whatever - and in the form of pressure to stop government spending and reduction of services.
As an aside, locally we've had a major outbreak of shootings downtown and all around town. The answer - the mayor wants to hire 35 more cops by immediately raising property taxes instead of implementing a curfew for teenagers or using informants to ferret out the chronic repeat offenders. God forbid profiling of any sort, especially if it revealed the problem. And there's been no consideration of using funds from any other municipal program - THAT would never be considered. The mayor then appointed a commission to "study" the situation for the next 15 months. (This is government in action.) I use this example only because the same things happen at the federal level on a much, much, much, much, much more extravagant level. Note in this example that only property owners pay for the problem - the college students and especially the welfare recipients causing the problems aren't even suggested as targets for the taxes. Same as with the feds. But I digress.
The Bond Market is your key. They've already done Operation Twist, which was in effect a move to trade all outstanding short term debt for more long term debt - to push the day of reconciliation out as far as possible. Now, they are simply working in the 10-year range to load that part of the yield curve up as much as possible for ongoing operations. And the result is now a rise in 10-year rates. Nobody wants 30-year obligations because nobody is stupid enough to actually think that those bonds will ever pay off, especially with such low rates there is NO demand. Pretty soon, it will become apparent that 10-year US Treasuries are not ever going to pay off without losses. Who would buy a 10-year government obligation that pays 2.5% interest when inflation jumps to 3%, or 4%, or 5%? 10 years can destroy the principal in a hurry at those rates.
Once the 10-year is gone as an option for government financing, the dollar is toast. There's nowhere else to run.
Q: Are You Printing Money? Bernanke: Not Literally
Hyper inflation requires severe disruption of the supply/ demand equation. Hyperinflation is not the result of printing money. Printing money is a result of hyperinflation.
If you wish for hyperinflation then you wish for war.
"When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value."
Hyperinflation is the result of printing money. Printing even more money (to keep up with currency demand) is a result of hyperinflation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Hyper inflation requires severe disruption of the supply/ demand equation. Hyperinflation is not the result of printing money. Printing money is a result of hyperinflation. >>
Thanks jmski52, good explanation. But as I said, the debt is growing at an ever-increasing pace. How does this not ultimately lead to hyperinflation? When the debt becomes 500% over GDP, 1000%, etc... at some point the interest rates *have to* rise (they more-or-less can't go lower) thus compounding the problem. At some point, no one wants to hold any dollars any longer than they have to because the government starts monetizing more debt to pay the interest on the debt and it can no longer be ignored or hidden. Money velocity increases, too many dollars seeking too few goods, and inflation and eventually hyperinflation ensues.
But the key behind all of this is the debt.
So again, those of you who say there will be no hyperinflation you must also be saying that the rate of debt growth will decrease materially before we reach hyperinflation. Again, what is the scenario wherein this occurs? A political revolution?
"When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value."
Hyperinflation is the result of printing money. Printing even more money (to keep up with currency demand) is a result of hyperinflation. >>
Investopedia is incorrect. In the case of the Weimar Republic or Zimbabwe, high prices demanded the printing of money. High prices in Germany were the result of near complete loss of manufacturing capacity after WWI. And in Zimbabwe high prices were caused by price controls and virtually no civil Govt. Even the inflation in the USA in the 70s can be traced back to controls put in place by Nixon.
Also in Weimar, I think the government effectively agreed to pay govt. workers real wages, so they had to keep printing as prices rose.
In the US, barring a major redistribution of wealth effort, there is little chance of inflation other than in asset prices,luxury goods, and high end real estate.
<< <i>Also in Weimar, I think the government effectively agreed to pay govt. workers real wages, so they had to keep printing as prices rose.
In the US, barring a major redistribution of wealth effort, there is little chance of inflation other than in asset prices,luxury goods, and high end real estate. >>
Have you bought food & gasoline lately? I consider both necessity's.(" there is little chance of inflation other than in asset prices,luxury goods, and high end real estate.") Example; A almost gallon 3.78quarts ~Clorox bleach yesterday $3.50. I use buy full gallon for $1.25 not to long ago. Prices have been going up and packages getting smaller for last few years.
In our new socialist society “inflation” is being created at the bottom and not the top. The creation of electronic money is being created for those in our society who are now to weak to work or take care of their own basic needs. This is where inflation shows the greatest increases. If one looks at the prices of basics over the last ten years, and puts only those items in an index, the inflation rate would exceed 15% per year. Food, Gasoline, utilities, basic chemicals for cleaning, auto repairs, insurance, etc. are all going up each year. These are the areas that the government distributes free money created from nothing. It seems to me over the last ten years true luxury items have seen very low cost inflation.
The govt has no control over the price of Clorox or the size of a box of cereal. Price increases in the areas gave nothing to do with the printing of money.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity.
<< <i>The govt has no control over the price of Clorox or the size of a box of cereal. Price increases in the areas gave nothing to do with the printing of money.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity. >>
I assume you are referring to minimum wages or govt wages. From an academic POV, according to the monetary exchange equation, the government can create inflation by increasing the money supply: M*V=P*Q, thus P= M*V/Q
M is the total dollars in the nation’s money supply, V is the number of times per year each dollar is spent (velocity of money), P is the average price of all the goods and services sold during the year, Q is the quantity of assets, goods and services sold during the year.
So one way to increase P (inflate) is to increase M if all else remains constant.
Inflation is the creation of money which results in an increase in the money supply. Rising prices are the result of money creation at a rate faster than the creation of goods & services. If there's a disruption in supply, inflation becomes more apparent and prices increase more noticeably.
Hyperinflation is the result of a loss of confidence in what the money will buy. It isn't the creation of huge piles of money, per se'. The creation of huge piles of money happens because of a loss of confidence, which happens because of accelerating price increases. Hyperinflation results in quickly rising prices because people start spending money quickly, before it loses purchasing power.
High prices in Germany were the result of near complete loss of manufacturing capacity after WWI
That was partly due to the takeover of the Ruhr industrial region in addition to the forced payment of reparations that were way beyond what could be extracted from what was left of Germany's economy after WWI.
Even the inflation in the USA in the 70s can be traced back to controls put in place by Nixon.
Nixon tried price controls because inflation was already getting out of control. The price controls didn't work. The huge ramp up in spending for the Vietnam War and the welfare spending on The Great Society, both during LBJ's administration were the primary sources of the inflation of the 1970's. It wasn't Nixon's doing, but Nixon made it worse by kicking the can down the road and taking the US off the gold standard, leaving the door wide open for fiat heaven.
high debt loads are deflationary
This is where I call BS. High debt loads are expensive, especially if rates go up. It's how the high debt load gets handled that can be either inflationary or deflationary. cohodk thinks that debt can simply be made to disappear with no consequences. I think that history says otherwise. When debt becomes burdensome, the economy gets trashed. When that happens, governments create more money. We are there.
Q: Are You Printing Money? Bernanke: Not Literally
How so? I understand that debt loads on individuals or companies will slow their spending and will be over-all deflationary. But in the case of the US gov't, ever-increasing debt loads will lead to further loss of credit or credit rating downgrades (and/or higher interest rates) which will turn to increased monetization to compensate. Growing debt and interest rates will cause/require more credit or monetization to pay the debt, rinse, repeat but at ever-increasing amounts. This isn't going to cause DC to stop or slow spending (or do you think it will?).
This alone isn't going to cause the public or businesses to change their spending habits either, so I don't see the link to deflation at the government level.
<< <i>The govt has no control over the price of Clorox or the size of a box of cereal. Price increases in the areas gave nothing to do with the printing of money.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity. >>
They are putting records amounts of money in public hands via entitlements. What needs to be increased is the number of full time jobs. This has nothing to do with monetary policy and everything to do with regulatory/tax policy that either encourages or discourages expansion/hiring. Simply raising minimum wage only increases prices set by producers to offset higher wage expenses. Producers/stockholders are not going to absorb the cost of higher wages; they pass it on to the consumer. What you end up with is higher pay that is offset with higher prices. Prices will rise proportionately with wages. When one's increase in wages is needed to cover higher expenses nothing has really changed except higher personal taxes on a higher gross income.
Smaller quantities at the same price is price inflation (the same as increasing the price). Other than giving away money the only other way to increase velocity is to increase demand for loans. ZIRP didn't accomplish this. The FED cannot make people spend, especially when those people are trying to reduce debt.
One must be clear when discussing inflation: As stated earler inflation is an increase in the money supply. This normally leads to price inflation. Timing of price inflation is dependent upon when that new money gets into the hands of spenders. QE has not yet made it to Main Street. Releasing it to the public (by discouraging keeping it on deposit with the FED via negative rates) is how the FED will eventually fight the deflation that it fears.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Smaller quantities at the same price is price inflation (the same as increasing the price). Other than giving away money the only other way to increase velocity is to increase demand for loans. ZIRP didn't accomplish this. The FED cannot make people spend, especially when those people are trying to reduce debt. >>
I'll slightly disagree that they can't make people spend. And of course they can't *make* anyone do anything, but their controls are pretty effective. But by offering 0-1% on savings deposits and low rates for borrowing, it is dis-incentivizing saving and simultaneously encouraging people/businesses to spend and borrow. If they want to shut off purchasing, they simply raise the rates.
<< <i>But by offering 0-1% on savings deposits and low rates for borrowing, it is dis-incentivizing saving and simultaneously encouraging people/businesses to spend and borrow. If they want to shut off purchasing, they simply raise the rates. >>
We've been there since 2008 (ZIRP) and money velocity (spending) as well as borrowing is a record lows. Raising rates tends to stimulate spending as rising inflation creates a desire to buy now while it's cheaper. Inflation tends to destroy the purchasing power of the currency.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Derry, could you please post that graph that shows the parabolic rise in money supply over the last 10 years? >>
How about one that shows markets aren't being juiced/manipulated?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
This comment was posted on ZeroHedge. Who that posts here does this sound like?
When buying and selling stocks the only thing that matters is price. People who get bogged down in the fundamentals of a company usually lose money. The only thing that matters is stock price action, and TSLA stock price action says the stock has a greater probability of going higher at this point in time. To not understand this is just going to cost you money.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>The govt has no control over the price of Clorox or the size of a box of cereal. Price increases in the areas gave nothing to do with the printing of money.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity. >>
The govt/FED does have control over financial assets though. And pumping approx $12 TRILL of paper value into the stock market with $3 trillion in FED leverage is a good example of asset price inflation. Asset price increases for bankers, hedge funds, and the connected top 1% have plenty to do with the keystroking of money and QE. Note that M0 has now increased over $700 TRILL since October. That's betting money in the margin accounts for the big banker boyz. There's also the little matter of how much boost housing values received since QE started. The assets in the hands of the wealthy have done quite well even if prices in the retail stores have only been slowly rising on average.
"On Tuesday President Obama spoke in Phoenix about the housing market. Among other remarks, the President indicated that he plans to make a move to unwind government-sponsored mortgage guarantors Fannie Mae and Freddie Mac. Almost every mortgage written in this country since the meltdown has had to pass through one of those two organizations before it could be sold to investors in the open market."
"What Fannie and Freddie have been able to do is allow banks to package home loans and sell them to investors, getting them off banks' balance sheets in exchange for more cash that banks can go lend. Without Fannie or Freddie guarantees, interest rates would be through the roof because banks and investors would demand more compensation for the risks they incur of potential defaults.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Money velocity in the general economy is of little concern to the big banks, hedge funds, congress, top 1%ers, etc. who thrive off the inflation of wealth assets. The money velocity (MV) in those areas is what matters to them. Those guys are more concerned about strong money flows in interest rate contracts, MBS's, forex, stocks, bonds, and commodities.
I thought this guy on my blog's analysis of NY City living was interesting and probably accurate. Then again, per Armstrong's economic confidence model, the recent cycle peaked on August 7th. It often takes the stock market a while to recognize that fact.
I don’t know where all of you are located, but I am in Manhattan, and the economy is red hot. Hotter than 2007. Real estate is more expensive now than in 2007 . Houses in slums in Brooklyn are more expensive than I can afford and I’m a physician. Maseratis’ and Porsches everywhere . Food/resteraunt prices thru the roof. I am moving out of my rental appartment soon to outside NYC. I have been waiting for a pullback in real estate prices to come for the last 20 yrs to buy, and it never came . Prices did not come down in 2008 , unlike the rest of the USA. Inflation and deflation is a regional phenomenon in the USA.
<< <i>Derry, could you please post that graph that shows the parabolic rise in money supply over the last 10 years? >>
How about one that shows markets aren't being juiced/manipulated?
>>
Ok, 2 things then. Have PM investors hitched their wagon to the wrong horse? And if money supply has increased exponentially and inflation has not, then,"As stated earler inflation is an increase in the money supply." is an incorrect statement.
<< <i>Ok, 2 things then. Have PM investors hitched their wagon to the wrong horse? And if money supply has increased exponentially and inflation has not, then,"As stated earler inflation is an increase in the money supply." is an incorrect statement. >>
(1) Not those that knew when to buy and knew when to sell. Those that did not sell the peak and even those that bought the peak will not regret it. Don't worry about the mule, just load the wagon. (2) Inflation by definition is an increase in the money supply. As you well know Inflation eventually leads to price inflation (more dollars chasing the same goods) and as always this is not a case of "this time it's different." Low interest rates and low loan demand/willingness to loan have dictated that new money be kept on reserve deposit with the FED. As long as it sits there price inflation is kept in check. As interest rates rise, and they will, loaning the money to Main Street becomes more tempting to the banks sitting on the reserves. The only way the FED will be able to convince these banks to keep this money from reaching the spenders will be to pay them better returns than Main Street loans will pay. And of course they will need even more new money to pay higher returns to the banks. Catch 22, if you will.
Rising interest rates, in many ways (think credit default swap derivatives), will knock this economy to its knees. Odds of higher rates and a continued weakening of the dollar's purchasing power are enough for me to be a buyer of PMs regardless of what the futures traders say those PMs are currently worth. What they are worth now is irrelevent to me - it's what I see in their future value. I assume this is where you and I disagree most and I respect that.
By design of the lenders (the banks), the US economy (and even its government) has become too dependent on credit to survive without it. If the FED had raised interests rates at the onset of the 2008 banking crisis, there is a very good chance, after a short period of extreme economic pain, that the economy would have righted itself. Former chairman Paul Volker showed that this can be a strong and effective medicine if given in the right dosage. Of course this alone would not have solved the problem - bank failures should have been permitted, banks should have been broken into pieces, regulators should have done their jobs and people should have been held accountable. We have now kicked the can so far down the road that there really is no turning back. Economic leadership can only hope to delay the inevitable (dollar default) for as long as possible. To put this in understandable terms one only need to picture an individual who has reached the point of no return with his indebtedness. So, I say again, don't worry about the mule, just load the wagon.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Read about 10 days' worth. We have a divergence between Sinclair, Willie and Armstrong. Sinclair posted a commentary from Richard Russell a few days ago as well. All good reads.
if money supply has increased exponentially and inflation has not, then,"As stated earler inflation is an increase in the money supply." is an incorrect statement.
You misunderstand the statement (or choose to mischaracterize it). An exponential increase in money supply hasn't resulted in an exponential increase in prices. Not the same thing.
By expanding the Fed's balance sheet, they keep the stock market and government finances afloat. If they don't keep it up, everything comes apart at the seams. If they DO keep it up, the debt spins out of control and more inflation is inevitable. More inflation will mean higher prices when shortages crop up. That's a balance of trade problem that is yet to be seen.
Nobody likes a depreciating dollar, but that's what we got and that's what we're gonna continue to have. Until we no longer have it.
Q: Are You Printing Money? Bernanke: Not Literally
To put this in understandable terms one only need to picture an individual who has reached the point of no return with his indebtedness
This is never an inflationary scenario. Once someone can not longer borrow they must cut back. There is no growth. There is no velocity. There is no inflation.
Interest rates are not going up appreciably (6-8-10%) for a long time.
Jmski, heavy debt loads are deflationary, not inflationary.
<< <i>This is never an inflationary scenario. Once someone can not longer borrow they must cut back. There is no growth. There is no velocity. There is no inflation. >>
This is not true when you have a printing press as our government has. There is no cutting back for them. When has our government ever decreased spending, especially when you consider ALL liabilities including entitlements? It does not seem to matter if other countries no longer buy our debt. We just monetize it.
Normal people and city and state governments must cut back in that scenario, but DC does not have to. But even at the worst of our economy a few years ago, people were still spending and credit was not and is still not that hard to get. DC made sure we could all get mortgages still. The only real cloud, and it is a big one, over the business side of things is uncertainty and anxiety about the hostile business environment that Obama has created. Which on the outset might be deflationary due to less spending on capital investment but in the end the companies pass the costs along to consumers as higher prices.
I just wonder how you see the debt monetization ending? Because ultimately debt monetization must be inflationary because there really is no end once you start doing it if you can't reduce total expenditures (which we can't). So you have to keep monetizing more and more and more as it gets increasingly out of control.
The other critical factor that has not been mentioned is Q in the equation from my previous post: P= M*V/Q, which is the quantity of goods sold. As long as this contracts proportionately with M and V then prices and inflation remain steady. Not all industries are the same, but the one thing they seem to do pretty well is cutting back production when demand goes down, and the shutting down of several companies has also kept production down.
<< <i>To put this in understandable terms one only need to picture an individual who has reached the point of no return with his indebtedness
This is never an inflationary scenario. Once someone can not longer borrow they must cut back. There is no growth. There is no velocity. There is no inflation.
Interest rates are not going up appreciably (6-8-10%) for a long time.
Jmski, heavy debt loads are deflationary, not inflationary. >>
the owner of the money machine gets a free pass on unsustainable debt. That free pass comes at the expense of currency destruction which doesn't matter to the owner, he'll just print the needed extra to make up for loss of buying power.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Sort of, but the owner of the money machine only gets a free pass if the Federal Reserve is willing to accommodate.
In the current low inflation environment, the Fed has been willing to buy government debt, making it easy to "print money".
It is highly unclear how the Fed would react if inflation were to pick up. I would guess that even Janet Yellen would not tolerate inflation above the 3 - 4 % range. Certainly Larry Summers wouldn't. In order to really use the money machine, the President and Congress would likely need to agree to replace many Fed members with people willing to support high inflation.
(The Executive branch could circumvent the Fed by literally printing money, but that would lead to a political crisis as well)
I believe Geithner is the sleeper for FED chairmanship. I believe his departure from Treasury was designed to put him behind the scenes working on his attack plan when he takes over the FED. I think that plan involves some major devaluation. Summers would be a positive for PMs as well.
FED and all three branches answer to the same puppet masters. FED will do what it is told to do. Seperation of Power can now only be found in the history books.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Yup, the unsustainable will continue forever. >>
Until it can't.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Yup, the unsustainable will continue forever. >>
Until it can't. >>
Which is why all the prognostications based on the unsustainable will not come to fruition. >>
This time it's different?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
No, not nominally, but here's something I can say with certainty: it will stop growing in real terms.
(edited to clarify - actually, in can grow forever if but not as a percent of GDP) >>
And at some point no one will fund it, not even the FED. We are already at the point where the FED had to step in to compensate for loss of foreign lenders. Discussions continue on requiring US retirement account holders to buy the debt.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
hmmmmm.....................at what point will it stop growing as a percent of GDP (re: Japan)? And that isn't necessarily the question. It seems that the question ought to involve what happens to the economy at the point when the growth in debt stops increasing.
Q: Are You Printing Money? Bernanke: Not Literally
Comments
Its kinda like making a bet for a million zillion dollars with your buddy. These are just gentlemens bets. Neither party would ever or even be forced to pay out.
Knowledge is the enemy of fear
<< <i>If it is a small crisis then yes you are probably right. But if it means hundreds of trillions then there will be no crisis as these numbers are just absurd. And hats why it is such a high number because each bank knows no one will pay.
Its kinda like making a bet for a million zillion dollars with your buddy. These are just gentlemens bets. Neither party would ever or even be forced to pay out. >>
Bets with a buddy require no down payment. Bets with derivatives (risk insurance) require expensive, payable premiums. The fact that they continue to place the expensive bets (with real money) indicates that they expect to collect on the insurance. Would you make monthly payments on a life insurance policy for a loved one if you didn't expect the policy to be honored?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
That's how a million zillion dollars gets stuck onto the national debt and socialized through things like the obamacare tax fiasco. (Remember - it wasn't a tax, until the Supreme Court suddenly said that it was a tax. Then it was no longer about healthcare and it was simply a coerced purchase of a crap product, for the first time in our history). The insurance execs that own and control their very own Senators and Representatives are happy to have another 20 or 30 million new customers, compliments of free tax money. Makes for great bonuses, once again. And this is so very, very wrong on every level.
If you believe that 2700 pages of the Dodd-Frank legislation was only to put a cap on certain consumer credit card interest rates, you are simply wrong. How hard would it have been to re-enact Glass Steagall by rescinding Graham-Leach-Bliley? Nope, couldn't do something that easy because the bigwig owners of our Senators and Representatives would never allow it.
The only mulligans being given out in banking finance are to the bankers. The taxpayers, i.e., actual "workers" are in their sights, every day. The system is 98% corrupt and it isn't going to change. Laws don't matter unless you are non-banking, or non-government.
You have to ask yourself, "how can I, with any conscience whatsoever possibly support this corrupt system?" Trading in paper supports the criminals and hurts people who work. Paper "profits"" are just a ploy.
I knew it would happen.
<< <i>A hundred billion dollars will buy a whole lot of Senators, Representatives, lawyers and paralegals for crony legislation >>
Big money is what kept former CFTC commissioner Brooksley Born from winning her battle to have derivatives regulated.
This is what big money bought to lead
the congressional fight against her:
Not only did they not prevent a global meltdown, they helped cause it.
A must see - excellent primer on the 2008 financial crisis: PBS special on "The Warning" from Chairman Born
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Interests:
Pre-Jump Grade Project
Toned Commemoratives
<< <i>
<< <i>The USD is still the #1 and will probably get even stronger with Europe falling apart. No loss of confidence in the currency means to me no hyperinflation. >>
True, but how long will the world or this country have confidence in a currency backed by nothing with exponentially growing debt and interest rates that can do nothing but increase? Don't know about you, but I don't see any scenario where the US debt starts to shrink back to any manageable size (or even just maintain). What about when interest payments on the debt total 50% or more of the US budget? Eventually the debt spiral will get out of control. I don't know when this will happen, but it seems like a certainty to me. Would like to hear the scenarios under which people here think the US can bring the growing debt problem under control. there's a limit to how much strength a nation can have - even if it is relative - when the debt becomes a crushing burden. >>
Come on guys, no one has an answer? I want to understand this no-hyperinflation viewpoint and how you reconcile this view with a huge national debt that is growing at an ever increasing rate. Do you think the US will get its debt problem under control either by spending less or increasing revenue (and how do you see this happening)? Or why do you think that an ever-increasing debt load (as % of GDP) will not cause a failure of the currency? I'm not suggesting that failure is imminent, but the time frame is certainly limited.
<< <i>Come on guys, no one has an answer? I want to understand this no-hyperinflation viewpoint and how you reconcile this view with a huge national debt that is growing at an ever increasing rate. Do you think the US will get its debt problem under control either by spending less or increasing revenue (and how do you see this happening)? Or why do you think that an ever-increasing debt load (as % of GDP) will not cause a failure of the currency? I'm not suggesting that failure is imminent, but the time frame is certainly limited. >>
Hyperinflation is not possible as long as deflation is strong and money velocity (spending) is weak. IMO an increase in money velocity is the key to inflationary pressure. This lack of spending (money moving through the economy over and over) is responsible for holding prices down. An increase in velocity is heavily dependent on quality jobs and on confidence in the economy.
It is also my opinion that if money velocity was at normal levels inflation would be gathering steam. Continuing existing FED policy will add to inflationary pressure.
Hyperinflation is the result of a destroyed currency. We are still in the early stages of currency destruction. FED is walking a tight rope.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
It's useful to remember that hyperinflation isn't caused by monetary inflation. It's caused by a complete loss of confidence in the currency. The two are related, but it isn't a linear relationship. The Gov is doing everything to keep the imaginary worth of the dollar propped up, including changing of every measure of the economy. It's 1955 USSR in that regard. It's Winston Smith in the Bureau of Truth, all over again. And now we are in the electronic, and wireless age so the manipulation and intrusion are probably worse than any fiction ever was. As a people, we've only just begun to realize the impacts.
derryb is correct on the velocity of money being one factor. But there are other variables as well. There's a definite transfer of wealth going on between various groups, and my impression is that the banks are using their free money to further their relative position in the only hard assets that they understand, real estate mortgages. The trends have been away from home ownership and toward rental. This plays directly into the hands of the banks. All while a "housing recovery" is being touted even though the "recovery" is totally financed by QE.
Same goes for the stock market. There are 21 primary dealers who get Fed support, and my thought is that the reason for the strength in the stock market is because the transfer of stock shares is taking place all within the circle of primary dealers, then the secondary gains emanate out like a pebble in the pond. The good assets are being picked over by the insiders within the banking system using QE money to do it, and the rest will be thrown back. The wealth is being concentrated into fewer hands methodically. My understanding is that individual investors are out of the stock market, and without inside information you would be crazy not to be out. There are no underlying fundamentals driving stocks, so there will be no warning when revaluation time rolls around.
Regarding the debt load, Japan is leading the pack by a wide margin with something like 270% debt over GDP. The US is around 120% or so, which is bad enough. When the debt fails, it will begin with Japan. The reason that debt hasn't crushed sovereign currencies (yet) is not only because of low money velocity, but also because of low interest rates. Now, rates have jumped so the financing stress in the system will become much more apparent as financing demands build in order to maintain government spending levels.
The answer to your question is that these diverging trends simply cannot be reconciled honestly. Since our economy is huge, it still takes time before the impact of rising rates will demand action. But the impacts are happening right now. Action will come in the form of higher taxes (which we already know are coming), in the form of even MORE monetary inflation, QE or whatever - and in the form of pressure to stop government spending and reduction of services.
As an aside, locally we've had a major outbreak of shootings downtown and all around town. The answer - the mayor wants to hire 35 more cops by immediately raising property taxes instead of implementing a curfew for teenagers or using informants to ferret out the chronic repeat offenders. God forbid profiling of any sort, especially if it revealed the problem. And there's been no consideration of using funds from any other municipal program - THAT would never be considered. The mayor then appointed a commission to "study" the situation for the next 15 months. (This is government in action.) I use this example only because the same things happen at the federal level on a much, much, much, much, much more extravagant level. Note in this example that only property owners pay for the problem - the college students and especially the welfare recipients causing the problems aren't even suggested as targets for the taxes. Same as with the feds. But I digress.
The Bond Market is your key. They've already done Operation Twist, which was in effect a move to trade all outstanding short term debt for more long term debt - to push the day of reconciliation out as far as possible. Now, they are simply working in the 10-year range to load that part of the yield curve up as much as possible for ongoing operations. And the result is now a rise in 10-year rates. Nobody wants 30-year obligations because nobody is stupid enough to actually think that those bonds will ever pay off, especially with such low rates there is NO demand. Pretty soon, it will become apparent that 10-year US Treasuries are not ever going to pay off without losses. Who would buy a 10-year government obligation that pays 2.5% interest when inflation jumps to 3%, or 4%, or 5%? 10 years can destroy the principal in a hurry at those rates.
Once the 10-year is gone as an option for government financing, the dollar is toast. There's nowhere else to run.
I knew it would happen.
If you wish for hyperinflation then you wish for war.
Knowledge is the enemy of fear
"When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value."
Hyperinflation is the result of printing money. Printing even more money (to keep up with currency demand) is a result of hyperinflation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Hyper inflation requires severe disruption of the supply/ demand equation. Hyperinflation is not the result of printing money. Printing money is a result of hyperinflation. >>
Thanks jmski52, good explanation.
But as I said, the debt is growing at an ever-increasing pace.
How does this not ultimately lead to hyperinflation? When the debt becomes 500% over GDP, 1000%, etc... at some point the interest rates *have to* rise (they more-or-less can't go lower) thus compounding the problem. At some point, no one wants to hold any dollars any longer than they have to because the government starts monetizing more debt to pay the interest on the debt and it can no longer be ignored or hidden. Money velocity increases, too many dollars seeking too few goods, and inflation and eventually hyperinflation ensues.
But the key behind all of this is the debt.
So again, those of you who say there will be no hyperinflation you must also be saying that the rate of debt growth will decrease materially before we reach hyperinflation. Again, what is the scenario wherein this occurs? A political revolution?
<< <i>Investopedia explains Hyperinflation:
"When associated with depressions, hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value."
Hyperinflation is the result of printing money. Printing even more money (to keep up with currency demand) is a result of hyperinflation. >>
Investopedia is incorrect. In the case of the Weimar Republic or Zimbabwe, high prices demanded the printing of money. High prices in Germany were the result of near complete loss of manufacturing capacity after WWI. And in Zimbabwe high prices were caused by price controls and virtually no civil Govt. Even the inflation in the USA in the 70s can be traced back to controls put in place by Nixon.
PC, high debt loads are deflationary.
Knowledge is the enemy of fear
In the US, barring a major redistribution of wealth effort, there is little chance of inflation other than in asset prices,luxury goods, and high end real estate.
<< <i>Also in Weimar, I think the government effectively agreed to pay govt. workers real wages, so they had to keep printing as prices rose.
In the US, barring a major redistribution of wealth effort, there is little chance of inflation other than in asset prices,luxury goods, and high end real estate. >>
Have you bought food & gasoline lately? I consider both necessity's.(" there is little chance of inflation other than in asset prices,luxury goods, and high end real estate.") Example; A almost gallon 3.78quarts ~Clorox bleach yesterday $3.50. I use buy full gallon for $1.25 not to long ago. Prices have been going up and packages getting smaller for last few years.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity.
Knowledge is the enemy of fear
<< <i>The govt has no control over the price of Clorox or the size of a box of cereal. Price increases in the areas gave nothing to do with the printing of money.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity. >>
I assume you are referring to minimum wages or govt wages.
From an academic POV, according to the monetary exchange equation, the government can create inflation by increasing the money supply:
M*V=P*Q, thus P= M*V/Q
M is the total dollars in the nation’s money supply,
V is the number of times per year each dollar is spent (velocity of money),
P is the average price of all the goods and services sold during the year,
Q is the quantity of assets, goods and services sold during the year.
So one way to increase P (inflate) is to increase M if all else remains constant.
Hyperinflation is the result of a loss of confidence in what the money will buy. It isn't the creation of huge piles of money, per se'. The creation of huge piles of money happens because of a loss of confidence, which happens because of accelerating price increases. Hyperinflation results in quickly rising prices because people start spending money quickly, before it loses purchasing power.
High prices in Germany were the result of near complete loss of manufacturing capacity after WWI
That was partly due to the takeover of the Ruhr industrial region in addition to the forced payment of reparations that were way beyond what could be extracted from what was left of Germany's economy after WWI.
Even the inflation in the USA in the 70s can be traced back to controls put in place by Nixon.
Nixon tried price controls because inflation was already getting out of control. The price controls didn't work. The huge ramp up in spending for the Vietnam War and the welfare spending on The Great Society, both during LBJ's administration were the primary sources of the inflation of the 1970's. It wasn't Nixon's doing, but Nixon made it worse by kicking the can down the road and taking the US off the gold standard, leaving the door wide open for fiat heaven.
high debt loads are deflationary
This is where I call BS. High debt loads are expensive, especially if rates go up. It's how the high debt load gets handled that can be either inflationary or deflationary. cohodk thinks that debt can simply be made to disappear with no consequences. I think that history says otherwise. When debt becomes burdensome, the economy gets trashed. When that happens, governments create more money. We are there.
I knew it would happen.
<< <i>PC, high debt loads are deflationary. >>
How so? I understand that debt loads on individuals or companies will slow their spending and will be over-all deflationary. But in the case of the US gov't, ever-increasing debt loads will lead to further loss of credit or credit rating downgrades (and/or higher interest rates) which will turn to increased monetization to compensate. Growing debt and interest rates will cause/require more credit or monetization to pay the debt, rinse, repeat but at ever-increasing amounts. This isn't going to cause DC to stop or slow spending (or do you think it will?).
This alone isn't going to cause the public or businesses to change their spending habits either, so I don't see the link to deflation at the government level.
<< <i>The govt has no control over the price of Clorox or the size of a box of cereal. Price increases in the areas gave nothing to do with the printing of money.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity. >>
They are putting records amounts of money in public hands via entitlements. What needs to be increased is the number of full time jobs. This has nothing to do with monetary policy and everything to do with regulatory/tax policy that either encourages or discourages expansion/hiring. Simply raising minimum wage only increases prices set by producers to offset higher wage expenses. Producers/stockholders are not going to absorb the cost of higher wages; they pass it on to the consumer. What you end up with is higher pay that is offset with higher prices. Prices will rise proportionately with wages. When one's increase in wages is needed to cover higher expenses nothing has really changed except higher personal taxes on a higher gross income.
Smaller quantities at the same price is price inflation (the same as increasing the price). Other than giving away money the only other way to increase velocity is to increase demand for loans. ZIRP didn't accomplish this. The FED cannot make people spend, especially when those people are trying to reduce debt.
One must be clear when discussing inflation: As stated earler inflation is an increase in the money supply. This normally leads to price inflation. Timing of price inflation is dependent upon when that new money gets into the hands of spenders. QE has not yet made it to Main Street. Releasing it to the public (by discouraging keeping it on deposit with the FED via negative rates) is how the FED will eventually fight the deflation that it fears.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Smaller quantities at the same price is price inflation (the same as increasing the price). Other than giving away money the only other way to increase velocity is to increase demand for loans. ZIRP didn't accomplish this. The FED cannot make people spend, especially when those people are trying to reduce debt. >>
I'll slightly disagree that they can't make people spend. And of course they can't *make* anyone do anything, but their controls are pretty effective. But by offering 0-1% on savings deposits and low rates for borrowing, it is dis-incentivizing saving and simultaneously encouraging people/businesses to spend and borrow. If they want to shut off purchasing, they simply raise the rates.
<< <i>But by offering 0-1% on savings deposits and low rates for borrowing, it is dis-incentivizing saving and simultaneously encouraging people/businesses to spend and borrow. If they want to shut off purchasing, they simply raise the rates. >>
We've been there since 2008 (ZIRP) and money velocity (spending) as well as borrowing is a record lows. Raising rates tends to stimulate spending as rising inflation creates a desire to buy now while it's cheaper. Inflation tends to destroy the purchasing power of the currency.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
2012 M1 Velocity of Money
Knowledge is the enemy of fear
<< <i>Derry, could you please post that graph that shows the parabolic rise in money supply over the last 10 years? >>
How about one that shows markets aren't being juiced/manipulated?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
When buying and selling stocks the only thing that matters is price. People who get bogged down in the fundamentals of a company usually lose money. The only thing that matters is stock price action, and TSLA stock price action says the stock has a greater probability of going higher at this point in time. To not understand this is just going to cost you money.
I knew it would happen.
<< <i>The govt has no control over the price of Clorox or the size of a box of cereal. Price increases in the areas gave nothing to do with the printing of money.
The only real way the govt can create inflation is to increase wages. Put more money directly into the hands of those who will spend it-- or create velocity. >>
The govt/FED does have control over financial assets though. And pumping approx $12 TRILL of paper value into the stock market with $3 trillion in FED leverage
is a good example of asset price inflation. Asset price increases for bankers, hedge funds, and the connected top 1% have plenty to do with the keystroking of money
and QE. Note that M0 has now increased over $700 TRILL since October. That's betting money in the margin accounts for the big banker boyz. There's also the little
matter of how much boost housing values received since QE started. The assets in the hands of the wealthy have done quite well even if prices in the retail stores have only
been slowly rising on average.
M2 chart - or pretty similar to the stock market chart
"On Tuesday President Obama spoke in Phoenix about the housing market. Among other remarks, the President indicated that he plans to make a move to unwind government-sponsored mortgage guarantors Fannie Mae and Freddie Mac. Almost every mortgage written in this country since the meltdown has had to pass through one of those two organizations before it could be sold to investors in the open market."
"What Fannie and Freddie have been able to do is allow banks to package home loans and sell them to investors, getting them off banks' balance sheets in exchange for more cash that banks can go lend. Without Fannie or Freddie guarantees, interest rates would be through the roof because banks and investors would demand more compensation for the risks they incur of potential defaults.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I thought this guy on my blog's analysis of NY City living was interesting and probably accurate. Then again, per Armstrong's economic confidence model, the recent cycle peaked on August 7th. It often takes the stock market a while to recognize that fact.
I don’t know where all of you are located, but I am in Manhattan, and the economy is red hot. Hotter than 2007. Real estate is more expensive now than in 2007 . Houses in slums in Brooklyn are more expensive than I can afford and I’m a physician. Maseratis’ and Porsches everywhere . Food/resteraunt prices thru the roof. I am moving out of my rental appartment soon to outside NYC. I have been waiting for a pullback in real estate prices to come for the last 20 yrs to buy, and it never came . Prices did not come down in 2008 , unlike the rest of the USA. Inflation and deflation is a regional phenomenon in the USA.
<< <i>
<< <i>Derry, could you please post that graph that shows the parabolic rise in money supply over the last 10 years? >>
How about one that shows markets aren't being juiced/manipulated?
Ok, 2 things then. Have PM investors hitched their wagon to the wrong horse? And if money supply has increased exponentially and inflation has not, then,"As stated earler inflation is an increase in the money supply." is an incorrect statement.
Knowledge is the enemy of fear
At best, we are barely printing enough to offset the destruction of de-leveraging
a 2 year old article but still timely
Knowledge is the enemy of fear
<< <i>Ok, 2 things then. Have PM investors hitched their wagon to the wrong horse? And if money supply has increased exponentially and inflation has not, then,"As stated earler inflation is an increase in the money supply." is an incorrect statement. >>
(1) Not those that knew when to buy and knew when to sell. Those that did not sell the peak and even those that bought the peak will not regret it. Don't worry about the mule, just load the wagon.
(2) Inflation by definition is an increase in the money supply. As you well know Inflation eventually leads to price inflation (more dollars chasing the same goods) and as always this is not a case of "this time it's different." Low interest rates and low loan demand/willingness to loan have dictated that new money be kept on reserve deposit with the FED. As long as it sits there price inflation is kept in check. As interest rates rise, and they will, loaning the money to Main Street becomes more tempting to the banks sitting on the reserves. The only way the FED will be able to convince these banks to keep this money from reaching the spenders will be to pay them better returns than Main Street loans will pay. And of course they will need even more new money to pay higher returns to the banks. Catch 22, if you will.
A bit about those reserves
Rising interest rates, in many ways (think credit default swap derivatives), will knock this economy to its knees. Odds of higher rates and a continued weakening of the dollar's purchasing power are enough for me to be a buyer of PMs regardless of what the futures traders say those PMs are currently worth. What they are worth now is irrelevent to me - it's what I see in their future value. I assume this is where you and I disagree most and I respect that.
By design of the lenders (the banks), the US economy (and even its government) has become too dependent on credit to survive without it. If the FED had raised interests rates at the onset of the 2008 banking crisis, there is a very good chance, after a short period of extreme economic pain, that the economy would have righted itself. Former chairman Paul Volker showed that this can be a strong and effective medicine if given in the right dosage. Of course this alone would not have solved the problem - bank failures should have been permitted, banks should have been broken into pieces, regulators should have done their jobs and people should have been held accountable. We have now kicked the can so far down the road that there really is no turning back. Economic leadership can only hope to delay the inevitable (dollar default) for as long as possible. To put this in understandable terms one only need to picture an individual who has reached the point of no return with his indebtedness. So, I say again, don't worry about the mule, just load the wagon.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
It's always good to get caught up on what Martin Armstrong has to say.
I knew it would happen.
You misunderstand the statement (or choose to mischaracterize it). An exponential increase in money supply hasn't resulted in an exponential increase in prices. Not the same thing.
By expanding the Fed's balance sheet, they keep the stock market and government finances afloat. If they don't keep it up, everything comes apart at the seams. If they DO keep it up, the debt spins out of control and more inflation is inevitable. More inflation will mean higher prices when shortages crop up. That's a balance of trade problem that is yet to be seen.
Nobody likes a depreciating dollar, but that's what we got and that's what we're gonna continue to have. Until we no longer have it.
I knew it would happen.
This is never an inflationary scenario. Once someone can not longer borrow they must cut back. There is no growth. There is no velocity. There is no inflation.
Interest rates are not going up appreciably (6-8-10%) for a long time.
Jmski, heavy debt loads are deflationary, not inflationary.
Knowledge is the enemy of fear
<< <i>This is never an inflationary scenario. Once someone can not longer borrow they must cut back. There is no growth. There is no velocity. There is no inflation. >>
This is not true when you have a printing press as our government has. There is no cutting back for them. When has our government ever decreased spending, especially when you consider ALL liabilities including entitlements? It does not seem to matter if other countries no longer buy our debt. We just monetize it.
Normal people and city and state governments must cut back in that scenario, but DC does not have to.
But even at the worst of our economy a few years ago, people were still spending and credit was not and is still not that hard to get. DC made sure we could all get mortgages still. The only real cloud, and it is a big one, over the business side of things is uncertainty and anxiety about the hostile business environment that Obama has created. Which on the outset might be deflationary due to less spending on capital investment but in the end the companies pass the costs along to consumers as higher prices.
I just wonder how you see the debt monetization ending? Because ultimately debt monetization must be inflationary because there really is no end once you start doing it if you can't reduce total expenditures (which we can't). So you have to keep monetizing more and more and more as it gets increasingly out of control.
The other critical factor that has not been mentioned is Q in the equation from my previous post: P= M*V/Q, which is the quantity of goods sold. As long as this contracts proportionately with M and V then prices and inflation remain steady. Not all industries are the same, but the one thing they seem to do pretty well is cutting back production when demand goes down, and the shutting down of several companies has also kept production down.
Not if the "cure" for it is money creation.
I knew it would happen.
<< <i>To put this in understandable terms one only need to picture an individual who has reached the point of no return with his indebtedness
This is never an inflationary scenario. Once someone can not longer borrow they must cut back. There is no growth. There is no velocity. There is no inflation.
Interest rates are not going up appreciably (6-8-10%) for a long time.
Jmski, heavy debt loads are deflationary, not inflationary. >>
the owner of the money machine gets a free pass on unsustainable debt. That free pass comes at the expense of currency destruction which doesn't matter to the owner, he'll just print the needed extra to make up for loss of buying power.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
In the current low inflation environment, the Fed has been willing to buy government debt, making it easy to "print money".
It is highly unclear how the Fed would react if inflation were to pick up. I would guess that even Janet Yellen would not tolerate inflation above the 3 - 4 % range. Certainly Larry Summers wouldn't. In order to really use the money machine, the President and Congress would likely need to agree to replace many Fed members with people willing to support high inflation.
(The Executive branch could circumvent the Fed by literally printing money, but that would lead to a political crisis as well)
FED and all three branches answer to the same puppet masters. FED will do what it is told to do. Seperation of Power can now only be found in the history books.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Knowledge is the enemy of fear
<< <i>Yup, the unsustainable will continue forever. >>
Until it can't.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>Yup, the unsustainable will continue forever. >>
Until it can't. >>
Which is why all the prognostications based on the unsustainable will not come to fruition.
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>Yup, the unsustainable will continue forever. >>
Until it can't. >>
Which is why all the prognostications based on the unsustainable will not come to fruition. >>
This time it's different?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>
<< <i>
<< <i>Yup, the unsustainable will continue forever. >>
Until it can't. >>
Which is why all the prognostications based on the unsustainable will not come to fruition. >>
This time it's different? >>
The US debt will stop growing?
<< <i>
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<< <i>Yup, the unsustainable will continue forever. >>
Until it can't. >>
Which is why all the prognostications based on the unsustainable will not come to fruition. >>
This time it's different? >>
The US debt will stop growing? >>
Knowledge is the enemy of fear
No, not nominally, but here's something I can say with certainty: it will stop growing in real terms.
(edited to clarify - actually, in can grow forever if but not as a percent of GDP)
<< <i>The US debt will stop growing?
No, not nominally, but here's something I can say with certainty: it will stop growing in real terms.
(edited to clarify - actually, in can grow forever if but not as a percent of GDP) >>
And at some point no one will fund it, not even the FED. We are already at the point where the FED had to step in to compensate for loss of foreign lenders. Discussions continue on requiring US retirement account holders to buy the debt.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
hmmmmm.....................at what point will it stop growing as a percent of GDP (re: Japan)? And that isn't necessarily the question. It seems that the question ought to involve what happens to the economy at the point when the growth in debt stops increasing.
I knew it would happen.