Weak pound pushes up prices in Britain
The 26 percent decline of the pound against the dollar and 16 percent drop against the euro over the last 12 months failed to spur demand for British exports, and instead left many British consumers paying more for imported vegetables, fruits, wine and meat.
In sharp comparison, in order to compete we're trying to destroy our currency too.
Compare and contrast the following. Don't expect too much contrast though. It's kind of like looking for a polar bear in a snow storm.
March 11, 2009
UK introduces quantitative easing to aid economy
Quantitative easing is often described as "printing money" -- although no new notes and coins are actually created.
March 24, 2009
Has Bernanke Lost His Marbles?
I'm terrified. It looks like Fed Chairman Ben Bernanke plans to run the printing presses until we run out of trees.
March 24, 2009
Papademos Says ECB Could Consider Quantitative Easing (Update1)
“The ECB may end up buying assets, but we are not there yet,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London. “If it comes to it, they’ll almost surely start with relatively small amounts of private sector securities.”
October 20, 2006
Did Quantitative Easing by the Bank of Japan "Work"?
While these outcomes appear to be consistent with the intentions of the program, the magnitudes of these impacts are still very uncertain. Moreover, in strengthening the performance of the weakest Japanese banks, quantitative easing may have had the undesired impact of delaying structural reform.
Forget unintended consequences. We live in the era of undesired impacts. Thud! Thwack! That's just my forehead hitting my desk again. Let's fast forward 2 1/2 years and see how Japan is doing.
March 24, 2009
UPDATE 3-Japan corporate credit conditions severe, BOJ gov
TOKYO, March 24 (Reuters) - Corporate credit conditions in Japan remain severe, Japan's central bank governor said on Tuesday as he urged the country's banks to bolster their capital bases.
The comments by Masaaki Shirakawa came after the central bank earlier this month offered more than $10 billion in subordinated loans to Japanese banks to bolster capital partly depleted by the slide in the Tokyo stock market.
Japan's stock market peaked in 1989. That's 20 years ago. However, we still refer to at as The Lost Decade.
March 24, 2009
Asian Stocks Extend Global Rally on U.S. Treasury’s Bank Plan
The value of global equities has jumped more than $5 trillion in the latest rally. Japan’s Nikkei 225 Stock Average added 3.3 percent, extending its gain from a 26-year low on March 10 to 20 percent, the level indicating stocks have entered a bull market. Hong Kong’s Hang Seng Index climbed 3.4 percent, taking its surge since March 9 to 23 percent. All markets advanced except Malaysia.
Does that look like a lost decade to you?
As for the "indicating stocks have entered a bull market" theory, we've certainly heard that before.
April 13, 2003
Bull market is back, says shares guru
In a detailed analysis of stock-market rallies, Schwartz concludes that the 16 per cent rise over the past two months has all the hallmarks of a bull market. The size of the three-year fall, the number of consecutive days on which the market rose, and the speed of the rise have previously only occurred in bull markets.
He said: 'History teaches that lengthy rallies often begin in response to an improved economic outlook, but some occur even though economic prospects look bleak. His prediction is echoed by other long-standing bears, such as Hugh Hendry of Odey Asset Management, who also thinks shares could rally sharply in the coming months. Longterm, however, he warns that the stock market could still fall below its recent lows.
Great short-term call. Great long-term call. Hindsight is being very kind to him.
Stag,
ReplyDeleteA nice easy to follow summary of the fed's balance sheet and alphabet soup facilities:
http://research.stlouisfed.org/publications/es/09/ES0913.pdf
Most of the increase in the fed's balance sheet is due to short term liquidity facilities (< 84 day loans/swaps). I don't see those as inflationary. More of an antidote for an outright deflationary bust accompanied with an epic run on banks.
The purchase of longer term assets like treasuries and agencies is harder to handicap. There is no way of knowing if the banking sector and the private economy are in the mood to create more debt. My sense is that the demand for borrowing is low and most likely the banks will be more cautious about lending going forward. Not to worry, if the private market won't expand credit, the Government will!
In any event, I don't foresee a wage spiral like we had in the 1970s. Not with globalization and rising unemployment. U.S. labor has such a weak bargaining position.
http://research.stlouisfed.org/fred2/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&&s_1=1&s[1][id]=AHETPI&s[1][transformation]=pc1&s[1][scale]=Left&s[1][range]=Max&s[1][cosd]=1964-01-01&s[1][coed]=2009-02-01&s[1][line_color]=%230000FF&&s[1][mark_type]=NONE&s[1][line_style]=Solid
Bernanke better be mindful that if the inflation he desires comes from abroad the majority here will face an immediate decline in living standards. Somehow I don't think rising oil and food prices will be bullish for house and stock prices.
mab,
ReplyDeleteBernanke better be mindful that if the inflation he desires comes from abroad the majority here will face an immediate decline in living standards.
Here's my thinking.
1. I'm convinced there will be a decline in living standards. I base it on the wage differential between China and us in this increasingly competitive global economy.
2. I'm convinced that Bernanke and Geithner will eventually do enough damage to our fiat currency to stop long-term deflation. Only hindsight will be able to tell me if that was a good thing though. I suspect it won't be as good as people hope.
3. If I invest in TIPS, in theory I should not experience a decline in living standards. If I can protect myself, then so can every other saver. Contrary to popular opinion, there are quite a lot of us. For example, a decent chunk of the population has their home paid off in full.
4. If I do experience a decline in living standards, then it can only mean one of two things. There was more inflation than TIPS could protect me from OR the government simply refuses to pay me. If inflation remains low though, the government won't have a reason not to pay me. Therefore, I conclude that only higher inflation can ruin this safe store of value and see my standard of living decline.
5. There is no safe store of value. I believe that. In order for TIPS to not be a safe store of value, inflation must rise at some point.
6. And lastly, our entire economic way of thinking seems to be based on the idea that interest rates can never rise again. One-way "sure things" scare the heck out of me.
Somehow I don't think rising oil and food prices will be bullish for house and stock prices.
Just wait until people have to decide if they want to drive to restaurants someday. Sigh.
In the meantime, party on though. California Pizza Kitchen tacked on yet another 7.8% to the upside today. I'm sure glad I do not short stocks! It's up about 40% since I mentioned it. Go figure.
Yesterday I had to take my bird to the Vet. I had to drive from Renton to North Seattle through Seattle in the late afternoon. I also had to drive home during rush hour. Needless to say, I was not looking forward to it. I was amazed how little traffic there was though. I was actually able to speed at times if I so desired.
My girlfriend says that at her work the parking lot is much emptier than it was just a month ago. People are carpooling more it seems.
Stag,
ReplyDelete1. I'm convinced there will be a decline in living standards. I base it on the wage differential between China and us in this increasingly competitive global economy.
That wage differential is why I'm really questioning the "printing" money inflation thesis. Just yesterday on bloomberg TV, I saw that IBM was outsourcing 5000 jobs to India. And today I had to order a computer part and I was, not surprisingly, on the phone with a tech rep located in India. The rep's name was Sanjeep and his English was much better than the hundred or so other Indian call center reps I've dealt with in the past. If your interested, Sanjeep said that the weather was very hot in India at present. He also gave me a cut rate price, not to mention remarkably good service. It's amazing what a little small talk can do. But it's more amazing what a couple of dollars can do overseas.
Take accounting. This year, like last year, I'm not even going to meet with my accountant in person. A few phone calls, emails and two fed-ex mailers does the trick. I'm certain the work could be done for 1/10th the price in India too.
4. If I do experience a decline in living standards, then it can only mean one of two things.
TIPs seems relatively secure imo. But housing wealth is a different issue. Real estate prices in Japan have fallen ~ 80% over the past 18 years. Good thing a decline like that can't happen here (ignoring the Rust Belt and Detroit of course).
Note to self - don't mention that we have 19 million vacant housing units.
mab,
ReplyDeleteAugust 27, 1979
To Set the Economy Right
http://www.time.com/time/magazine/article/0,9171,920558,00.html
The economists argue that instead of providing the right incentives, government policy has been coming up with all the wrong ones. They assert that Government has motivated Americans to spend too much and save too little. They charge that federal tax, budget and monetary policies have promoted immediate consumption instead of investment for the future. Their fundamental warning: America has been living off, and eating into, its capital stock. Many of its factories and machines have become outmoded; its old industrial cities have become rundown; its work force has become less productive; real growth has swung low while demand has remained high. The nation is, in short, losing its economic edge in the world, and the hour is late—very late.
As long as we remain in a permanent global recession and demand therefore remains low, inflation should be under control. I guess that means that I agree with you to a point.
The price that every American pays for these failures is a decade-long inflation that is the most pernicious price spiral since the Korean War, and certainly the most alarming one in the nation's history. Because competitiveness and efficiency have declined, and productivity growth, that most basic yardstick for measuring a nation's economic vitality, has slowed, the real cost of producing goods has jumped. Meanwhile, to keep demand up, the Government has created money and credit at far faster rates than businessmen can turn out products and services. The result: too much money chasing too few goods, which is a classic inflation. Largely because of the rapid expansion of money, the average household income is more than twice as much as it was ten years ago, or $16,100. Yet because of inflation, real purchasing power is up only 11%, and for millions of Americans it is now only the second income from a working wife that enables families to make ends meet.
Right now there is too much money chasing too many goods. What happens when some of those goods producing companies go bankrupt but the money still remains?
It would be tempting to try to fight unemployment by temporarily increasing federal deficit spending and hoping that merely shoveling more money out to consumers would encourage companies to hire workers and expand production. But the 1970s proved that such erratic pumping-up policies only inflate the economy without significantly reducing unemployment.
Oops.
Best Buy is doing better, thanks to Circuit City folding. I'd expect Bed, Bath, and Beyond to start doing better now that Linens N' Things is gone. I'm not sure that's a great recipe for future prosperity though.
http://online.wsj.com/article/BT-CO-20090326-717175.html
http://www.zimbio.com/Bed+Bath+and+Beyond+Printable+Coupons/articles/49/Store+closings+may+send+customers+survivors
I would argue that it is still deflationary overall though, if it wasn't for this.
http://scitizen.com/stories/Future-Energies/2009/03/Jeffrey-Brown-and-the-Net-Oil-Exports-Crisis/
Well, what about demand? Isn't falling demand, which is a consequence of the ongoing financial crisis, going to ease the pressure on oil supplies and delay the day of reckoning? Not really, according to Brown. He looks back to the 1930s for some guidance. Even during the Great Depression worldwide oil consumption fell in only one year, 1930. After that it rose every year. And, so did prices, on average 11% percent per year from 1931 through 1937 (measured in constant dollars). By 1937 there were 3 million more cars on American roads than at the beginning of the decade which accounts in part for the pressure on oil prices.
Scary history lesson! File that in the something I didn't really want to know cabinet.
Despite his gloomy outlook on oil supplies, Brown strikes a hopeful note. He thinks the world can manage the needed downsizing once people abandon their faith in the myth of perpetual economic growth.
Damn. I guess that makes me perpetually gloomy.
As a side note, I'm of the belief that the behavior of locusts is governed by central locust banking. Recessions are not allowed. Consume! Consume often! At some point, the food runs out.
Stag,
ReplyDeleteCheck out this video for some "inside baseball" on the U.S. housing bust vs. the Japanese housing bust.
http://www.komonews.com/news/local/41786987.html?video=YHI&t=a
In the U.S.A corner we have Jamie Moyer. He's only experienced a housing boom an he strongly believes house prices always go up. Way up!
In the Japanese corner we have Ichiro. He's experienced housing booms AND busts. Ichiro strongly believes housing in the U.S. will be worth less in the future. Much less.
BTW, Ichiro's house looks like a sweet deal compared to the million dollar shacks in the NYC metro area.
mab,
ReplyDeleteDid someone say Jamie Moyer? His TV ad is very insprirational in these trying times, if you happen to be a rock that is.
http://www.youtube.com/watch?v=cON5fdvvOFM
Oh oh.
I guess that means that I agree with you to a point.
ReplyDeleteFWIW, I "still" can't decide between inflation or deflation. I do believe that printing is futile, but it's possible we've reached the point where we have to choose between printing and deflation. That doesn't necessarily mean we can stop deflation or that we will see a sharp increase in inflation though.
After all this time, all I can say for sure is that I know that I don't know.
Scary history lesson! File that in the something I didn't really want to know cabinet
A few months ago, I had a discussion about peak oil with my eleven year old son. He has a bent for science and the subject arose from his questions about renewable energy. He told me to never talk about peak oil again.
mab,
ReplyDeleteI hear that! I'm a wimpy stagflationist, that's for sure.
Bracing for stagflation, but only as a defense. It's really not a pure play, or I'd still be sitting in gold and silver instead of TIPS and I-Bonds.
For all I know we could all be driving coal powered cars in 10 years (or credibly threatening to do so). That would certainly alter my outlook considerably.
By the way, "credibly threatening to do so" is clearly one of my favorite pushing-on-a-string Bernanke style phrases. He's clearly never tried to get a horse to drink water, lol.
In hindsight, most investors eventually felt credibly threatened in one form or another. Some started illusionary prosperity blogs and began to hoard future needs. Others pushed the price of oil up to the point the entire global economy broke. I often wonder how much of that could be traced back to his 2002 deflation speech.
And lastly, how is my hoarding of future needs now going to do this economy any good long-term? Take aluminum foil. I think I'm done. The economy better not be counting on me to buy more at some point.