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Inflation Isn't Inevitable
For anyone who has studied monetary theory, those numbers sound ominous. There's no doubt that inflation is caused by too much money chasing too few goods, and the Fed has certainly created a ton of money.
I'm with you so far Mr. Siegel.
Japan offers a good example of how much debt a developed country can handle without succumbing to inflation.
Japan is a good example? That's really good to know. Note to self: Continue to permanently avoid the stock market.
Current policies won't spark inflation as long as policymakers keep their sights firmly fixed on their stated long-term goal of price stability.
Jeremy Siegel, you are killing me!
Housing: A parabolic rise followed by an extremely hard crash.
Stocks: A parabolic rise followed by an extremely hard crash.
Oil: A parabolic rise followed by an extremely hard crash.
Copper: A parabolic rise followed by an extremely hard crash.
Aluminum: A parabolic rise followed by an extremely hard crash.
Rice: A parabolic rise followed by an extremely hard crash.
Wheat: A parabolic rise followed by an extremely hard crash.
With long-term price stability like that, who needs enemas? Badum-Ching!
Check out the opinion of one former long-term price stability policymaker. Pay special attention to the title of his book.
December 2007 - January 2008
Reigning Bull, Alan Greenspan’s ‘The Age of Turbulence’
Greenspan was also far from uninvolved in the manufacture of his own myth. The phrase for which he will be recalled, he relates, came to him in the bathtub shortly after the Dow broke 6000 in October 1996.
It seems like only yesterday that the Dow traded in the 6000s. Oh yeah. It was yesterday. Today too for that matter, even after the impressive rally. Of course, a 7% rise in the Nasdaq in just one day does not scream price stability. That probably goes without saying though.
For those who are as worried about long-term price stability as I am, I also wish to point out the full title of Alan Greenspan's book.
The Age of Turbulence: Adventures in a New World
Welcome to the continuing adventures of the Brave New World Order.
Brave New World
All members of society are conditioned in childhood to hold the values that the World State idealizes. Constant consumption is the bedrock of stability for the World State.
New World Order (conspiracy theory)
Numerous historical and current events are seen as steps in an on-going plot to achieve world domination primarily through secret political gatherings and decision-making processes.
Q4 GDP Tracking: Mid 2% Range
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Fed Chair Powell, Nov 7, 2024:
"It's actually remarkable how strong the U.S. economy is performing. We're
performing better than all of our global peers. ...
3 hours ago
8 comments:
Stag,
http://biz.yahoo.com/ap/090311/bailout_congress.html
From the above link:
"However well-intended, government officials are not positioned to make better commercial decisions than lenders in our communities," he said. - Neil Kashkari
Apparently, bankers are "still" uniquely qualified to make bad loans. Good work if you can get it!
All we ever need to do is accept a bogus premise and then anything is possible:
http://en.wikipedia.org/wiki/Principle_of_explosion
The principle of explosion is the law of classical logic and a few other systems (e.g., intuitionistic logic) according to which "anything follows from a contradiction" - i.e., once you have asserted a contradiction, you can infer any proposition, or its converse.
I think inflation is inevitably going to happen. that is what US will need to do to destroy the debt as a % of GDP.
Stag,
Some info on the UK's quantitative (dis)easing:
http://business.timesonline.co.uk/tol/business/economics/article5889280.ece
It looks more like a swap to me. Gilts yielding ~ 3% are exchanged with the Bank of England for zero interest debt (cash). Sounds similar to the Fed's cash for trash arrangement, except there are no set redemption dates or interest charges related to the swap. It's also similar to the Fed's open market operations although the size may be novel.
I think the intent is to lower long term interest rates and reduce the cost of borrowing. In that sense, the Bank of England is recapitalizing the banks by overpaying for the gilts. Another sham/giveaway, but arguably not outright printing.
Can't say what the banks will do with the cash and whether or not fractional reserve banking will work its multiplying magic. I'm not sure if treasuries act like deposits in the context of fractional reserve lending or capital ratios. Regardless, based on Japan's experience, I suspect the Brits are not in a borrowing or lending mood. Debt saturation.
I still think printing is an empty threat. A ploy to increase inflation expectations and increase the velocity of money. That said, printing is also one of my biggest fears.
I still find it amazing that FDR's huge devaluation had such a relatively small inflationary impact.
mab,
The principle of explosion
We need to find a principle of implosion to go with the law of excluded middle class.
http://en.wikipedia.org/wiki/Law_of_excluded_middle
'Everything must either be or not be.'
Everyone must either be better off than their children (in nominal terms) or not be better off than their children (in inflation adjusted terms).
Anonymous,
Here's something that keeps me up at night.
Hyperinflation - Causes, Costs and Examples
http://www.economicshelp.org/2008/04/hyperinflation-causes-costs-and.html
Usually, countries with hyper inflation have the following features
1. Large government debt, usually over 100% of GDP
2. Printing Money. To cope with meeting the debt, the government starts printing money. This decreases the value of existing money creating a multiplier effect where people lose confidence in money and keep demanding wage increases.
3. Reluctance / inability to deal with it. When Germany experienced hyperinflation in the 1920s it was not a phenomena they fully appreciated or understood. Their primary fear at the time was unemployment. They feared that unemployment could precipitate a Communist Revolution so they didn't want to do anything to reduce demand and possibly cause a recession.
We have #3 in a major way, and it still didn't stop the recession. We have #1 if one counts the future underfunded obligation trends (Social Security, Medicare). We aren't doing #2 yet, but by not doing #2 we are really adding to #1.
Stag,
We need to find a principle of implosion to go with the law of excluded middle class.
Well, at least the middle class has not been excluded from the implosion of principal - d'oh!
mab,
That said, printing is also one of my biggest fears.
There's just so many fears with solid fundamentals to choose from these days. Why make a risky bet on any one particular fear when you can invest your thoughts in a basket of fears and therefore reduce your risk? ;)
Here's my current well diversified nightmare portfolio.
10% printing
10% fraud
10% unstustainable trade deficit
10% derivatives
10% a billion Chinese want our jobs
10% peak oil (someday)
10% housing built based on permanent cheap oil theory
10% service economy
10% budget deficits
10% tough political decision vaccuum
These fears are not locked in stone. I'm a fear day/night trader! I also trade nightmare options. I know that derivatives are a zero sum game and I have no hope of beating the average long-term especially once fees are factored in, but... I can't remember my point. Nevermind.
www.eFearTrade.com
The link doesn't exist yet, but I want to be ready when it comes.
mab,
Well, at least the middle class has not been excluded from the implosion of principal - d'oh!
I generally don't know whether to laugh or cry these days, lol. Sigh.
Apparently I'll do both!
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