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November 1, 2010
Inflation Is Running Out of Control in QE Land: Matthew Lynn
All the historical evidence suggests that once inflation starts to rip, you need huge increases in interest rates to get it back down again.
Think about that for a minute and how it would relate to us here in the United States. I think it is important.
It isn't a question of want. It is a question of need. If inflation does pick up then then hyperinflation is a given if the Fed doesn't increase interest rates to fight it. Would the Fed do it? It must. If it doesn't then hyperinflation will prove to the world once and for all that the Fed was a complete and utter failure.
Of course, the Fed will seem to be a complete and utter failure anyway if they need to resort to that. Here's why.
November 19, 1979
Business: Volcker's Pinch Begins
The Fed's draconian measures have first hit the housing industry. Last week the National Association of Home Builders called an emergency meeting in Washington to bewail the high mortgage rates. The group's economist, Michael Sumichrast, darkly predicted that housing starts, which ran at a 1.9 million annual rate in September, will soon be cut in half. The soaring cost of money, he claimed, has already forced 10 million Americans to abandon temporarily plans for that dream house.
Oh yeah. That's exactly what we need. *sarcastic eye roll*
If Ben Bernanke thinks inflationary commodity prices are just what the doctor ordered then he might just want to start lining up the deflationary morticians again too. Those doctors and morticians tend to travel in packs.
ICE: Mortgage Delinquency Rate Increased Year-over-year in October
-
From ICE: ICE First Look at Mortgage Performance: Serious delinquencies hit
17-month high while foreclosure activity remains historically muted
• At 3.45% ...
2 hours ago
7 comments:
On a related side note...
November 1, 2010
The Market Ticker: On The Reality Of Depressions; Bernanke's Folly
That is, what if so long as housing prices remain elevated at artificially high levels, being propped up while wages remain depressed, it is impossible to find buyers for a product that is too expensive relative to the prevailing wage?
What if the cost-push price increases we're seeing now are going to do the same thing to everything made from basic materials (which is, basically, everything.)
I am very sympathetic to those arguments clearly.
Since its election day, just thought I'd ask, what's a vote worth?
Well, if you buy a non-dividend paying stock, you're buying the right to vote for a nominee to the board of directors. It's not clear that your buying anything else.
Based on the stock market, in this country, democracy is very healthy!!!
(Oh by the way, the nominee always wins.)
-jus me
jus me,
Since its election day, just thought I'd ask, what's a vote worth?
About $30? ($4 billion / 131 million)
Election Spending Could Top $4 Billion, Shatter Record for Midterm
Voter Turnout Increases by 5 Million in 2008 Presidential Election, U.S. Census Bureau Reports
About 131 million people reported voting in the 2008 U.S. presidential election...
A clever candidate might consider just minting one ounce campaign buttons made out of pure silver to be handed out door to door of course. Just a thought!
Stag,
Denninger is out in left field with with his margin compression meme. Corporate profits are at historic highs so margin compression should be expected.
Moreover, what Denninger misses is that for every business that sees a cost increase, there is a business that sees a sales increase. Neither of those are related to demand from Main Street though.
I'll say it again, high oil prices do not cause inflation. Deflation looms.
It never ceases to amaze me how people CONtinually try and attribute the cause of complex events to a single and simple variable!
There are certainly similarities between our current eCONomic situation and the situation that existed just prior to the onset of the GD. But there are differences too.
I've read that Ben can't raise interest rates. What would happen to his balance sheet, his $1.75 trillion of MBS' if he did?
mab,
I'm reminded of a quote from many years ago that I paraphrase from memory.
In the beginning of a great inflation, everybody wins and nobody pays. In the end, nobody wins and everybody pays.
Perhaps corporate profits are still in the everyone wins part of the cycle, just like we were back at the end of the 2007?
What came next was a small taste of stagflation followed by a heavy dose of deflation.
I don't think anyone here is arguing that higher oil prices will create untold prosperity at our nation's many malls.
Fatboy,
If inflation does start to pick up and the Fed cannot raise interest rates to fight it then we will slip into hyperinflation. No ifs, ands, or buts.
The Fed MUST fight it though. It has no choice.
I'm not saying that inflation will pick up though. I'm actually quite uncertain what will happen next. I still lean a bit deflationary even with negative real interest rates.
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