Comments on: Threading the Needle

By: Mark E Hoffer

Mark E Hoffer — Fri, 27 Mar 2009 10:36:43 +0000

jmcgowan Says: March 26th, 2009 at 3:39 pm

jmcg,

thank you for your response. I share your, ultimately, dubious take on the future value of the USTreas complex, esp. the ‘long-end’..

though, the idea that Volcker is waiting ‘in the wings’ to play ‘inflation-slayer’ should be, to me, re-thought..

I think it’s more likely that he’s offering, merely, cover by providing the usage of his name..

By: Pat G.

Pat G. — Fri, 27 Mar 2009 01:48:38 +0000

“the Fed is sowing the seeds for big inflation”

You betcha. And with $55T in unfunded Social Security and Medicare obligations just starting that debt is only going to get much worse. More heavy. Repudiation, anyone?

By: jmcgowan

jmcgowan — Thu, 26 Mar 2009 20:35:27 +0000

@ottobvs
Of course it’s just an opinion, an extreme one at that and I could be kooky wrong and I’d like to hear why it can’t happen but… If you read the tea leaves of comments by Bernanke, Kohn, Geithner, and Summers, one common theme is that the fed tightned too soon after loosening in 1933. Their tightening in 1937 stalled a beginning recovery and led to the so called “depression within a depression” in 1937 and 1938. They are determined to avoid this scenario again. They will allow inflation to take hold before tightening. Now the fed is buying US treasuries. This is printing money. If you go to the St. Louis Fed web site, you can look at the adjusted monetary base data series at the link below. If the series continues to go up like it has, I think very high inflation looks more likely. BTW, in such an environment, stocks will go up. Unemployment will remain stubbornly high. The monetary shock occurred in Q4 with a doubling of the monetary base. The effects on output will be felt a year later. The full inflation effect will be felt 2 years later. The fed can choke off inflation but the question is will it? I think the fed will be afraid of choking it too early. http://research.stlouisfed.org/fred2/series/BASE

By: ottovbvs

ottovbvs — Thu, 26 Mar 2009 19:51:33 +0000

jmcgowan Says:
March 26th, 2009 at 3:39 pm

…..I hesitate to take a view on your scenario but if it depends on hyperinflation or even getting close to hyperinflation as you suggest then there are a couple of questions because the Fed can easily choke off inflation and will, long before hyper appears before inflation.

By: jmcgowan

jmcgowan — Thu, 26 Mar 2009 19:39:20 +0000

@Mark E Hoffer
I’m reading that the fed will sterilize by issuing its own securities. I hear that they are seeking approval to do so. But before that happens, I think we’ll be close to hyperinflation. Volker is standing in the wings to play the inflation slayer again. The fed can quickly mop up extra cash by selling its own securities. This time though as opposed to the 1930s, the fed will err on the side of inflation as opposed to deflation. Short long term treasuries.

By: ottovbvs

ottovbvs — Thu, 26 Mar 2009 16:59:10 +0000

franklin411 Says:
March 26th, 2009 at 10:50 am
Deflation is horrible for debtors and great for the rich.

…….Sure deflation is horrible for debtors who may or may not include the rich, who have had the capacity to lever themselves to a greater extent than anyone else, but this is only one part of the equation. The rich are also the owners of assets aka wealth. In a period of inflation they benefit disproportionately because salaries and wages are invariably racing to catch up with the increasing value of those assets while the big losers, those on fixed incomes, fall further behind. Ergo the owners of capital aka (according to MA) as the entrenched interests stand to benefit most from inflation and not the other way around as he was suggesting. Basically no one benefits much from deflation although there could be some improvements in the relative position of certain entrenched interests who have very secure jobs like tenured professors at Harvard, IRS employees, teachers, workers in state public works depts etc…..But Im sure those are not the “entrenched interests” MA had in mind when he claimed they would prefer deflation to inflation.

By: batmando

batmando — Thu, 26 Mar 2009 16:52:32 +0000

@Marcus Aurelius
Agreed. The given is that there is a large wad of bad debt that has to be eaten by someone and the primary candidate from the get-go has been …. us, our children and theirs, who will pay for it through higher taxes for years and years and the hidden tax of inflation. In which case, I’d much rather see that gov’t remedies/monies be funneled through us to pay down debt or, if one has been prudent and not in debt, one’s share can go to increased consumption or investment. Any of the three courses of actions contributing to the economy as a whole while benefiting each of us directly.

By: Marcus Aurelius

Marcus Aurelius — Thu, 26 Mar 2009 16:03:24 +0000

batmando:

That’s the problem with all of the bail out money going to the top – no increase in wages at the middle and bottom. If the “stimulus” (inflationary, by nature), had been applied to the general population, debts would be paid (to the banks, who could then, in turn, detoxify the crap they’ve created). But that’s not what is happening. The indebted – most of the middle and lower classes – will not be released from their debt. The system wants debt slavery – that’s why they are seeking to expand credit (increasing debt).

By: batmando

batmando — Thu, 26 Mar 2009 15:54:04 +0000

@franklin411
“Give me inflation any day of the week!”
So long as your wages go up at least at the same rate as inflation, yes?

By: zyzy

zyzy — Thu, 26 Mar 2009 15:50:30 +0000

Recent Chinese movements ( http://www.marketwatch.com/news/story/China-central-banker-sees-growth/story.aspx?guid=%7BBA7B7495%2D12CC%2D409B%2D86AF%2D8E3CC2232D42%7D) make me wonder what are they up to ?