Utopia Talk / Politics / Get ready f inflation....

habebe Member	Wed Jun 10 12:48:18 The economic crisis, the ill-conceived government reactions, the ensuing economic downturn and the massive liabilities of government programs like Social Security and Medicare and Medicaid, all but guarantees higher interest rates, massive tax increases, and partial default on government promises, says Arthur B. Laffer, chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen" (Threshold, 2008). As bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s, says Laffer. About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base -- which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash -- by a little less than $1 trillion. The Fed controls the monetary base 100 percent and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position, says Laffer: The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10; it is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base -- which prior to the expansion had comprised 95 percent of the monetary base -- has risen by a little less than 10 percent, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50 percent of the monetary base. It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because we haven't ever seen anything like this in the United States, says Laffer: To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5 percent and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. That is a summary. http://online.wsj.com/article/SB124458888993599879.html
habebe Member	Wed Jun 10 12:49:11 Full text- Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be "wasted." Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now. Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That's more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers' expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries. With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs -- such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid -- are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises. But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s. About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base -- which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash -- by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position. The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base -- which prior to the expansion had comprised 95% of the monetary base -- has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base. Yikes! Bank reserves are crucially important because they are the foundation upon which banks are able to expand their liabilities and thereby increase the quantity of money. Banks are required to hold a certain fraction of their liabilities -- demand deposits and other checkable deposits -- in reserves held at the Fed or in vault cash. Prior to the huge increase in bank reserves, banks had been constrained from expanding loans by their reserve positions. They weren't able to inject liquidity into the economy, which had been so desperately needed in response to the liquidity crisis that began in 2007 and continued into 2008. But since last September, all of that has changed. Banks now have huge amounts of excess reserves, enabling them to make lots of net new loans. The way a bank or the banking system makes new loans is conceptually pretty simple. Banks find an entity that they believe to be credit-worthy that also wants a loan, and in exchange for the new company's IOU (i.e., loan) the bank opens up a checking account for the customer. For the bank's sake, the hope is that the interest paid by the borrower more than makes up for the cost and risk of the loan. The recently ballyhooed "stress tests" on banks are nothing more than checking how well a bank can weather differing levels of default risk. What's important for the overall economy, however, is how fast these loans are made and how rapidly the quantity of money increases. For our purposes, money is the sum total of all currency in circulation, bank demand deposits, other checkable deposits, and travelers checks (economists call this M1). When reserve constraints on banks are removed, it does take the banks time to make new loans. But given sufficient time, they will make enough new loans until they are once again reserve constrained. The expansion of money, given an increase in the monetary base, is inevitable, and will ultimately result in higher inflation and interest rates. In shorter time frames, the expansion of money can also result in higher stock prices, a weaker currency, and increases in commodity prices such as oil and gold. At present, banks are doing just what we would expect them to do. They are making new loans and increasing overall bank liabilities (i.e., money). The 12-month growth rate of M1 is now in the 15% range, and close to its highest level in the past half century. With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It's a catch-22. It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture. Now the Fed can, and I believe should, do what it must to mitigate the inevitable consequences of its unwarranted increase in the monetary base. It should contract the monetary base back to where it otherwise would have been, plus a slight increase geared toward economic expansion. Absent this major contraction in the monetary base, the Fed should increase reserve requirements on member banks to absorb the excess reserves. Given that banks are now paid interest on their reserves and short-term rates are very low, raising reserve requirements should not exact too much of a penalty on the banking system, and the long-term gains of the lessened inflation would many times over warrant whatever short-term costs there might be. Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury's planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds. In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it's a Hobson's choice. For me the issue is how to protect assets for my grandchildren.
Cloud Strife Member	Wed Jun 10 12:53:04 If you honestly think that inflation will sky rocket and want to make a ton of money off of that, borrow a ton of money and invest it now. The inflation will drive the value up over the loan's interest rate, and you'll make incredible returns.
habebe Member	Wed Jun 10 12:59:21 Or invest heavy into precious metals, they always seem to do good during inflationary periods.
lucifer Member	Wed Jun 10 13:07:57 I dont see it. this guru is basing his theories, on past recessions. I said it right from the start, this will be unlike anything we've seen before, and almost impossible to predict. the quantitative easing, has only matched the debt already in the system. so for current outstanding debts to be paid, that same amount has to be injected into the system. I think they've got their sums as close to right as possible. there was already so much fat on the bone within americas' corporate monsters, that deflation was an inevitability of the cyclical downturn. so then to say that inflation will occur becoz the printing presses have matched the outstanding debts, just doesnt add up.
yankeessuck123 Member	Wed Jun 10 13:12:07 I've been saying for ages that once the economy begins to pick up, inflation is going to pick up. It's not going to be as massive as many of the fearmongers are saying, but it will hurt.
habebe Member	Wed Jun 10 13:13:34 Agrees with yankees, I don't see any hyperinflation, but I do see 70's esque inflation at worst.
lucifer Member	Wed Jun 10 13:18:40 so what will drive it. corporate opportunism, or the good old fashion 'wage / price spiral' I mean, when the powers that be decide to raise their prices, they've got to justify it to themselves, before they can pass it off to the masses. POSSIBLE REASONS. 1. increased overheads (higher interest factored into rent / lease of plant and equipment. 2. increased transporation costs. (fuel) 3. increased wages (due to cost of living CPI indexed allowance. 4. higher importation costs due to sliding US dollar value.
habebe Member	Wed Jun 10 13:23:06 Lucifer, the same thing that always has and always will cause inflation. producing more money than the growth of the economy
HOer Member	Wed Jun 10 13:23:23 Wait...Laffer of the ridiculed laffer curve, Dick Cheney and Donald Rumsfeld's favorute crystal gazer? Allow me to smile...
HOer Member	Wed Jun 10 13:25:16 Laffer made a bet with Schiff that there wouldn't be a recession, and that the housing bubble wouldn't bust in the next year or two. Both agreed to put their credibility on the line and the winner would receive a penny Laffer appeared almost two years after that interview, on "Real Time with Bill Maher", on October 24, 2008. Maher asked him, "Have you paid off that bet?" Laffer replied that he had not - wiki yeah, lets listen to Laffer...
lucifer Member	Wed Jun 10 13:25:51 with 40 to 70 percent mark ups, at every stage of the chain, and 20% GP being the goal for every player, theres still so much beef that can be sliced to keep things nice and tidy. inflation can only be the outcome if interest rates begin to climb, and theres no justification for that unless the players start getting greedy, and ripping people off, only becoz they can get away with it. and that will only happen, if people arent allowed to re-finance the deal on their most basic but high cost factor in life, the ROOF OVER THEIR HEAD. the only way to fix this, is to acknowled that we were all ripped off, in a monumental PONZIE scheme that allowed people to get rich, for doing nothing more than signing a morgage agreement. lets get back to basics, and create a system, where we're no longer constantly entrapped in a cycle of lifelong debt slavery, making the bankers rich, becoz the cost of our most basic need, the roof over our head, doubles every ten years, while the average wage only doubles every 30 years.
lucifer Member	Wed Jun 10 13:27:43 but thats just it, they havent produced MORE money. they've matched the output of the printing presses to the debt that already existed.
Milton Bradley Member	Wed Jun 10 13:30:32 I dont think the economy will grow fast enough for much inflation.
lucifer Member	Wed Jun 10 13:32:42 and why did it double every ten years. becoz of the rate of interst. and why was interest so hi, becoz of inflation, and why was inflation so hi, becoz of the increased cost of living and why was the the cost of living increasing, becoz the rate of inflation. and so on and so forth.
lucifer Member	Wed Jun 10 13:57:06 "producing more money than the growth of the economy" but the economy cant grow, unless there is MORE money. and the only way for that money to enter the economy, is as a debt. beleive me, the majority of people in active life and poised to play (those between 20 and 40 with a regular income) are already financed up to their eyeballs, and probably cant handle any more debt anyhow. so how can more money enter the economy? lend it to people with less than glowing financial records? didnt they try that already? meanwhile, the people who have got as much debt as they can handle, have got less discretionary income than they did when they went into debt, coz of the increased cost of living, driven by the greedy little bastards at opec, so the economy begins to strangle itself under the weight of the hangover from the party we were having when things were going well, and the general ledger actualy ballanced.
HOer Member	Wed Jun 10 14:01:38 "but the economy cant grow, unless there is MORE money." of course it can. Consumption reaching previous levels doesnt need cash that didnt exist before.
lucifer Member	Wed Jun 10 14:11:04 you need to watch 'fiat empire' you can download it at pirate bay. economic growth, as measured by increase in GDP - only two ways for GDP to increase - more money in the economy, or people spending the same money faster. now considering that 10% of the population command 90% of the wealth, and they sit on it, and expect it to grow at another 15%, you need to inject 13% more money into the economy each year, than you did the year before, to even ballance out. (my bush maths) so in the last 6 months, the fed created more new money than they have in the last 60 years, means they're only playing catch up. All money lent in the last 60 years, was simply an advance on earnings through a system of fractional reserve banking, ie: creating debt on the ledger out of thin air, and expecting more money to come back in repayments than you entered on the ledger when the debt was created. so now, the only way any of those debts that have been created over the last 60 years, can be repayed, is to add them all up, and print that much money again.
Habebe Member	Tue Jun 28 00:38:27 Well it took 12 yrs or so...but "habebe Member Wed Jun 10 13:13:34 Agrees with yankees, I don't see any hyperinflation, but I do see 70's esque inflation at worst." We're there now.New Monetary/New Keynesian, whatever you call it kind of flopped.
earthpig GTFO HOer	Tue Jun 28 01:38:29 Fed prints $1t in 2009: "so in the last 6 months, the fed created more new money than they have in the last 60 years They printed $5t last year... I really wish TC would update things to show the year as part of the date.
Habebe Member	Tue Jun 28 01:41:17 Ep, Yeah, I only knew it was 2009 from the article. Didnt the fed just buy 9 trillion in assets when the market crashed in 2020?
Seb Member	Tue Jun 28 07:28:58 Seems more likely (as inflation spiking everywhere) that it is driven by lack of supply. Energy is more expensive because there are supply constraints. Food is more expensive because there are supply constraints (even before Ukraine). Industrial goods are more expensive because of China's zero COVID policy and vaccine failures. Ergo demand exceeds supply, pushing up prices.
Habebe Member	Tue Jun 28 07:42:05 Seb, That surely has a role. Im not sure to what degree. But most places also spent shitloads during the pandemic. Oil and food "special inflation" is easier to track. But that doesn't explain everything.
nhill Member	Tue Jun 28 08:18:23 Ep it’s not too hard to find dates. Just have to know the 7 year windows it lands in then find a year where wednesday is on June 10th. Which does appear to be 2009 in this case. I was thinking about reverse engineering all the dates this way. Should be easy to add to the latest version of the scraper, but I really hate working with dates :p
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