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Vincent Cate  

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  • Why The JGB Market Ignored Moody's Downgrade [View article]
    The death spiral is extraordinary. Usually leads to the death of a currency.

    I agree that there is nothing extraordinary about the current USD/Yen ratio.
    Dec 4, 2014. 10:18 AM | Likes Like |Link to Comment
  • Why The JGB Market Ignored Moody's Downgrade [View article]
    If the central bank prints money fast enough and buys bonds it can always keep interest rates down. This is what Japan is doing.
    Dec 4, 2014. 10:01 AM | Likes Like |Link to Comment
  • Why The JGB Market Ignored Moody's Downgrade [View article]
    The real reason Moody's had no impact is that the only buyer is the central bank.
    Dec 4, 2014. 09:06 AM | Likes Like |Link to Comment
  • Why The JGB Market Ignored Moody's Downgrade [View article]
    When it comes to inflation, MMT is broken. So I corrected it making CMMT. With this it is very easy to understand inflation:

    http://seekingalpha.co...
    Dec 4, 2014. 09:01 AM | Likes Like |Link to Comment
  • Why The JGB Market Ignored Moody's Downgrade [View article]
    For the last 3 months a typical week is the Yen loses 1% relative to the dollar. The Japanese base money supply is going up at about the same rate. From Nov 10 to 20 it went up 1.8% and also from Nov 20 to Nov 30 it went up 1.8%.

    The 10 year JGB paying 0.4% per year means you lose about equal to 2.5 years of interest every week. This is a crazy bad investment so of course people, banks, companies, and retirement funds are fleeing JGBs. You can see this because the central bank is buying them much more than enough to fund the deficit.

    You think that if the central bank lets interest rates go up then people will buy JGBs again but you are wrong. The problem is that the higher the interest rate the more broke the government looks. If interest rates go up a few percent it would take all of their taxes to pay the interest on the debt. Nobody will buy bonds in such a government, nor at any higher interest rate where they are much worse off.

    They key dynamic at this point is that the more the central bank makes money and buys bonds, the worse those bonds are as an investment because the currency will go down, so the less people want to hold JGBs. At the same time, the fewer people that hold JGBs the more the central bank must make new Yen and buy up JGBs. This is a death spiral. The only way out is to cut the government spending in half, which will not happen till after the hyperinflation has finished.

    http://bit.ly/1tDYaE6
    Dec 4, 2014. 08:56 AM | 1 Like Like |Link to Comment
  • How We Know High Inflation Is Coming [View article]
    There is some inflation, and probably the government understates it a bit, but so far it is very small compared to what is coming.
    Nov 20, 2014. 01:44 AM | Likes Like |Link to Comment
  • Throwing In The Towel On Japan [View article]
    If you understand hyperinflation, you can understand Japan. Hyperinflation is a positive feedback loop where the more the central bank buys government bonds, the less anyone else wants to buy or hold them. Also, the less people buy/hold bonds, the more the central bank has to buy and hold so the government has cash to operate. This spirals out of control with lots of new money being created. The new money eventually results in inflation, which results in higher velocity of money, which contributes to inflation. Hyperinflation has a lot in common with many interesting positive feedback loops in nature:

    http://bit.ly/1tDYaE6
    Nov 13, 2014. 04:35 AM | Likes Like |Link to Comment
  • Who Really Thinks That Japan Is Argentina? [View article]
    I really think Japan will get hyperinflation. What happens is a death spiral, or positive feedback loop. The more the central bank makes new money and buys bonds, the worse it is to hold bonds, so more people get out. But the more people that get out the more money the central bank must make to buy bonds, since otherwise the government would fail and the central bank with it. This death spiral ends with all the debt being monetized and nobody but the central bank buying government debt from then on. The flood of new money and the increased velocity as inflation picks up result in hyperinflation. I think Japan has started this death spiral. If so, people will want out of JGBs faster and faster and the supply of Yen will be going up fast even as the demand goes down. The price of Yen will keep falling.

    Look at this and also follow the link at the end:
    http://bit.ly/1tDYaE6
    Nov 6, 2014. 09:53 PM | 1 Like Like |Link to Comment
  • Deflation Leads To Hyperinflation [View article]
    I have other explanations of hyperinflation that I like better:

    http://bit.ly/1tDYaE6
    Oct 29, 2014. 07:06 PM | Likes Like |Link to Comment
  • No, Higher Velocity Will Not Necessarily Mean Higher Inflation [View article]
    P = M * V / GDP

    You don't get a statistical relationship between P and V, but you get a great one between P and M*V. We already have M way up so if V also goes up then M*V is way up and P must go way up. So given out current reality of M way up, it must be that when V goes up prices will go way up.

    The equation of exchange works no matter which definition of money you use. The moneyness things not included in by the definition you use just help move the "real money" around faster, contributing to the velocity of money.
    Oct 22, 2014. 05:22 AM | Likes Like |Link to Comment
  • CMMT - Cate's Modern Monetary Theory [View article]
    That banks can borrow deposits from the central bank at near zero interest does make for a brave new world of banking with different limits than in the past. And yes it lets banks not worry about getting deposits.
    Oct 7, 2014. 08:18 AM | Likes Like |Link to Comment
  • CMMT - Cate's Modern Monetary Theory [View article]
    Banks can only loan out 90% of their deposits, by law. Now they can borrow deposits from the central bank, so if the central bank loans them unlimited amounts then they can make unlimited amounts. But really private banks can make at most a factor of 10 on their own. In hyperinflation you are getting factors of 1000x, 1,000,000x etc. Clearly the central bank is the key for hyperinflation.
    Oct 7, 2014. 08:09 AM | Likes Like |Link to Comment
  • CMMT - Cate's Modern Monetary Theory [View article]
    As I said, the definition of M1 includes demand deposits and cash. So if someone makes a demand deposit and the bank loans out that cash to someone else then M1 has gone up. We can say the bank made the money supply go up when it made the loan.

    If private (not central) banks could really make unlimited money then there should be some hyperinflation caused by a private bank and there is none.
    Oct 7, 2014. 07:35 AM | Likes Like |Link to Comment
  • CMMT - Cate's Modern Monetary Theory [View article]
    I joined the MMT group and had an interesting discussion for a couple of hours, then was asked to leave and left. For the record, I think I was winning. :-)
    Oct 6, 2014. 11:44 PM | Likes Like |Link to Comment
  • CMMT - Cate's Modern Monetary Theory [View article]
    That Facebook group is a closed group so I can not see what you wrote there or any replies others made.

    Yes, in MMT monetization of debt is "just an asset swap" of no importance because they define the bonds to be part of the money supply. But in reality when the central bank is forced to monetize a huge debt they always seem to get hyperinflation. In MMT this is just a coincidence and not because of the monetization. While CMMT better explains the experimental data.
    Oct 6, 2014. 11:00 AM | Likes Like |Link to Comment
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