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  • If this is the second blog on QE2 I get to call it QE2-2 24 comments
    Nov 28, 2010 7:17 PM

    I'd like to cherry pick a couple of comments made in the previous post so that we can keep the conversation going in a faster thread.  Please do re-read all the great things that have been said in the last post, but carry new comments forward to here.

    John Lounsbury Said:

    Hello guys - - -

    You are talking about some of the QE questions that are important. I'll add my understanding and await correction from others:

    1. QE is basically printing money, plain and simple.

    2. QE is monetizing debt.

    3. QE is not inflationary until it is inflationary. Recognizing that boundary is virtually impossible until well after the fact.

    4. QE may help push stocks up, but asset bubbles in a lot of other areas, especially commodities, are a bigger affect.

    5. The bubbles produced by QE in the U.S. are also in other parts of the world as well as the U.S., sometimes more elsewhere, because our trade deficit continues to push dollars overseas.

    6. All that being said, QE may be useful and far from the worst way to go. Deflation because of the failure to monetize can be devastating.

    Steve Hansen has been writing some good stuff on QE leakage into the rest of the world: econintersect.com/word...

    Two other good articles are "Did France Cause the Great Depression" by Doug Irwineconintersect.com/word... and "The Myth of Expansionary Fiscal Austerity" by Dean Baker econintersect.com/word...

    There is no road map to the future, and in the current situation there isn't even compass. We are bushwacking with no map and no compass, just a bunch of economic theories all of which have been found wanting in one way or another. 

    HTL Later said

    I just got reminded of something I've read several times now about the rise in commodities. It's not inflation, according to the thoughts I read. It's a result of carry trade. With $US borrowing @ ~.25% and dollar weakness, yield is being generated by using the dollar as carry trade, just like with the yen.

    That would resolve, for me, why we have the apparent conflict of inflationistas and deflationists.

    The resolution occurs through the following logic mechanism.

    1. Cullen is right - it's an exchange of assets, no new money flows.
    2. Money always seeks yield. If yield is not available here, it leaves.
    3. The best way for this to happen is to leverage by borrowing at *very* low rates to buy something that is appreciating at a much higher rate.
    4. Since there is a *lot* of "free money" available to certain institutions that have *very* sophisticated trading desks, they all lever up and compete with each other for those assets that promise higher yields.
    5. The assets return not only what they would "naturally" yield, but also the additional yield that is a result of increased competition for "scarce" resources - high yielding assets.

    If what I guess is true, we can draw some conclusions.

    1. The assets that have seen such huge run-ups are in a "bubble", or nearly so.
    2. They will continue to grow a larger bubble until something pops them.
    3. The most likely cause of a pop is related to changing currency strength.
    4. A strengthening $US will cause an unwinding of carry trade in $US and force it back to another currency, like the yen.
    5. During the adjustment, the asset prices will deflate, likely overshoot, and then return to some semblance of normalcy.

    Regardless, the inflationary effects of the speculative bubbles formed by a "weak dollar policy" as implemented by BB and TG, regardless of intention or nomenclature, will be (is already being) passed through to the economy and the citizenry, to our great detriment.

    So although QE II may not be inflationary in its mechanical aspects, the mindset, policies and implementation of surrounding policies set up an inflationary scenario even though QE II itself, and its predecessors, are deflationary in nature and mechanical effect.

    In other words, we've properly identified the crime committed but arrested the wrong alleged "perp". With so many ingredients in the stew, it's hard to identify the meat.

    Thoughts? And *if* all this is true, then a strategy based on inflation expectations solely would be a poor stance to take. We would need one that accounts for what I envisioned or its offspring. Remember that this was the intent here - get a strategy that is useful to us. And we can't be certain of that *unless* we can fathom what is *really* happening.


    And John added:

    I have been following your discussion with great interest.

    If you will allow me to interject some thoughts: If inflation (commodities, energy, food or whatever) is in fact just another bubble, then the final deflation will be draconian and all the "liquidity" provided to the banks by QE and MBS transfer to Fannie, Freddie and the Fed will disappear into a black hole that swallows up the "liquidity" without unwinding a fraction of the excess debt.

    The debt of the world is probably well over $100 trillion and that of the U.S. somewhere around $50 trillion. The total efforts in the U.S. to provide liquidity for handling the debt is of the order of $2+ trillion (heading toward $3 trillion with QE2). All this can do is provide the lubricant to keep moving the debt around. It does little to help reduce the debt. The strategy is to let the banks "earn" their way out of the hole. But if their earnings are actually derived from creating more debt (private or government), they never make much progress. Wonder why it's called extend and pretend? Kind of obvious I think.

    The last over-leverage crisis was the S&L debacle mid-80's into the 90's. Most would agree the banking system was on the ropes then and that was a very small fraction of the size of the current crisis. Most banks were actually insolvent then (even with that much smaller problem) and took nearly a decade to earn enough to (sort of) get back on their feet. What did it take? A tech boom, which of course bubbled, but without a deep impact on the banks.

    So we have a much bigger pit now. Where is the 10X boom (compared to the tech boom) going to come from in the next 10 years to address a crisis which is much more than 10x the S&L crisis?

    Hope I didn't overstay my welcome with this long winded comment.

    BTW, Dirk Bezemer has a very interesting article which discusses how the Babylonians handled debt crises: econintersect.com/word.... Ancient Babylonia dealt with debt crisis in a process akin to bankruptcy for speculators and support mechanisms for producers. Today we are doing just the opposite.

    Lots of other great stuff was added by others, which you know by now if you have followed along, but I wanted to capture the essence of the issue and try to move the discussion here.

    For my own part, I am trying to remain a devils advocate against deflation and collapse, mostly because I grew up in the 1970's and heard all this gloom and doom before.  It was arguably true then, as later crises bore out, but it was also not true in the sense of the world is still turning and we haven't yet blown ourselves up.  So it will take a lot of drama to convince me we are finally at the end point that so many have been calling for for so long.  The argument only gets stronger with each passing decade, yet if it influenced your investment strategy you would have been toast (unless you're George Soros).

    So the most important question we have moving forward is the drum that HTL keeps beating -- what does all this say about how we should be positioning our investments?

    Is cash in the mattress really the play of the 20-teens?  History suggests this is not the case.  Is it "different this time?"

    Disclosure: Long SLV, physical silver and other related items
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Comments (24)
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  • optionsgirl
    , contributor
    Comments (5202) | Send Message
    So, DM you ask what to do in a deflation?
    You need cash in a deflation--take your pick of currencies.
    (Not Euros).
    You need puts or to go short.
    You can generate cash by selling calls.
    You have to be a directional player in such a market.
    28 Nov 2010, 07:34 PM Reply Like
  • John Lounsbury
    , contributor
    Comments (4052) | Send Message
    DM - - -


    Thanks for starting a new InstaChat. I put this comment here to get the automatic notices when more comments are added.
    29 Nov 2010, 12:48 AM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (5080) | Send Message
    Author’s reply » OG, Is there something you specifically would short if deflation takes control? I know financials would be tempting because they are supposed to be insolvent, but they can always go running to Big Brother for help, so that could get messy. What sector or company do you think would be particularly hurt in a deflationary environment which would also probably not get rescued by the government? That's an open question if anyone else has ideas.


    And I don't disagree with your assertion that it is beneficial to be directional in such a market, but surely there is always something to go long on in any environment. I don't know if the movie studios were publicly traded in the 30's but Hollywood kicked butt in the depression. There are some things folks will always be compelled to buy -- both physical and psychological staples. And when so many companies struggle with folks holding on to cash waiting for it to be worth more, those companies that thrive attract a lot of attention and hence can be very bullish.


    Then too I'll just point out the obvious that those who buy real estate and other beat down assets near the bottom of the cycle (assuming we're not knocked out for the count) can make some serious money. So part of any deflationary investing strategy, it seems to me, would be timing when to go long.
    29 Nov 2010, 01:17 AM Reply Like
  • optionsgirl
    , contributor
    Comments (5202) | Send Message
    DM- Retailers were the first to come to mind in a deflation scenario, as a short, and then, as a long later. Manufacturing, anything where people would wait for prices to fall further.
    29 Nov 2010, 08:05 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19570) | Send Message
    Great summary DM.


    I've been thinking further about strategies for the deflationary portion of the cycle.


    It's just a glimmer right now, but I'm thinking along the lines of "what if it's asymmetric"? I.e. maybe one of more of the OECD countries must deflate because of the decades-long credit abuse while others, and the emerging economies especially, remain neutral or continue marginal growth.


    Also what if it's "global"? Is that more or less likely? ISTM the emerging markets have less chance of experiencing deflation.


    For now, I'm ignoring the possibility that everyone deflates together.


    Anyway, with an asymmetric deflation, what happens to our dollar's purchasing power, PP, in a) the local economy and, b) the global economy.


    We know that dollar PP locally increases locally. So a) is known. But we also know that things remain relatively equal as wages will also deflate.


    That leaves b).


    What happens to our dollar PP in the global economy? I've not seen this addressed. Do our internationally-sourced input costs drop in terms of dollars? Does it depend on what's happening with the particular country's currency is doing (answer s/b yes)? But in general, what happens if, e.g., only we deflate while everyone else inflates or holds steady? Is it possible as long as we are the "reserve currency"?


    These thoughts are nothing more than a "germination" and may need more thought or may be nothing that hard to figure out - thoughts will tell.


    I started building scenarios here and realized more work is needed before I can feel comfortable posting ideas.


    But I thought it was worth getting something on the plate for rumination by the folks.


    29 Nov 2010, 08:23 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10491) | Send Message
    Greetings all: As we are seeing responses will be many and varied. Nation states can and do print local currency as part of their monetary policies and act in their best interests as they see them. Brazil for example instituted a 2% tax on foreign investors. Some like those in the Eurozone can't use the printing press in local currency which creates a whole different set of problems for them. Therefore it seems unlikely that a one size fits all scenario will emerge. Just sayin.
    29 Nov 2010, 10:23 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10491) | Send Message
    Doesn't look like much of a bubble in TEMs does it?www.sifma.org/research...
    29 Nov 2010, 11:31 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10491) | Send Message
    H.T.Love posted this on the Compass but it seemed worthwhile importing it as it is the public face of QEII.
    30 Nov 2010, 03:30 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19570) | Send Message
    Ellen Brown again defending Cullen's thesis. The article is OK. The interesting points, to me, are really made in the comments that folks make. Enough of them had both quality and ideas that I thought we should get the article included here.




    6 Dec 2010, 04:15 PM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (5080) | Send Message
    Author’s reply » Good read, HTL.


    What I dislike the most about the tone of the argument is the unfair characterization of "inflationistas" as having called for Zimbabwe style inflation by December due to QE2.


    I for one have never thought "hyperinflation" was the issue. But high inflation is another matter. 8% inflation can still be very tumultuous. And it would speak loudly about where one should and should not be putting one's money. If for example holding cash burns 8% right off the bat, you have to work hard to get a return that is really a net return.


    So I tend to distrust an argument that starts with "so where is the Zimbabwe style inflation already?"


    But you're right some of the comments were very good.
    6 Dec 2010, 05:49 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10491) | Send Message
    Both the author and commenters seem to treat hyperinflation as inflation on steroids. Those items aren't the same thing at all. A couple of the commenters seemed aware of the difference but were overwhelmed by the majority who were seemingly unaware of just how different they are. Inflation will arrive in due course as the US$ becomes worth less which any one who does their own shopping is already aware of. Lets all hope that hyperinflation doesn't show up at all because if it does it means the US$ has become essentially worthless and difficult to use even as local currency.
    6 Dec 2010, 06:12 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
    Here, here, Bob. All this crap about imminent hyberinflation is hogwash, especially in the US. Yet protecting oneself against potential inflation, is prudent, long term. Better yet, investing in metals desired, or for making emerging third world desires, i.e. products, like cell phones, TVs, or cars, is prudent. Bottom line? PMs will continue to rise, herky jerky as the rise may be.
    7 Dec 2010, 12:41 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10491) | Send Message
    Maya: Greetings. I hope the developing economies continue with more solidity as their consumption of consumer goods from developed economies will ultimately prove good for our portfolios. Of course I'm Collecting miners, silver and nickels as a hedge. LOL.
    7 Dec 2010, 03:24 PM Reply Like
  • John Lounsbury
    , contributor
    Comments (4052) | Send Message
    Robert - - -


    See my latest Insta: seekingalpha.com/insta...
    7 Dec 2010, 03:44 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10491) | Send Message
    John, Lounsbury: Greetings. That is indeed an interesting take on the issue. I intend to wait for the appropriate opening to pilfer that line from the website. It's a very good line. LOL.
    7 Dec 2010, 05:25 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19570) | Send Message
    Two good articles relating what, where, when, why of (dis)inflation or no?


    From the first article, he seems to indicate lack of inflation, because his "Monetary Inflation" chart, the second, shows it dropping. This purportedly measures purchasing power "reflected through the gold and currency markets". I must be missing something. Gold is higher, the dollar is only recently "strengthening" towards a slightly more "normal" level, relative to other currencies. Commodities were also on a tear until the dollar did its *very* recent reversal to move back above $80 (DXY).


    Presuming his chart reflects true data, which I have no reason to doubt, what is it really measuring? How do we integrate that into considerations we need to make to have a reasonably confident estimate of near or medium term (dis/in)flation?


    It's a short read. seekingalpha.com/artic...


    In the second article, "Was Bernanke Lying About Printing Money?" we get a statement also that the monetary effects should not be inflationary at this time.


    "But something funny happened on the way to the printing press.


    The money multiplier broke down.


    All of those reserves did not in fact turn into new money like Ben thought it would. The monetary base is exploding, but the money supply is not".


    As we know this to be the case, again no inflation now.


    A key theme in other another article we've considered was the relationship of credit to GDP and here we see an allusion to it again.


    "If banks were forced to recognize bad loans and get the depreciated assets into stronger more liquid hands, it could be debated on how much reserves should be in the banking system. Until that cleansing process is completed it will be a slow grind to cure the one factor which makes the fed "impotent" and unable to "print money" ... overindebtedness".


    Again, no inflation here for now.


    And in a quote from a white paper (from Morgan Stanley?), "In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level". This supports Cullen's assertion that the Fed activities are *not* inflationary.


    Now, there's quite a few *very* smart and experienced folks telling us that the Fed's actions are *not* inflationary right now, although there have been statements that the amount of reserves are *potentially* inflationary (when the demand for loans returns). These folks include Ellen Brown and Cullen and others we've read and the two authors whose posts we have today.


    But *prices*, in terms of dollars, of many commodities have been rising (prior to the recent dollar strengthening). And we've seen other articles and have anecdotal evidence (shopping, price of gas, recent rise in oil prices) of inflationary forces.


    How to resolve this?


    Maybe they are right that *we* don't have inflation from the Fed's monetary policies at this time? How can I consider that a possibility given the prices of commodities, foodstuffs, ... recently?


    Ah, one thing crossing my mind is the "Zero Sum Game". It is reported that we're "exporting inflation". All those for innocent bystanders in other countries are inheriting the ill-effects that rightly belong here at home? I don't yet understand all the mechanisms of this, but accept it as likely true, given the CBs of some of the potential victim countries have taken direct action to stem the flood of dollars from here which are seeking returns elsewhere.


    So, whatever is being measured considering all that is apparently saying "no inflation here" and we apparently have real risk, or current occurrence, of inflation "there".


    In a zero sum game, we can't have it (to the extremes) both places simultaneously. The balance must always net to zero.


    Another possibility has hit me too. Considering the anecdotal evidence that we *do* have inflation, might a combination of anticipation and lag in realization of "The Truth" account for that, as well as the extreme drop and, now, apparent recovery in the dollar, as measured by DXY?


    My trails wander as follows.


    1. Anticipation: everyone expects inflation because of the "old school" foundations, based on fixed exchange rates behavior, taught when gold was a standard for backing currency and our "power players", both public and private sector, were acquiring their educations.


    The dollar weakens based on the anticipation.


    Everyone that can raise prices does so, in anticipation and response to weakening dollar; speculators bid up futures, in anticipation and in response to the weakening dollar; these effects flow through to our real economy. But it turns out to be a short-term only effect, because,


    2. Lag in realization of the truth: as time passes, folks begin understanding the true effects of what is being done. They realize that inflation (however *they* gauge it) is not happening here, it is happening in foreign currencies and they've begun to understand how the *current* monetary system works. They begin to discard the "old school" underpinnings of their judgments and adjust behavior to incorporate the new understandings.


    If this holds water at all we have a possibly viable explanation explaining many of the effects we've seen:


    a) weakening dollar, rising prices as the "old school" underpinnings drive anticipation and, therefore, behavior of all the major players and b) strengthening dollar and (slowly, eventually) falling dollar-denominated prices for commodities as the "realization of the truth" causes modification of the players' behavior.


    The question still remains, at least in my mind, of what is "the truth". Although I'm uneducated, I was told once long ago while learning about computer stuff, by a doctoral candidate in psychologically that administered I.Q. tests as part of his doctoral effort, that I was "very intelligent". Based partly on that and other things, I have come to believe that I know how to learn and think and analyze and integrate.


    At this moment, combining what I've read and discovered and thought about so far, *and* with so many smarter and better educated telling me "it is so", I'm leaning towards Cullen's statement that Bernanke's action are not inflationary.


    And I should point out that *long* ago I posted some comments wherein knowledgeable folks at *that* time (during QE I) had stated emphatically that contrary to Bernanke's intentions, his actions were deflationary in effect, for essentially the same reasons we are reading now: reserves are not money, there is no effect on the velocity of money from these reserves and therefore credit would *not* expand rapidly (although no one that I had encountered to that point had graphed the relationship between GDP and expansion and contraction as one done by one of the articles referenced in the comments to this blog).


    Based an all that, I am willing to endure the pelting I expect to receive from making the following suggestion:
    1. we are in fact in a deflationary downward spiral _at_this_time_ (albeit very slowly); we will see the effects of this on the prices we see after some *lag* *IF* the environment has not *substantially improved from the last year or two,


    2. this is being offset, to some unknown degree, by apparent slow growth improvement in GDP, improvement in consumer confidence (if yesterday's U of M report is truly representative, 74.6 IIRC - a *very* big improvement from the mid-50 level), improvement in import/export (im)balance and the "zero sum effects" where *our* deserved inflation is being sent abroad, etc.,


    3. we *will* have a very real risk of severe inflation out in the future due to fiscal policy (i.e government deficits - which "create" money) and the unleashing of the pent up reserves from the member banks of the Federal Reserve banking system *IF* the Fed is tardy (as they have historically been) in recognizing an "inflection point" and *IF* the federal government does not reign in its fiscally-wanton behavior,


    4. we have an increased likelihood of severe deflation *IF* the more fiscally conservative legislative branch we now have tightens too much too soon, considering the still-weak GDP and consumer-spending growth profiles,


    5. we would likely have less of a problem if we did not have a "debt money" system - we should eliminate the Federal Reserve system and return money creation to its rightful place.




    P.S. I recent cracked wise about Bernanke getting on-the-job training and that he might want to consider some junior college to get re-trained. I now believe that includes many of us as well.
    11 Dec 2010, 02:17 PM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (5080) | Send Message
    Author’s reply » HTL, This is a long and well thought out comment and it deserves a reply. I have been waiting to find the time for this, but it is a very fragmented time of year. Lots of loose ends both social and work related.


    ...Plus if I wait long enough I may get some data to support my case (!)


    No, I'll be looking for a chance to reply and in some cases rebut what you've laid out.
    17 Dec 2010, 02:57 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19570) | Send Message
    NP! I understand time constraints *very* well.


    17 Dec 2010, 03:08 PM Reply Like
  • lower98th
    , contributor
    Comments (1411) | Send Message
    This is where I have to get out the graph paper and think with a chart instead of my tired brain. If the dollar is debased vis a vis other currencies. Ours inflates, theirs deflates?
    18 Dec 2010, 09:18 AM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (5080) | Send Message
    Author’s reply » HTL,
    There is a technical side to your argument that I'm skipping altogether with this response. The reason is these comments are ones I wanted to make but didn't want them to detract from the facts. Many of your facts are compelling, but some things you suggest or point to for support are less so. I've chosen these "style" and "ad hominem" arguments first (because they are easier). Please don't think this consitutes a valid rebuttal or is in any way the case I am making against deflation. That will come next -- hopefully over the weekend.


    So here goes:
    Looking for equilibrium in a complex Zero Sum Game is problematic. The amount of water on the planet is approximately a zero sum game. Some water evaporates out of the atmosphere and some is carried in on ice by extra terrestrial objects caught in the earth’s gravity well, but the amount of water on the planet is approximately stable at any given time. Yet within that stability is a wide array of oceans and deserts and a bunch of turbulence in between. I would view the global economy as complex enough that I would never assume an action somewhere must have an observable balancing effect somewhere else.


    Ellen Brown. The first thing I read by her was an article that asserted that a whole bunch of people were going to get free homes because of the mortgage title chain debacle. Rightly or wrongly, this piece of irresponsible fantasy tainted her value as an economic analyst in my eyes. So when she pushes an equally fantastic sounding idea that the government could abolish debt by issuing its own money backed by nothing but the reputation of the government, I can either assume this is a brilliant idea or is more wishful thinking from a fantasy writer. On first glance, it has looked more like fantasy to me. This casts a pall on all writers who suggest we abolish debt money for this other thing that "works better". It just seems too simple. If we were on a runaway train (which arguably we are) and there was much panic about how we were going to avoid the inevitable crash and someone just suggested we step off the train onto a floating platform suspended by balloons, I would feel the same sense of incredulity. Where did this magical solution come from and why is it suddenly available to us? And perhaps most importantly, will it support our weight?


    Regarding what others say (even if they are “very smart”): I think you can find folks who supported a whole range of nonsense throughout history even among folks who were very smart or experts in their chosen fields. Sir Arthur Conan Doyle once believed a photo proved the existence of fairies. (Not surprisingly it turned out to be a hoax.) There are very smart people today who believe in UFO’s and have reported seeing them. There are other very smart people who make good arguments for why aliens could not or would not be likely to be found anywhere near our region of the galaxy. When people speculate, the inherent strength of their argument means everything. Their relative intelligence means nothing. Smart people are wrong all the time. (See Ellen Brown’s argument about free homes for everyone, for example.) I will never let an expert convince me of anything merely because he or she should know more than me. Sometimes knowing less and having an open and analytical mind is exactly what allows a person to see the truth that the experts miss. I could write a book about how I feel about “intelligence” versus “education” but suffice it to say I believe either you or I or anyone else capable of being interested in this topic is capable of finding the truth (or a piece of it).


    Finally, I want to say something about inflation. Pouring gasoline in your garage is a fire hazard. You can not argue that it must not be a fire hazard because nothing has yet caught fire. The act of pouring the flammable liquid around you increases your risk of dying in a fire. It means if there is any kind of open flame or even possibly a spark, that the risk of a raging inferno has multiplied many hundreds of times. This is how I feel when I describe QE and QE2 as inflationary. I do not think that we will observe immediate inflation nor that the absence of inflation (even if that is what we have) must disprove the dangers of this policy. I once had an employee who was smoking while filling a small gas engine. He leaned over the machine with the tilted gas can and ash fell off of his cigarette and dropped next to the tank. I advised him (pretty excitedly) that this was a safety risk. He looked at me and shrugged. Surely I must be mistaken. Nothing caught fire, after all. He claimed he did it all the time. Perhaps he was the expert and I was the uninformed. One never wants to root for disaster simply to prove one’s viewpoint correct, but sometimes people can disagree about risks forever. And absent any proof either way, the disagreement can linger a long while.


    Next time I will stick only to the very relevant and cogent facts you brought to the table.
    17 Dec 2010, 05:12 PM Reply Like
  • lower98th
    , contributor
    Comments (1411) | Send Message
    I read the articles and op-eds about QEII having unintended consequences, and I am not so sure I buy it.


    Are we in the matrix looking out, or out looking in? From the point of view of Who has the power, and what Must happen.


    The Fed MUST funnel unfathomably large numbers of dollars to the banks and US gov. to debase the debt. For this to work without immediate inflation (only a problem because it would be a threat to the position of Power):


    The Fed must provide phony deflationary scares, ploys, and tactics to, for a time, conceal the inflationary forces at work. These include intentionally depressing employment, the housing market, small business credit, and wages while promoting economically scary (tax-acting) crises like oil, food, and commodity spikes, currency disruptions, and war/terrorism threats. Interest rate spikes are likely to be part of this plan, but will not persist.


    When the power centers are insulated, the crisis management tools will be withdrawn. And then what?
    18 Dec 2010, 09:06 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19570) | Send Message
    "You want to ensure that the 600 billion bucks is channeled and directed wisely so as to ensure the healthy and productive growth of the real economy? Can’t help you in that department. The government is to efficiency as Britney Spears is to gravitas."


    A classic comment embedded in a really *great* article debunking the MMT espoused by Mosler and Roche et al.


    I highly recommend it to all who flounder in trying to understand what is true and false, regarding or monetary system and must rely on the education provided by others, as I must.


    Kudos to the author of the article.




    BTW, it puts the last nail, IMO, in the coffin of "not inflationary, just an asset swap" that folks have been espousing. The reason is that the ultimate results of the QE-type policy are foretold to be as we all originally believed - inflationary in the extreme *unless* one assumes that the unproductive money locked up in reserves currently can never escape the sty in which they reside.


    23 Dec 2010, 01:01 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
    What concerns me months (late March and into April) out is when POMO dries up and the republicans begin the austerity push. If insiders are pulling out at record pace, whom/what is going to support the market then? Certainly, not the retail investor.
    23 Dec 2010, 07:11 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19570) | Send Message
    I've expressed a similar thought somewhere. However, recent news suggests that the high-end retailers are doing quite well and the way this screwed up Fed and PPT manipulated market is behaving, that may be enough.


    But I don't want to be betting on it. Dry powder is growing fairly consistently right now as I keep smaller and smaller percentages of the portfolio in play by exiting positions earlier than normal.


    23 Dec 2010, 09:36 PM Reply Like
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