Buy stock from banks with distressed assets and likely no equity? Not yet, I'll wait until the Fed pumps them full of cash, again. Then I'll bail real quick.
Ed, I always appreciate your articles. You nail it, leave little else to add, but a lot to think about. This one make me wonder what the Fed's next move might be.
Okay. Yea it's structural issues that have the best shot at get it moving. I don't buy the supply creating demand argument, it's not effective over time. It's inflationary, prices rise and will likely overshoot and the dollar crashes. That's the net effect, in time we will buy less bread and pay more for gas.
Yea, Dave, the standard definition of deflation just doesn't seem to cut it. There is a lot more going on with deflation besides falling prices. And folks hold onto their money for other reasons rather than hoping for a better price in the future.
Economic activity has set the stage for deflation and the threat is real: wealth is down, capacity is low, velocity is at a snail's pace, deleveraging is happening to some degree. Many things play into what deflation really is, and it's not limited to negative CPI figures.
Under these conditions, even though the CPI remains positive, we are on the edge of a deflationary spiral. Yea, in a sense deflation has taken a holiday, but we did experience a bout with it and might again...vague definitions aside.
Agree totally. The Fed has set the stage: the banks are primed to lend. It's apparent the solvency issue is no longer pressing. We all know Ben is not adverse to letting the flood gates open if solvency is an issue. He did not see the need. Act 1 is complete, time for act 2. The roll over money can fund stimulus. Yea, I know, I do not like more debt, either. But it's the next act in the play.
What rational could there be for launching the fleet? There is enough money already primed in the system. Interest and principle payments on $1.2 trillion of MBS should put a lot of additional liquidity into the economy and government. They've printed quite enough, already, almost triple pre crisis base money. Our problems are structural, not monetary. The trick is getting money to move, printing more without any velocity would be silly at this point.
Inflation has one definition and many causes. Some of those causes are likely to be lingering, but the big picture is deflationary. When prices fall, that's disinflation. When GDP falls, that's recession. When income falls with both of them, that's deflation even if the CPI is still in positive territory.
Screw the definitions, deflation is more than just a general fall in prices turning negative. That's an arbitrary turning point when disinflation becomes deflation with no consideration of capacity, the money supply, or demand. Each of these are down in the past years.
All of these have fallen off their highs, but appear to be stabilized somewhat by stimulus and QE. So, there really is no surprise some prices remain high, prices tend to be sticky and not everything changes (up or down) in a neat formation.
Overall, velocity is down and so is the money supply. Capacity is weak. Wealth destruction and saving (to include any deleveraging) has seen to that. Sure, there are inflationary forces out there, but most of them are linked to a decline in the dollar.
The threat income, GDP, and money supply will remain low or resume falling is real despite oil prices and "sovereign debt,"..."going forward."
The Emergence of a Two-Speed Eurozone? [View article]
Coming off the heals of a severe financial crisis by boasting 9% annualized rate of growth sounds too good to be true. The rift between the performance in Germany and the PIIGS makes things interesting. How does one central bank with an experimental currency define policy? It'll be an interesting experiment to follow.
Good points. Many of us argued against QE prior to the Fed announcement, and maybe we failed to notice the Fed agreed.
I applaud the Fed move, it seems smart to put those MSBs to work. And it hints the bank solvency issue has passed alleviating the need for further balance sheet expansion. If solvency was an issue, Bernanke is certainly not shy about pulling out the stops.
Phase two seems to be in effect, now, to pull down yields and monetize debt. The debate should be centered on whether this will be effective forcing lending and if more stimulus will help. My jury is deadlocked.
A Few Thoughts on the Fed’s Quantitative Easing Strategy [View article]
Those MSBs might just prove useful monetizing more debt. Might as well put them to good use, no one else wants to. Wouldn't that be the height of irony if they ended up saving the economy. LOL
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Hiding Bank Losses [View article]
Telsa Rowe to turn $2500 into $100,000 in 3 months and 8 total trades. Blog 1/13 [View instapost]
Hiding Bank Losses [View article]
The Great ‘Deflation Lie’ [View article]
U.S. Dollar and Long Bonds: Gotta Own Them [View article]
Deflation Takes a Holiday [View article]
Economic activity has set the stage for deflation and the threat is real: wealth is down, capacity is low, velocity is at a snail's pace, deleveraging is happening to some degree. Many things play into what deflation really is, and it's not limited to negative CPI figures.
Under these conditions, even though the CPI remains positive, we are on the edge of a deflationary spiral. Yea, in a sense deflation has taken a holiday, but we did experience a bout with it and might again...vague definitions aside.
Inflation Remains in Check [View article]
The Great ‘Deflation Lie’ [View article]
The Great ‘Deflation Lie’ [View article]
The Great ‘Deflation Lie’ [View article]
Screw the definitions, deflation is more than just a general fall in prices turning negative. That's an arbitrary turning point when disinflation becomes deflation with no consideration of capacity, the money supply, or demand. Each of these are down in the past years.
All of these have fallen off their highs, but appear to be stabilized somewhat by stimulus and QE. So, there really is no surprise some prices remain high, prices tend to be sticky and not everything changes (up or down) in a neat formation.
Overall, velocity is down and so is the money supply. Capacity is weak. Wealth destruction and saving (to include any deleveraging) has seen to that. Sure, there are inflationary forces out there, but most of them are linked to a decline in the dollar.
The threat income, GDP, and money supply will remain low or resume falling is real despite oil prices and "sovereign debt,"..."going forward."
The Emergence of a Two-Speed Eurozone? [View article]
The Fed Didn't Announce QE2 [View article]
I applaud the Fed move, it seems smart to put those MSBs to work. And it hints the bank solvency issue has passed alleviating the need for further balance sheet expansion. If solvency was an issue, Bernanke is certainly not shy about pulling out the stops.
Phase two seems to be in effect, now, to pull down yields and monetize debt. The debate should be centered on whether this will be effective forcing lending and if more stimulus will help. My jury is deadlocked.
TARP Funds: A Boon for Europe? [View article]
A Few Thoughts on the Fed’s Quantitative Easing Strategy [View article]