sabre_jenn

Deflation Is the Threat, Not Inflation

Geoffster -- if credit being wiped out faster than it can be created is "deflationary" (according to you anyway), that would mean the reverse would also be true: massive credit creation (faster than it is being paid off) would be inflationary.

Please point us to a single Wall Street strategist who stated during the credit boom that massive credit creation was inflationary. Credit was exploding 15-20% per year, every year. Show us the quote from Bernanke (or Greenspan) saying this was inflationary, and Fed Funds should be bumped up to 15%. Find us any quote, even one, to support this idea.

But now, the con-artists on Wall Street want to claim that THEIR LOSSES are somehow the equivalent of deflation.

The dollar is going down. Cost of living is going up. And Wall Street isn't fooling anyone outside of the Fed.

Man up and admit you are wrong


On Oct 25 10:01 AM The Geoffster wrote:

> That giant sucking sound you hear is the debt implosion.
> Credit is being wiped out faster than it can be created. That's deflationary.

Deflation Is the Threat, Not Inflation

The geniuses of Wall Street -- you know the ones who told us subprimes were AAA and failed to forsee the collapse of their own employers -- have been wailing away about deflation now for two years.

Meanwhile, the cost of living keeps going up and the dollar keeps going down. Bank losses on bad debt (that a smarter group would not have lent in the first place) are not deflation, anymore than the absurd "profits" (aka accounting fraud) of 1990-2007 were inflationary.

Get a clue Wall Street -- no one will ever trust you with their money again. Losses stemming from your incompetence are not the same thing as deflation, and your shameless efforts to get the Fed to print money to pass your losses to the public is the reason why people HATE Wall Street now.

Man up and admit your mistakes. Write them off, and move on. Don't try to mislabel your losses as deflation

Fixed-Income: Options to Low Money Market Rates

"4) Moody’s Investor Service recently affirmed the sovereign credit strength of the United States at “Aaa”. This should quell, at least for the time being..."

I don't see Wall Street regaining the public trust anytime soon. Does the author actually think anyone still has faith in Moody's ratings? Who, other than a slick salesman selling you a lemon, would still be quoting Moody's?

Why the Transaction Tax Isn't Such a Terrible Idea

The problem with a transaction tax idea is very similar to all "tax this to control it" ideas:

1) Taxes are supposed to fund government, not enforce someone's idea of "proper" behavior. The population's political beliefs go back and forth between conservative / liberal, free market / central planning, etc... its only a matter of time before "the other guys" tell you your lifestyle is not "proper". Revenge is not an economic policy, not even if you are on the side that is (currently) "winning"

2) The government becomes dependent on these weird taxes to fund itself. When the desired change in people's behavior occurs, the government suddenly has a "revenue problem"... If everyone quit smoking and drinking -- which is supposedly the point of "sin taxes" -- state and federal coffers would be in trouble

And one other point: all this "kill the bankers" hysteria ignores the undisputed fact that many of the problems in the economy were caused by the people who will not be effected by transaction taxes... the Fed/Alan Greenspan (too many errors to list here), Barney Frank (pillaging FNMA), Bill Clinton/Larry Summers (legalizing CDS trading in 2000), Henry Paulson (rob the taxpayer to pay Goldman Sachs), the SEC (ask them what they did if they ever wake up), Tim Geithner (rob the taxpayer, reward inept bankers, and then blame it on Turbotax)

If the author really wanted to restore market credibility (and not just exact political revenge) -- he would have suggested taxing political speeches, regulatory documents, and lobbying activity -- all of which contributed heavily to the economic situation of today

10-Year U.S. Treasury Rates: The Economy Must Continue to Endure the Abnormal

Clinton -- you need to read the TIC reports more carefully. There is no category for "foreign purchases" -- so your chart is just plain wrong.

There is a category of custody holdings that **HISTORICALLY** was interpreted by economists as an approximate proxy for foreign purchases -- however it was always a proxy and was never 100% accurate.

Two months ago, the Fed changed the way it reports custody holdings -- the net effect was to reclassify a lot of primary dealer holding accounts to be in the "custody holdings" category. Not incidentally, several of those primary dealers are British and Japanese banks.

Hence, your graph is comparing apples to oranges -- and does not support the conclusion you made. Since the definition changed, you cannot infer any conclusions from changes in that category

Second, you have ignored that the Fed's recent POMO purchases largely absorbed more than half the recent issues. The Fed did not buy directly, rather they had primary dealers (mostly insolvent banks!) buy the bonds, and then the Fed bought the bonds from the primary dealers. There was no risk to the primary dealers, since the Fed announced in advance what bonds they would be buying

Please do better fact checking before you publish

Buffett's Latest NYT Op-Ed: The Greenback Effect

"... Yet here we sit with the 10-Year Treasury yielding 3.53%. ..."

This is equivalent to saying that all the dot-com businesses must be great investments because their stock prices were so high in 1999

Treasury yields reflect a combination of Bernanke's manipulation and a fear that many listed companies are knowingly and deliberately misreporting their books... Treasury yields do not prove (or disprove) anything about inflation

Does Crude's Price Reflect Reality?

The author clearly has no idea about crude oil markets -- he sounds just as foolish and uninformed as the corrupt members of Congress who spout the same nonsense.

1) The Federal Reserve has trashed the dollar in the last 9-10 years, meaning "the" price of oil denominated in worthless dollars is going to be much higher

2) OPEC has 2000-2002 levels of surplus capacity, but non-OPEC suppliers have little if any surplus capacity. If the author would stop parroting Congress and read about the North Sea fields or Cantarell in Mexico, he would know this. The author clearly doesn't follow even the oil headlines in mainstream news much less oil industry publications

3) Even in a recession, oil demand is higher world wide than it was in 2000. More of the demand at the margin is coming from emerging markets

4) The entire discussion of "the" price of oil betrays total ignorance -- there isn't one price for oil because oil is not a commodity, there are many different grades and location is important.

"The" price quoted by the author is for West Texas Intermediate crude oil passing through Cushing, OK. So when a refinery in Cushing has a major accident and has to dump its inventory-- WTI futures prices collapsed to the mid-high $30s. When that refinery came back on line, there was a "sudden new source" of demand that forced the futures price back up. Ignorant authors and members of Congress would know this if they simply read the weekly report from the Dept of Energy.... Heck, Congress members from Oklahoma couls actually visit their state once in a while... But rational thinking doesn't get any TV time in a country dominated by fools.

WTI is light, sweet crude that is very easy and cheap to refine. Saudi oil is heavier and more sour -- making it more difficult and costly to refine. WTI (and Brent crude from the North Sea) make up a much smaller percentage of the total crude in world markets than 10yrs ago. Refineries are bidding up the price of WTI and mixing it with the heavy sour crude to create a mix that is easier for them to refine.

Many emerging economies understand the subtleties of crude oil, but the US does not. Our education system has failed us; decision making is increasingly based on ignorance and hysteria; and any honest assessment would have to mention that "leadership" in the US has become an oxymoron (Bush, Obama, Pelosi, Franks, Paulson, Geithner, or any CEO you can name -- they are all the same)

3 Groupthink Ideas in Today's Market

here is another example of group think:

CPI = inflation

Go check the BLS website, where they very specifically state that CPI is not and never was an inflation gauge. It doesn't matter how many people mistakenly use it as an inflation gauge -- it is not and never was.

TIPS, Inflation and the Dollar

First, no matter how many times a worthless Wall Street con-man claims otherwise, CPI is not and has never been an inflation gauge. It even says so right on the Bureau of Labor Statistics (the BLS compiles and reports CPI statistics) website. Wall Street "analysts" babbling on about things they obviously don't understand and even more obviously haven't done the research on is how we got into our current mess.

Secondly, the first commenter points out that the government can, and already has, redefined CPI for its own benefit. Further, if the Wall Street "analysts" bothered to read any of the Treasury material on TIPs, the Treasury specifically reserves the right to change the index used. Please don't ask us to read your lips -- we all know under what conditions the government would exercise that right

Wall Street "analyst" has become a total oxymoron -- it is painfully obvious you guys don't do your homework

Question: Are Tim Geithner and Larry Summers Dumb, Careless or Crazy?

Summers and Geithner are both lying con men, which only adds to the confusion.

While it is possible these two were stooges sent to test the waters for a tax increase -- you omitted the other, more likely, scenario: Obama has no control over the government. Pelosi, Franks, and Waxman seem to have at least as much influence as the supposed "leader" of the country -- and they (the Congress members) are crazy and dumb. Geithner / Paulson and Bernanke have been running their own show now for years -- with essentially no accountability

The US doesn't have ONE president, we have about a dozen -- most of them are crazy AND dumb. Its just chaos and lack of true leadership.

Buffett's Betrayal

Buffet advocates confiscatory death taxes -- but he donated his fortune to Bill Gates, the richest man in America, so Buffet won't pay the taxes he advocates.... "Do what I say, not what I do" should be Buffet's official motto.

Buffet wants others to pay higher income taxes -- especially the people in California-- presumably to subsidize his investments? Why is a guy in Nebraska meddling in California's internal affairs anyway?

Buffet has long said he looks for manager integrity -- but then he bought into Salomon Bros while it was rigging treasury auctions; he bought into FNMA while it was literally cooking its books; he bought into GE while it was claiming to be an industrial conglomerate, but 75% of profits came from finance; Buffet bought all of GenRe, which was instrumental in hiding losses at AIG. Either Buffet didn't understand the businesses (in which case he says one shouldn't buy), or else he bought knowing the scams were happening. Once might have been on honest mistake, but Buffet has done this again and again and again. Is he stupid (doubt it) or does he know he is buying into a scam?

Buffet is a con man, simple as that

The scariest part of today's grim nonfarm payrolls report, Paul Krugman says, is the plunge in the rate of wage change over the last three months. "Bear in mind that inflation usually runs below the rate of wage change... so we're really heading into Japanese-style deflation territory."

"Bear in mind that inflation usually runs below the rate of wage change... so we're really heading into Japanese-style deflation territory."

There is absolutely no basis to this claim what-so-ever.

Further, there is evidence that refutes it. The 1970s saw inflation and very little wage growth --until almost the end of the decade. By the time wages started rising to reflect inflation -- the inflation had been deeply entrenched... remember that the dollar devalued enough to cause the collapse of Bretton Woods in 1971, the oil embargo happened in 1973 (two years later), Ford had his "WIN" (Whip Inflation Now) badges, and wages started spiking in the second half of the decade...

Inflation was not caused by oil prices or wages -- oil prices and wages were a symptom of inflation brought about by out of control spending in the 1960s: Vietnam, the space race, the cold war, LBJ's Great Society, etc.

Citibank's Problems Are Far from Over

The title of this article should have been:

"Taxpayer Costs from Propping Up Citi are Far From Over"

New York Fed Model: No Chance of Recession in 2010

"The subprime contagion is well contained..."

-Ben Bernanke, March 2007

Commercial Paper Continuing to Vanish

I have asked over and over again on every blog / website I visit for anyone to show me a post, wall street commentary, newspaper op-ed ... anything... stating that the run up in asset prices was inflationary, and thus the Fed needed to raise rates to 15% (or whatever home prices were rising the year in question).

After issuing this challenge now for well over a year, not one person has come up with anything even close.

And yet, people who thought the run up in prices was "normal" now want to claim the decline in asset prices is deflationary. They want to have their cake, eat their cake, and get a loan against their cake at the same time.

The worst offender is Bernanke himself. He got his Helicopter Ben alias in 2001 when home prices were rocketing upwards and he said this was deflationary (and supported Greenspan lowering rates to 1% the first time). Now, the same home prices are going down-- and bumbling Ben thinks that is also deflationary. It doesn't matter what the economic conditions, Bernanke thinks its deflationary.

John, there is no deflation and hasn't been in decades. Show me your blog entry from 2001-2006 saying 15% per year home price increases was inflationary, and the Fed should raise rates accordingly. Otherwise, you are just as foolish as Bernanke.

Whining that home price declines are deflationary when home price increases are not inflationary is irrational. Home prices are part of the money / credit supply or they are not. You can't have it both ways.

Bernanke is the proverbial man with a hammer thinking everything is a nail -- except he wrote his thesis on the 1930s Fed induced deflation. Bernanke thinks everything is deflationary, and his answer is always easy credit for political elite.

The Fed caused the Great Depression, while FDR's bone-headed policies made it worse. History unfortunately is repeating itself -- with Greenspan / Bernanke causing a housing bubbble, trying to fight a misallocation problem as though it was a credit problem -- and Obama will make everything worse with his regulatory oversight ideas (spearheaded by the same Fed that got things so wrong in the first place)

The Fed has already caused inflation -- because there was no deflation to fight. Only bubble assets (inflated in the first place by stupid Fed policies) reverting back to their long term values.


On Jun 22 02:14 PM John Lounsbury wrote:

> sabre-jenn - - -
>
> I fear that Bernancke and Geithner will be fighting the wrong war
> IF they go beyond the point that they are merely cushioning the deflationary
> impact of deleveraging. I don't think they are there yet, but I
> challange anyone to tell when they will be there. In otherwords,
> they are almost certain to overshoot and then added liquidity is
> inflationary.
>
> bricki - - -
>
> I must have stated my position poorly, because I agree with your
> statement:
>
> "Right now we have massive overcapacity in almost every business
> sector. Borrowing just isn't needed because the demand for goods
> doesn't come close to matching the productive capacity."