Balderdash

Deflation Is the Threat, Not Inflation

You can't separate dollar debasement from the inflation (which is really a rising prices argument). Other nations sell imports to us because it is profitable to do so. As the dollar falls, it becomes less profitable. They can lower their prices to keep up with falling demand and clear inventory, but eventually after adjusting for currency values the profit will vanish. Then, the prices will be sufficiently low in the native currency to spur domestic demand, and other nations will begin to out compete our bids for products and exportable services. Then, despite reduced demand, you'll see rising prices just when we are least able to afford it, i.e. stagflation.

Modern economists seem to have forgotten the 70's.

The Dollar May Not Be Doomed

an interesting perspective, but in my opinion misses the mark. does a dollar crash really hurt the elite? no freaking way. the elite have gotten out of dodge using loan securitization. they've pushed the debt onto the public's books via fed purchases of MBS and treasuries. they've left greater asia as the ultimate bagholder.

just because they have a disproportionate amount of income doesn't mean they're fate is tied to the dollar. their theft is denominated in dollars to be sure. but perhaps it's in their best interest to have a 'steady' dollar decline? keep the masses happy by inflating away their debt but slowly enough for the elite to get out of the way (their hopes).

Is the U.S. Dollar Finished?

*yawn* this call is SOOO 2008

In a mammoth piece for NY Times Magazine, Paul Krugman wonders how economists got it so wrong.

There are no such things as real dollars. All dollars represent liabilities. Real dollars vanished in 1973.


On Sep 05 08:02 PM Bill L. wrote:

> As a group they are still wrong. The problem is there is 52+trillion
> in debt leveraged with derivatives and only 2 trillion in real dollars
> in the economy to pay for it. What they ignored is any time in history
> their has been this much credit in the economy versus wealth and
> savings, the result was a recession/depression. All these "cash for
> X" programs just encourage Americans to continuing adding to the
> indebtedness of the population while also adding to the indebtedness
> of the country. Stimulating the economy by adding to the amount of
> debt outstanding, when it is already at critical mass is not a long
> term solution.
>
> It actually seems pretty simple to me.
> Amount Owed > Amount Saved = Deflation Persists

Sobering Stat: ARMS Index Indicates Market Is at Peak, Not Bottom

we will not nominally touch March lows. March lows priced in a collapse of the American financial system. the government has drawn a line in the sand. they will destroy the currency before they let the too big to fail crowd go down.

they've changed the game. they've turned an imminent implosion into an imminent explosion.


On Aug 29 02:11 AM Michael Clark wrote:

> This is not a surprise -- but I appreciated reading it. We are near
> a top and we will test March lows. Denial is not a fundamental strength.
> And companies with declining earnings are not necessarily a good
> value. I'd rather own a company with a high PE and rising earnings
> than a company with a low PE and declining earnings. In the case
> of this market, we have mostly companies with a high PE and declining
> earnings. That's a very dangerous market condition.

Pace of Insider Sales Continues to Escalate

what if insiders, shell shocked from the last leg down, after seeing millions in their wealth evaporate on a weekly basis, have become more risk averse? perhaps they aren't bearish on their stocks per se, but are diversifying their assets out of the stock market or the USA?

the euphoria from doubling your money is dampened if you've lost 70% of it first.

With the success of cash-for-clunkers, dealers are scrambling to find fuel-efficient vehicles, and are pressuring carmakers to speed up production. Chrysler has already increased output, and GM is likely to follow suit.

i smell malinvestment. if/when this program does, will we be right back where we started with overproduction?

Economist Joseph Stiglitz writes that you can't answer the question of whether Keynesian economics has failed - because it hasn't really been tried yet. More stimulus, please.

The state of the economics profession in the upper tiers of government and academia is pathetic. A prize winning professor of economics argues for fighting a debt crisis with more debt or taxation, completely ignoring the 'forgotten man' fallacy: that government excessive borrowing crowds out other borrowing, and it is usually spent on non-productive projects. Taking savings from one man (even if he's Chinese) deprives the world of much needed capital. How bailing out state governments or make-work projects add to the asset side of the government balance sheet is beyond me.

Europe's currencies aren't helping recovery much, judging by how much of their Big Mac you can buy with a dollar. The Economist's burgernomics - their simplified purchasing-power parity list based on the McDonald's staple - says continental currencies are still overvalued.

There are two ways PPP could correct. Either the euro goes down or the price of the big mac could go up in the US. My chips are on the latter.

Predicting the Next Great Bubble

Oh yeah dude... Zimbabwe's economy is roaring!


On Jul 01 09:29 AM stocknerd wrote:

> The inflation bubble is so....so....predicted now that it can't happen.
>
> In any case inflation will not, can not happen, this year or maybe
> next.
> You must have a viable economy for inflation to happen. You need
> housing to get out of ER---mortage applications were way down meaning
> more life support for housing. Prices for homes is still dropping.
> Sales down most everywhere. Banks still need help. When housing
> prices rise in Vegas please post. No more bloody charts with money
> supply please. It is meaningless and your guess only.

An excellent article by Pimco's Paul McCulley explains why so many pundits are totally wrong about the Fed needing to soak up all those excess reserves, or risk inflation. They're forgetting the clincher: the Fed's newfound ability to pay interest on banks' excess reserves.

As far as I can tell, there is only a minute difference between the fed controlling the funds rate via #1 bond sales (i.e. mopping up liquidity) and via #2 internal interest rate controls.

To the external borrower, whether it be the treasury or the public, the result of using either tool is the same: higher interest rates. Given the political pressure to get the economy 'booming' again, we're essentially propping up industries that need to and would otherwise shrink given a higher cost of borrowing (housing for instance). Therefore, whether the fed controls interest rates via open market operations or via internal deposit interest, Bernanke risks choking off the growth fueled by his inflation and causing another nasty recession. This would include raising borrowing costs for the massive federal deficit, a political move that would probably get the fed's charter revoked.

I think the problem with an exit strategy using bond sales is that the bonds he has to sell are junk and he probably can't sell them on the open market for their balance sheet value -- so if he gets $0.1 on the dollar he can't soak up the extra money he sent out paying par for them. The fed therefore creates a back door for soaking up liquidity -- competing with private borrowers on excess reserve loans -- which will keep the fed balance sheet permanently expanded and hopefully draw a 'pig pen' around the excess reserves so they can't escape. The problem with this is that the higher the interest rate goes, the more money Bernanke has to print to pay interest on the reserves, which is essentially going to create a compounding of excess reserves, a runaway problem. In fact, it seems possible that the banks will lend to noone, with Bernanke paying the bank operating costs through inflation, if he sets the interest rate high enough.

Unless he actually DESTROYS the excess reserves, through bond sales (which he can't) or via the hand of god (a large fee), which would anger his banking constituents since they wouldn't be getting bonds out of it (it would be like the bank just whimsically lowering your checking account balance).

My conclusion, therefore, is that this is no exit strategy at all, but just another layer of confusion slapped on the public to allow for backdoor inflation and deficit financing.

Gold Standard and the Definition of Price Stability

this idea is quite silly. productive, growing assets should go up in price absent inflation as their productive capacity increases. that means the fed would have to differentiate which is a productive asset vs a speculative asset (i.e. a tech stock with no earnings vs an oil field or factory)

now i agree that housing should be in the CPI, since it isn't a productive asset, just a large consumable.

the problem is that money arises naturally as a medium of exchange, not as a government declaration. gold standard or otherwise. any attempt to legislate or control the medium of exhange results in distaster.

Gold Standard and the Definition of Price Stability

this idea is quite silly. productive, growing assets should go up in price absent inflation as their productive capacity increases. that means the fed would have to differentiate which is a productive asset vs a speculative asset (i.e. a tech stock with no earnings vs an oil field or factory)

now i agree that housing should be in the CPI, since it isn't a productive asset, just a large consumable.

the problem is that money arises naturally as a medium of exchange, not as a government declaration. gold standard or otherwise. any attempt to legislate or control the medium of exhange results in distaster.

Grand Illusion: The Federal Reserve (Part 3)

We should care because that's 'our' wealth and 'our' productivity, not the government's or the fed's. Bankers should live well because they provide wealth building services by matching savers with borrowers, not because we've blindly given them the power to rob us.


On Mar 10 07:28 PM Pirate Jo wrote:

> "Without the inflation, the average individual would have benefited
> much more from these revolutions."
>
> I have no doubt you are correct. But I think this sheds some light
> on why people have been willing to take these abuses. They have more
> comfortable jobs and better incomes than their parents and grandparents,
> and enjoy a better standard of living to boot. If a few "fatcats"
> at the "top" are even richer, do we care? Why should we?

Grand Illusion: The Federal Reserve (Part 3)

Simple. Productivity and technology increased while the inflation was happening. Without the inflation, the average individual would have benefited much more from these revolutions. Rather, the fatcats printing money threw us a scrap and took the rest.


On Mar 10 06:24 PM Pirate Jo wrote:

> "Using the realistic figures, they make 64% less than they did in
> 1964."
>
> Then how do you account for the increased standard of living? You
> blasted a previous commenter who said prices have gone down, but
> seriously, I am curious about:
>
> - Why I can buy a top-of-the-line bicycle for the same price as I
> paid for mine, five years ago, and get much better features (DuraAce
> shifting instead of Ultegra).
>
> - Why I can buy a widescreen TV for the same price as I paid for
> mine, seven years ago, and get much better features (a flat panel
> that hangs on the wall).
>
> - A desktop computer for the same price as I paid god-only-knows-how-man...
> and get much better features (a better screen, speakers, more memory,
> and even a free printer).
>
> I don't disagree with anything you said in the article, and clearly
> some bubbles exist - the price of homes, which has already burst,
> college eduations, and cars - but the price of food remains low,
> and my utilities cost the same as they did umpteen years ago.
>
> I believe the answer lies with technology - because of technology,
> we are able to buy more with the same amount of money, IN SPITE OF
> the big-government monkey riding our backs. But I'd like to see that
> graph line imposed on top of one of your existing graphs, such as
> the one that shows inflation. Of course that assumes someone knows
> how to measure it.
>
> My mom tells the funny story about how her little brother saved enough
> money by selling nightcrawlers to buy the first television in their
> household. Back then, buying a TV cost a big chunk of the household
> budget. Now you can buy something perfectly serviceable at a garage
> sale. Doesn't this fit in anywhere in your calculations?