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Christopher Hossli's  Instablog

Christopher Hossli
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I am an Investment Adviser Representative with Primerica Advisers. Working on building my managed accounts business as well as growing my team of agents. I have in interest in Macroeconomics with a particular interest in how the changing economic climate affects the financial markets.
My blog:
Fiat Folly
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  • Inflation, Deflation or Hyper-inflation?
     Well it seems that the $787 billion stimulus package and the countless trillions doled out by the Fed designed to get our economy back on track is starting to stall out. Conventional economic theory says that when private sector demand falls off a cliff, it’s the governments job to step in and boost demand. This has worked in the past i.e. (recession of 2001), this depression however is different. The recession of 2001 was an equity recession so pumping money into the economy worked to boost stock prices, one unintended  consequence was that it also spurred a lending boom that flowed into housing. This is the central difference between this recession and the last one, 2001 was an equity recession 2008 to present is a debt recession. This is also the problem with conventional economic theory. All the textbooks tell Bernanke to print, print, print to rescue us from the perils of deflation which would work in an equity recession but not in a debt recession and especially not one of this size. By the banking industry’s own estimates there are $5 trillion worth of bad loans sitting on their balance sheets dragging them under water. This is why banks are not lending. Unfortunately the textbook response to increase the money supply to jump start lending is backfiring

    The next problem with conventional econ0mic theory is that it states that inflation requires two things 1. an increase in the money supply (check) and 2. monetary velocity (nope, look at the chart, banks aren’t lending) this is where the deflationists get their proof. This however is a misguided approach in that they don’t factor in peoples perception of the future value of money. If you truly want to measure inflation, look at a chart of gold, as gold cannot be produced from nothing so it therefore maintains it’s purchasing power.

    If you believe gov. statistics then inflation is an average of about 3% a year, but here’s the catch they don’t include “volatile” food and energy prices when calculating inflation. Wait a sec. thats means that if food and energy rise 30% and everything else rises 2% then inflation is only 2%. Does this make any sense? Didn’t think so. But wait how could we have inflation without banks lending? There’s that market psychology again. This is why I believe we will spiral into hyperinflation (or at the very least double-digit inflation like the 1970′s). The textbooks say that Bernanke has to hold down interest rates (print money) till unemployment comes down to an acceptable level (about 5%). The problem is that in a mean time prices will have skyrocketed by then because unemployment is at about 18% and employers aren’t hiring. If the Fed does print us into oblivion we will all end up like Zimbabwe.

    Yes, you read that right, $100 BILLION for three eggs. The only thing that will stop us from this fate is the Fed stops printing yesterday. It will not be pretty, it will not be nice, but I prefer 25% unemployment to $100 billion for three eggs, don’t you?

    Disclosure: No Positions
    Jun 27 2:02 AM | Link | Comment!
  • New Home Sales Down 33%
     We are witnessing the first slip in a long and steady slid for housing prices, with the government tax credit expired, consumers now have no incentive to take on 2, 3, or 4 hundred thousand dollars worth of debt. The combination of high unemployment, non-existent job security and very tight lending conditions have all but extinguished consumer demand. All this will lead to depressed home sales and home prices for years to come. This is the beginning of a double-dip recession, not in nominal terms but in real terms.

    Disclosure: No Positions
    Tags: NLY, HTS, Housing, Economy
    Jun 27 12:26 AM | Link | Comment!
  • Stagflation for the Foreseeable future.

     I love all the back-and-fourth between the authors here on Seeking Alpha. HYPERINFLATION!!!!!!!!!!!!!!.........DEFLATION!!!!!!!!!!!!!!!........well guys, your both right and your both wrong. The inflationist's make the argument that with all this money the Fed is "printing" that we will fall into a hyperinflationary spiral. This may be true in the long run with all the recent calls by China and Russia for a new global monetary standard (which I do feel the dollar's days are numbered) and all the major currencies hitting new high's against the dollar every day however the dollar will stay the global reserve currency as long as commodities are priced in dollars. The inflationists point to money printing as the death nell for the dollar as evidenced by the explosion in the monetary base 

         Another argument I don't often hear made is one that when it comes time for Bernanke to raise rates he won't have the political will to do so because it will make the interest on the federal debt skyrocket. Interest on the federal debt is just under $200 billion per year and thats with 0%-.25% rates.
    It is also true that we have seen/will see price inflation in commodities (i.e. oil just under $80/barrel, gold at $1060/oz. this however is not due to demand as the global economy has not recovered yet, this is due to a "store of wealth" mentality. 
         Now the deflationists argue that there is much too much slack in the economy for us to see inflation anytime soon they point to capacity utilization (looking at the Cap. Utlz. graph according to the deflationists we should have had deflation since the late 70's) and available credit to consumers. 


    Both these graphs alone prove that consumer demand will not return to pre-bubble levels for some time especially with unemployment at 9.8% (conservative estimate). These two factors (money printing and a extremely weak economy) set the stage for stagflation. We will end up with two scenarios 1. Bernanke & co. will keep interest rates at all time lows "for an extended period'' which will evitabley lead to double-digit inflation or 2. Bernanke & Co. will raise rate when necessary but in doing so will not only choke off the economy but raise the interest on the federal debt to unpayable levels. If Bernanke's actions are any indication of the future I fully belive we will see the first scenario play out just like the late 1970's ( X and Y Gen's, ask your parents). I believe Bernanke will be this generations George William Miller. Hopefully when all this comes to fruition the president will appoint Paul Volcker as chairman again (if that does happen though, pay off your credit cards now).  
    Oct 19 3:37 PM | Link | Comment!
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