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The Great Inflation
#21
Bernanke's life is about to get more difficult in the immediate future. The reason: Ron Paul. It will be interesting to see how he explains QEII to the committee.

Ron Paul is a dedicated 'Austrian', so he will be swinging at the Keynesian Fed Chairman.
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#22
Yak Wrote:The rapid proliferation of dollars (and subsequent devaluation) will NOT necessarily lead to inflation ... just so long as nobody actually spends those dollars on anything.
That's precisely what happened in the last two years and is bound to continue to happen in the next 2, 5 or 10 years (nobody knows how long but it won't stop today).

Everybody is keeping $ with the intention of not spending it. Private banks, mutual funds, central banks, private persons, companies etc, everybody.
The economist are estimatng that there is about 2.5 trillion waiting on the sideline. Most of this money on the sideline is in the shape of US treasury bonds because that's the only way to keep cash safely and get an interrest because banks don't pay any interrest on deposit anymore since 2008 or if they do it's a joke.

The Fed seems fed up that everybody want to keep treasuries instead of spending, lending or investing n something constructive. So they are rebuying them, to give an incentive to investor to find a better place for their money.

That won't cause significant inflation because 600B is little in regard of the total amount of $ held globaly.
Those talking of massive inflation because the Fed is printing for $600B doesn't know what they are talking about.

What we should think about is the total amount of $, real or virtual in any shape or form anywhere in world.
Simply put: All bank account deposits + all central bank reserves + cash in cisrcualtion, in USD $.
I don't know the number myslef and this number is even unkown fromt he economists since there are no data covering this.

The Fed is publishing figures for the US only (M2). They have no clue about the amounts outside the US.
Most of the articles and the easiest available datas point only to cash in circulation which is only the tip of the iceberg, but it's interresting to note that most of the US banknotes are held abroad.
It's reasonable that a large part of virtual dollars are also held outside the US.
Just look at the size of the economy, the size of US debt (national and private), etc and the figure is in the dozen of trillion.

According to this interresting article total non-gov't debt would be $34T.

Obviousely there can't be less dollars ever created or imagined than those being owed.
And this is again, a figure only for the US.
But we can safely add to this the US national debt which is both domestic and foreign, + the amount of cash in circulation or on deposit (M1) and we have a total of $50T (fifty trillion).
One trillon, aproximatively the amount printed or to be printed by the Fed since the start of the finanacial crisis, is moreless 2% of that sum.
2% is therefore the material impact on inflation it will get.

This other article shows the volume of gold production worldwide. I calcultated that in the last years, at an average price of $1000/oz, the equivalent of $400B of gold have been extracted in the last 5 years. Not that far off what the Fed is doing.
Also consider that this is in dollar amount, in gold amount this is 84 657 509 oz (2400 tons) per year and this amount has been steady in the last 25 years.
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#23
Fredledingue Wrote:... and is bound to continue to happen in the next 2, 5 or 10 years (nobody knows how long but it won't stop today).

You may have jinxed it right there fred! Saying anything is "bound to continue" is a sure way to have the floor drop right out from under your feet.

The current state of affairs will continue as long as there are suckers in this world who will continue to purchase U.S. debt and are willing to keep it in perpetuity expecting nothing in return ... and while that appears to continue ... bond yields are already on their way up. Please splain to me how inflation and interest rates somehow don't go hand in hand ... ??

A perpetual zero interest rate does not strike me as a reasonable expectation fred. The moment that the world marks it as a raw deal they are going to begin to sell. It's assumed that U.S. debt will always have value ... and perhaps it will, but if it were to lose say 5, 10, 20% of it's relative 'value' ... what then? Shock

Pardon ... but expecting billions of Chinese to pass into old age and die with their dollars molded down to smelly power in their mattresses doesn't seem like much of plan ... but it's starting to look more and more like that's Bernacke's current calculation.

Golly Gee Whiz, I wonder what an influential investor with unparalleled inside connections would do in this situation? Wink1
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#24
Fed's bond-buying plan faces new assault by critics

These critics in Wall street see the situtation globaly while bernanke see it nationaly and/or don't care about what's happening abroad.

The critics are saying, among other things, that more dollars will create inflation in emerging countries.
Other countries are supposed to have ther own currencies so why would they be affected? Because the $ is so widely used in international trade and also because in many countries there are so many $ that it's the second currency if not the first one.
If the Fed prints money it will cause inflation in countries like China, India, Thailand etc while some of them are already facing almost double-digit inflation.
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#25
If you are right about the US printing of money inducing inflation in China, then maybe you have discovered a secret US attack on China. In fact, China is petrified of the prospect of inflation in its borders. That would destabilize its internal economy, according to what I have read. Just today its stock market took a hit because of inflation fears within China.

LINK
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#26
inflation in china is quite high, almost 5%
"You know, Paul, Reagan proved that deficits don't matter." Dick Cheney
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#27
jt Wrote:If you are right about the US printing of money inducing inflation in China, then maybe you have discovered a secret US attack on China.

China is shoving it right back down the pipe by buying more treasuries. Weird st*t ... rising bond yields ... interest rates threatening to rise ... and yet deflation rears it's ugly head ... at least THIS week. Bond vigilantes vs Asian vigilantes ... who will win? (I fear it's becoming obvious who will lose)

Again, the F'ED is doing the evil opposite of it's job. All this sh*t is driving uncertainty and instability instead of modulating it. Whatever it's doing, it's not controlling it. One week inflation threats ... the next week deflation threats ... it's behaving like an amplifier without any feedback .... just before it smokes ... Shock

I bought long on a 2X oil ETF a short while back and have taken about a 20% shellacking ... but I'm pretty sure I'm going to ride that sucker even if I end up like Slim Pickens in Dr. Strangelove.

YYEEEEEEEHAAAWWW!!!

[Image: normal_Slim-pickens.jpg]
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#28
jt Wrote:If you are right about the US printing of money inducing inflation in China, then maybe you have discovered a secret US attack on China. In fact, China is petrified of the prospect of inflation in its borders. That would destabilize its internal economy, according to what I have read. Just today its stock market took a hit because of inflation fears within China.

LINK

Its no secret that monetary inflation in the U.S. will cause inflation in China. China's currency is pegged to the dollar (within a range). If a nation pegs its currency to another nation's, it unofficially adopts the monetary policy of the country for which its currency is pegged.
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#29
Brooklyn Wrote:
jt Wrote:If you are right about the US printing of money inducing inflation in China, then maybe you have discovered a secret US attack on China. In fact, China is petrified of the prospect of inflation in its borders. That would destabilize its internal economy, according to what I have read. Just today its stock market took a hit because of inflation fears within China.

LINK

Its no secret that monetary inflation in the U.S. will cause inflation in China. China's currency is pegged to the dollar (within a range). If a nation pegs its currency to another nation's, it unofficially adopts the monetary policy of the country for which its currency is pegged.

You are absolutely correct "B". China has done this for years, and for good reason. That is why I have always though it rank hypocrisy for the US to keep attempting to force PRC to do it's bidding here.

If we were to get our fiscal act together, we would not have to worry about China's pegging the Won to the US Dollar. But then again, "Do as I say, not as I do".
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#30
jt Wrote:If you are right about the US printing of money inducing inflation in China, then maybe you have discovered a secret US attack on China.
Absolutely: the US asks China to rise the value of the yuan, because a low yuan make it difficult for Chinese to buy american products while making chinese product cheap for american, and China always refused.

Now that the diplomacy approach has failed, the US uses another tool.
The FED plans to remove some T-bonds to replace them with dollars in cash. This cash will have to be reinvested in something else and they hope is that banks and poeple will invest in the US economy.
As I understand they are buying back from US banks, but I'm not sure about that. That would be logical if they want to have influence in the US economy and not elsewhere but everything is so globalized that it's impossible to know the nationality of each T-bond holder down to each physical person. If the client of a US bank lives in China, the money from his T-bonds sale will go to China and the US gov' has no mean to control that.

But it's a plus not a minus. They win on two fronts: Increasing liquidity in the US, and de facto rising the value of the yuan by lowering that of the $. And if the yuan stays course with its pegging to the $, there will be inflation in China.

Inflation in China can come from two front:

1/The Chinese Treasury deciding to peg the yuan to the $ no matter what (but then they can kiss goodbye to the idea of becoming a international currency to replace the dollar)

2/Major intake of cash in $ in the gray and black economies of China.

The latter is imo far more likely and far more destructive. And it won't affect only China.
Everywhere the local currency sucks so bad that poeple use the $ as a base for large transactions, will see the same inflation rise as in the US but this will be real inflation, not the banana currency losing its value. Things will realy cost more for everyone on Earth.

The inflationary effect may even be stronger in the emerging economies than in the US.

JOhnLChina is already top #1 exporter by a confortable margin and they still have a protectionist policy by making everything in China artificialy cheaper than elsewhere.
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#31
George Will had a good article today. My earlier statements were incorrect. I believed mission #1 was monetary stability ... instead the F'ED was charged with 'dual' responsibilities including social engineering over 30 years ago. It should not be so ... but it is. And that goes a long, long way in explaining our current sorry fate of affairs.

Fred,

... regarding your comments on inflationary side shows ...
http://www.ft.com/cms/s/0/78b06d1a-f226-...ab49a.html
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#32
The irony of QE2 is that the plan is to print money to buy treasuries, ie monetize our debt. But just to make everything even better they announce their intent well in advance and allow Goldman to front run their needs instead of just going to the treasury directly. So once again US fiscal policy both by the Executive and the F'ed serve the interests of Goldman. good for Goldman, can't blame them. But where is the change? We have replaced Halliburton with Goldman.

Anybody know who is in the running to buy the White House in 2012?
"And down through the centuries the robes have never failed to keep the public at a respectful distance, inspire a decent awe for the professions, and impart an air of solemnity and mystery that has been as good as money in the bank. The four faculties of theology, philosophy, medicine, and law have been the perennial seedbeds, not only of professional wisdom, but of the quackery and venality so generously exposed to public view by Plato, Rabelais, Molière, Swift, Gibbon, A. E. Housman, H. L. Mencken, and others. What took place in the Greco-Roman as in the Christian world was that fatal shift from leadership to management that marks the decline and fall of civilizations." - taken from a speech by Hugh Nibley
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#33
What is so hypocritical, is that the Fed, and Obama administration, is criticizing PRC for devaluing it's currency, while at the same time devaluing our own. Aren't they aware that most of us can see what they are doing?
___________________________________________________________________________________________________
"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#34
Most of us probably won't see it,John. We'll have an inflationary spiral and successfully blame it on the "evil Chinese" or maybe easier on some "evil Arabic/Muslim oil producers".

At the rate of cynicism we're conducting business with,I can imagine the entire globe revolting against us in this generation.

Not necessarily war,but,there is going to be a concensus across the globe to find a better avenue of global economy than the US dollar with it's advantages to us and all.

Simply put,the Americans clearly do not deserve the respect of the globe and it seems reasonable to assume we'll be relieved of our advantages at some point because of it.
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#35
I don't agree. The idiots are those who bought US treasuries instead of investing in someting more constructive.
How did everyone expected the US to pay 10, 20 and 30 years of cumulated interrests on a $14 Trillion debt, without printing money at some point?
That's crazy.

That's also valid for the ECB. One wannabe finance reporter said that the ECB can't repay the debts of the EU states. BS! Assuming that they will never print money is utterly moronic.

And it won't change anything because pople will still want US and EU bonds. After during or before any debasement.
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#36
[Image: 110406beelertoon_c20110406014017.jpg]
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#37
[Image: 110406beelertoon_c20110406014017.jpg]
___________________________________________________________________________________________________
"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#38
Evidently Pandora's box is out of favor or unknown to modern cartoonists. What the heck is the rhino's head emerging from?

More likely the box metaphor is not used since it is derogatory to all women, Pandora being a proxy.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#39
Evidently Pandora's box is out of favor or unknown to modern cartoonists. What the heck is the rhino's head emerging from?

More likely the box metaphor is not used since it is derogatory to all women, Pandora being a proxy.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
Reply
#40
Palladin Wrote:Most of us probably won't see it,John. We'll have an inflationary spiral and successfully blame it on the "evil Chinese" or maybe easier on some "evil Arabic/Muslim oil producers".

At the rate of cynicism we're conducting business with,I can imagine the entire globe revolting against us in this generation.

Not necessarily war,but,there is going to be a concensus across the globe to find a better avenue of global economy than the US dollar with it's advantages to us and all.

Simply put,the Americans clearly do not deserve the respect of the globe and it seems reasonable to assume we'll be relieved of our advantages at some point because of it.

I am gonna say capatalism will be blamed. It will be used to gain more government control to save us from the greedy capatalist pigs. That's my guess anyways.
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