I wish I were selling booze on Wall St. today.

Hearing that I am risk averse at the moment, my financial adviser recommended a Kan Kampen CLO fund to me for my IRA yesterday. I said politely, "No thanks".

I fear this will spread far and wide.

Party over.

I think this is a distinct possibility, but be careful.

An announcment of something like government assistance for these hedge funds could send the Dow up 1000 points in a single day.

Any indication that there's a Bernanke Put in place could take the markets on a screaming rocket ride to another solar system.

They'd have to start using scientific notation for stock prices.

Glad to see all the bad news. We need a wake up call sooner rather than later.

Perhaps Detroit is just ahead of the rest of the country by a year or two. The auto companies staved off hard times for several years by offering all sorts of discounts and incentives. Finally, about 2 years ago, the gig was up and the deep slump was upon us.

Katrina and high gas prices have been part of the problem, but another part is that sales were pushed forward with all the incentives. A similar thing happened to the computing industry with Y2K -- purchases were moved forward, and then there was a slump after the year 2000.

For so many years retailers have been offering discounts and low cost financing. Now all the debt and cumulative consumption leaves the consumer not in a buying mood.

By the way, downtown Detroit is doing well. I was out at lunch today enjoying a new riverside promenade and festival. It will go for 6 days culminating in the annual international fireworks display over the Detroit River. Lots of free music, films, etc. GM & Ford are prominent sponsors. So life goes on here...

Dan, are you a firefighter?

I certainly hope we don't get to having regular Devil's Night arsons so quickly in this housing slump. When that happens, you know things have gotten bad in an area.

Devil's Night - Wikipedia, the free encyclopedia

So the mark-to-market occurred pursuant to a margin call? Can there be a margin call w/o a sale? I wouldn't think so (if I were the borrower I would claim that in the absence of a market or sale my value was as good as there value).

Can there be a margin call w/o a sale?

why not ?

it means that more cash should be brought. Maybe the investor want to add cash ?

after all with all this extra liquidity every one has extra triilions to respond to margin calls.

Sorry Detroit Dan, my post wasn't intended to be a slight against Detroit. I live in the midwest myself and I'm aware that downtown Detroit and much of the eastern Midwest rustbelt cities have made lots of progress in recovering from the regional meltdown of industry in the 80's and 90's. Heck my own city of Minneapolis also went through a ton of downtown renewal in the 90's too.

It was more a comment on national housing in general and on some of the extremes that people can get pushed to.. I'm damn well hoping that it'll be a while before we get to the level of hopelessness where people feel its better to put a match to their neighborhoods than try to fix the problems. We don't want to be there again soon, if ever.

Thanks Andrew. I agree.

I live in a very nice neighborhood, but one house on our street has been burned severely. I'd hate to see that spread...

No, I haven't personally seen a spread of crime in Detroit, although I've heard second-hand that crime has gotten worse as the economy has deteriorated here over the past couple of years...

ac, That sounds like an inflationary scenario. That what I'm anticipating, but only following a painful deflation which causes the Fed to take drastic action to reinflate the economy...

ac,

I think the Fed has much less control than you suggest.. though, I imagine they think of it that way too.

"Oh you know.. if foreign countries start dumping our debt, we'll just print money and buy it up. And we can set rates at whatever we want."

Thing is.. i would bet that the system and all the players involved.. would recognize this massive inflation.. and who would want to buy effing t-bills at some piddly rate... when you know your money will be decreasing in value as the years go by and the Fed keeps dumping cash.

Rates will have to rise to attract money.. as soon as people get scared.. and worry about the risks of loaning money.. or how money could be inflated into oblivion in the future.. you might as well just borrow shitloads and spend it.

Sort of what we've already been doing.

So.. unless you can completely fool everyone into ignoring the fact that massive inflation is occurring (due to the Fed printing money to buy up debt that others are dumping), then rates will just rise until the players are convinced it has risen to an appropriate level.

Anyhoo, if you haven't figured out my mantra, it's.. everyone thinks they have this shit under control.. it's gonna get nasty when they realize they can't control everything.

From wikipedia's "Liquidity Trap" entry:

"In monetary economics, a liquidity trap occurs when the economy is stagnant, the nominal interest rate is close or equal to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they keep assets in short-term cash bank accounts or hoards rather than making long-term investments. This makes the recession even more severe.

In normal times, the monetary authority (usually a central bank or finance ministry) can stimulate the economy by lowering interest rate targets or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy. The monetary authority can increase the overall quantity of money available to the economy, but traditional monetary policy tools do not inject new money directly into the economy. Rather, the new liquidity created must be injected into the real economy by way of financial intermediaries such as banks. In a liquidity trap environment, banks are unwilling to lend, so the central bank's newly-created liquidity is trapped behind unwilling lenders.
..."

Liquidity trap - Wikipedia, the free encyclopedia 

I'm personally of the belief that there's another way of getting into a liquidity trap; when the interest rates start high, but the consumers are so leveraged up that they can't take on more debt even if the rates are dropped to near zero. It would have the same effect as consumers sitting on their savings and not wanting to spend/take out debt. This might particularly be the case where lending standards have just been jacked back up after a long period of loose lending and the lenders are feeling burned, like what we're seeing today.

Rates will have to rise to attract money.. as soon as people get scared.. and worry about the risks of loaning money.. or how money could be inflated into oblivion in the future.. you might as well just borrow shitloads and spend it.

So.. unless you can completely fool everyone into ignoring the fact that massive inflation is occurring (due to the Fed printing money to buy up debt that others are dumping), then rates will just rise until the players are convinced it has risen to an appropriate level.

You missed the point that it doesn't matter if other players are scared away so long as the Fed isn't and is willing to make loans at low rates - since dollars aren't backed by some real asset, other players aren't needed.

Also, the Fed would (presumably) only do this to counter deflationary forces. In other words, the Fed would be doing this precisely because there's not enough inflation or there's outright deflation.

Keep in mind that asset busts are by definition deflationary events. A major widespread asset bust could create deflationary forces throughout the entire economy.

So I'm suggesting that the Fed would only use their power to squash interest rates if they though the money supply wasn't expanding enough or was actually contracting, so there's not the problem of newly printed dollars flying everywhere.

Of course the policy might backfire as it appears to have with the Yen which spawned a huge carry trade with Yen flying all over the place except in Japanese shopping malls.

The point I'm trying to make is not that this sort of policy is good or isn't ultimately doomed, just that it can be implemented as Japan has demonstrated.

Hmmm, I don't know. Risking a big time inflationary scenario by dropping rates now, with global inflation pressures already hitting many countries, would be a very tough call.

It would also further jeopardize the USD position as the world's reserve currency. Likely the results of dropping the USD would be far worse than a recession, I would think.

I think your right - the point to remember and this WAS BB's point in the helicopter speech... is that they can. It isn't a good option to destroy your curency but it is an option. Anyone who bets on deflation better take BB at his word or bet against him at their own peril.

Andrew,

The Fed could always get creative in a liquidity trap.. stop taxing people and just print money to pay bills!

Of course, it all leads back to bonkers-inflation.

I imagine any drastic scenarios would involve the fed printing lots of money.. and we'd all just wait to see how long it would take for people to notice.

I mean.. it's not like we need to encourage people to borrow money.. so that's not a problem..

I guess we could have a sort of debt forgiveness.. a kind of national debt do-over.

It's all bad news.. any holdouts who tried to be "good" and work and save.. they'd say eff it all.. and leverage up to once they realized saving money was meaningless.

Everything ends badly.. but it never ends.

ac,

You've asked about and mentioned Japan's low rates and how low they are compared to the rates of other countries. But the bulk of the difference is in the nominal rate, not the real rate. Remember that inflation in Japan is hovering around 0%.

Inflation may be the first concern that springs from a liquidity dump, but there is, increasingly, a second one. The Fed, and the whole world, is learning that you can push money out the door but you cannot control what is done with it. With each new liquidity cycle comes a fresh irresponsibilty leading to a brand new bubble and the liquidity does very little for Average Joe. Well, one caveat: this last bubble in housing prices may clean out a bunch of Average Joes.
At some point a responsible Fed would look at trying to control the modern bubble cycle.
This is in line with what dryfly says. In the US, unlike Japan, there would be lots of takers at the 'free money' window.

"I think you guys need to send more time among your fellow Americans & less time blogging. See how real people live & think. BB will have no trouble pumping up the volume. Inflation I can see... self imposed austerity - no fricking chance. The only austerity we'll experience will be when the rest of the world starts treating us like one giant Bear Stearns Leverage Fund. Then we'll have to figure out our own 'bail out'."

So you agree that American austerity is possible? Whether austerity is self-imposed or an effect of a changing world economy may be beside the point. At some point, we Americans may change our behavior because we see our self-interest differently...

"The fact that Bear Stearns is putting up more money might indicate that the market is too illiquid and that a number of players are trapped," said Kyle Rosen, president of hedge fund Rosen Capital Management. "

RC - or anyone else - what happens over the weekend? The markets being closed and all there isn't much they can do to advance the ball... sort of a 'time out'.

I suppose BS & others can be calling around, trying to buttress their positions & aise cash (and allies) for Monday but sounds to me like not much until else.

Right? Wrong? Anyone?

"But I don't see 'deflation' being one of the likely 'austerity' symptoms. More likely inflation coupled to a falling standard of living as measured against world currencies & commodity prices... i.e. some variation of stagflation... at least until we get consumption & debt back in line with production & saving. I don't see it as being the 'end of America'... just a little rebalancing." - dryfly

Inflation, if not coupled with pay increases, would effectively increase our productivity, reduce the real hourly wage and reduce our standard of living over time. Not a pleasant thing when people think they need to keep trying to get a better standard of living or maintain the one their parents had.

Inflation, if not coupled with pay increases, would effectively increase our productivity, reduce the real hourly wage and reduce our standard of living over time. Not a pleasant thing when people think they need to keep trying to get a better standard of living or maintain the one their parents had.

Yes - exactly. Current and future consumption would become more 'costly'... but past consumption less costly (evaporation of debt).

It isn't a good thing - just less bad then deflation.

And more importantly... deflation is easy to fix (print money, anti-saving tax policy). Inflation is terribly difficult & immediately painful to reign in (reread Volcker years). So even if they try to swing back and forth and balance inflationary vs. deflationary policy... its like swimming upstream... they will end up on the 'inflation side' in the end... the inflationary current will pull keep pulling them back.

I just don't see how US deflation happens UNLESS its global deflation where all the other CBs in the world decide to not play the helicopter inflation game. In that case we won't be able to inflate the world for long.

ac, internal financing (as I was referring to) isn't monetization, it's utilization of citizen's savings from the existing monetary base. Quite different. IOW, Japan didn't have to print money.

tj,

From the Wikipedia entry on monetization:

Monetization is the process of converting or establishing something into legal tender. It usually refers to the printing of banknotes by central banks, but things such as gold, silver and diamonds can also be monetized. Even intrinsically worthless items can be made into money, as long as they are difficult to make or acquire.

This is exactly what I am referring to. In this case it is government debt that is being converted into money. As I understand it the Fed can do this by using the fractional reserve system to create new money to purchase the debt.

A t-bond goes in to the Fed and new dollars magically come out.

Correct me if I'm mistaken.

The average American is already getting killed by inflation and lowering rates will only make that worse.

You're lumping totally different concepts into one term.

Explain to me how raising rates creates more oil refinery capacity, more health care workers, or more corn - things that are in short supply right now.

I don't think this is inflation precisely because it can't be addressed by raising interest rates.

The increase in house prices and stocks, on the other would be inflation, since these prices can be brought back down with rate hikes.

This is just what I think is the most sensible definition, so I use it.

--- isn't a good option to destroy your curency but it is an option----

it's the LAST Option, and the central banker who tries it should have there bags packed, shovel in hand, or cyanide tablet in mouth.... cause they won't have long after they do...

ac,

The only problem is that in this bizarre world of fiat currency, fractional reserve banking and derivatives, it's hard to say what actually constitutes money supply. But whatever you measure it, there is a strong correlation (in long term) between the increase in money supply and the increase in consumer prices.

poszi,

I agree completely. We've seen lots and lots of inflation in recent years (mostly concentrated in assets) due to Easy Al's policy of throwing lower rates at any problem instead of addressing the root cause.

In the past 6 years US consumers have probably paid something on the order of $8 trillion dollars more for houses than they should have due to easy money policy.

They've also paid trillions of dollars more for corporate earnings (stocks) and debt (bonds) than they should have.

Never mind all the dollars "lost" buying commodities at prices artificially pumped up by speculators tapping into that same easy money.

That's some pretty hellish inflation if you ask me.

I only differ from most inflationists in that I think it's going to come to a screeching halt because this inflation hasn't shown up in wages. And money suddenly ain't quite as easy as it was yesterday.

candyman-asia

Welcome aboard - hope you stick around.

I agree 100% with what you wrote. Some of us here are very well aware of the currency ramifications of the bond market & actions of the SWFs. However these interventions are going to get a lot costlier in real terms if the US economy falters due to this sub-prime mess.

I agree the knee-jerk reaction to a meltdown will be to INCREASE intervention above current levels - but if this really snowballs, it will be throwing good money after bad. Even the PBoC isn't so dumb as to whip a dead horse forever.

Somewhere along the line Asia will need to develop organic growth. The sooner the better - for all of us. Tell your friends & clients, please.

BTW - I work as a sales engineer (hired gun peddler) with, for and against companies doing business in Asia. The current system is unsustainable for a million reasons whether Asia saves more or not.

It [inflation] shakes the foundations of a country, it shakes the faith a person has in the system.

Yup but real deflation is worse.

Understand that one person in 20 saves any appreciable amount during their life but 19 in 20 borrow, many quite a lot.

In an inflationary scenario the one saver gets hurt by inflation, the other 19 not so much. Typically the 19 have their debts washed away but really make little head way considering the cost of everything goes up. The saver is ruined.

In the end all 20 come out the same - with nothing.

In a deflationary scenario the one saver makes out great... the 19 borrowers suffer enormously and are ruined (their debts don't shrink as their earnings do).

If it gets bad enough though the 19 eventually turn on the saver and 'eat him'. Its the way it has always been.

In that most extreme case the end result is almost the same as the inflationary one - no one has anything in the end except there is one person less (the one eaten).

That is why societies bias toward inflation & always have. It is also why fiat money is such a wonderful thing - inflation built right in, by design. If we didn't already have fiat we'd have to invent it.

But like nuclear power it needs to be contained. In the wrong hands, used recklessly, it is a dangerous thing.

But the Fed can't give money to consumers. It is not safe to assume that the Fed & the elected government will act in coordination. I believe we are entering an era of political confusion and instability...

Crisis clears the mind - believe me, they'll work in concert if we have 'deflation'. I have no doubt about that. Deflation hurts here and now - all branches of gov't will be under enormous pressure to relieve the pain.

Given inflation, I'm not so sure it is as easy to clear the mind - the consequences are usually way out there in the future, not immediate... that's another reason why inflation is tougher to beat. It requires more discipline to NOT print money that to print money.

Printing money is easy - just do it. Nike economics.

The trick will be to camouflage inflationary policy so it still looks somewhat fiscally responsible while being massively 'accommodative' instead. AG & BoJ wrote the book - just follow their script.

Yal - Japan hardly had deflation. Japan had deflation as badly as we now have inflation - very mild.

They primarily had asset driven deflation resulting from the Plaza Accord currency adjustment. We are facing the opposite problem (currency decline & subsequent inflationary pressures).

The last time major world economies experienced real systemic deflation was the Great Depression - that was across the board deflation... wages, assets, commodities - everything. Money supply deflation. It got so bad that farmers in the US Midwest burned corn for heat at the same time millions were hungry in the cities. The prices were so low it didn't make sense to ship corn to the cities.

If all we have is Japanese 'deflation' no problem... but with our debt levels I don't see that as a stability point... it will fall much farther, much faster. Only a rapid & intense injection of money will stop the fall.

The risk of course then is you blow it up the other way.

The point is a country that 'saves' can handle 'deflation' a lot better than a country with high leverage and that consumes. The reverse is equally true... a country with debt and that consumes can handle INFLATION a lot better than a country that saves. Think that one through... it is chicken & egg circular logic but is basically true.

You better hope the Fed fights deflation very aggressively if it starts... else we need to move to Japan, fast.

Poszi - None of you guys have lived through real deflation. I haven't either but my parents did. In severe deflation anyone with any debt is wiped out even if the debt going into the deflation is minor.

Look, say you own a farm like in the US Midwest and you have 1000 acres. Say it is worth $1MM dollars... ($1000/acre). Say your debt ratio is 25%... meaning you owe $250K and have $750K in 'equity'. Pretty reasonable.

Say your debt service (P & I) is 10% ($25K per year)... That means you only need $25/acre Gross to break even... With corn at $2/bu and a yield of 100 bu/ac ($200 revenue/ac) no problem. Thats an operational leverage of $25/$200... not bad. Even with expenses it is pretty good.

And even if corn prices drop for a year or two... you still have the $750K in equity to borrow against.

But what happens in a severe deflation... say corn goes to 75 cents a bushel... and land values drop by 50%... so the land is now worth $500K... and the revenue is only $75/ac. The debt owed hasn't changed. All of a sudden the operational leverage which went from $25/$200 goes to $25/$75.

And we haven't considered expenses. Hopefully they've dropped in proportion... thought he debt will not.

In the GD, prices & assets fell by an order of magnitude... but debt was 'frozen' at previous signed contract levels... at least until farmers walked away & abandoned their farms. Then the folks holding the debt had worthless assets (the loan & land collateral)... but probably had debts of their own which they then default on.

It is a vicious cycle with consequences far worse than most inflationary scenarios.

It also explains why the Japanese didn't force bankruptcy in their deflation - that acted like a circuit breaker stopping the down spiral.

Hedge both and be prepared to live on less.

Hedge both and be prepared to live on less.

Amen. That's been my strategy all along. Hope it works.

I think you may be right re the socialism remark.

My father told me he remembered seeing both Nazi & Communist rallies in the Midwest during the early 30s. He personally knew communists (not pretend 70s college student types either - IWW 'wobblies' from the Minnesota 'iron range').

It was for real. It could happen again but would certainly be 'different' this time. As so often repeated here... "History doesn't repeat, it rhymes".

But like I've said so often - I'm not terribly worried about deflation, its inflation that is the greater threat IMHO.

"Dryfly is the voice of reason here.

the bulk of saving countries citizens become richer in deflation.

The bulk of none saving countries become bankrupt in deflation.

The US is the worlds biggest debtor nation.

Deflation is not going to happen in the US."

Eventually even the US will have to pay the Pide Piper. The Ottoman Empire thought it could compound debt upon debt and remain a debtor empire, while fighting losing wars. In the end it could not.

He said almost all homes were "saved". The exceptions being those who wanted to leave the area anyway.

With corn prices so low in the Midwest many did leave. Like I said above - people burned corn in their stoves for heat 'cause it was as cheap as coal (worthless) and 'free' to the farmer who grew it... Meanwhile hoards of people a few hundred miles away in Chicago Hoovervilles were starving. It was a complete market failure.

It is possible to have a market break down due to inflation too - read about Wiemar Germany.

And the Von Mises people will tell you one follows the other... but in modern 'fiat' economies we haven't seen that since the 30s. But we have seen plenty of inflation and a very few short mild periods of deflation (Japan).

I just don't see deflation as much of a risk. Inflation, yes - deflation, no.

Again - my opinion.

dryfly,

With all respect you don't understand what it is to live under serious infaltion.

Life as you know it stoppes. Everyone, every minute becomes a "financial instituation" worried about how to "invest" the small salary he/she just received.

If you think defaltion reduce what you have this only show you have not lived through real infaltion.

I really don't care if there would be deflation in corn prices - fine make more ethanol.

Or if there will be deflation in real-esate - fine it will be easier to own a home. Defalltion is asset price is not so bad but when your curremcy defalte this is called inflation since all prices around you move all the time. All of them all the time - this stop the social order and leads to anarchy. I lived in country that had it (over 50% per year starts being bad, I went through few years of close to 175%-200% per year) - total madness: everyone all the time run around trying to figure out what to do with their money.

Can someone help me put all this together ?

First it was 23% of $600M - i.e. loss of about $138M.

For that they ceased assets of about $400M

Later it was $850M

next it was another hedge fund and now they are putting in $3.4B

this was over 72 hours.

where are we going to be in a week ?

Bear Stearns woes seen raising chances of sale
If bank suffers big hedge-fund losses, it may be bought, analyst says

Bear Stearns hedge-fund woes could spur takeover, analyst says - MarketWatch

>
I guess after CFC & BCS, BSC is the latest take over target.

REBear:

This is great. Now BSC is falling appart so it will be a "take over target"

"Bear could be acquired for two times book value, or $185 a share, Moszkowski said. On Friday, the shares closed down $2.06, or 1.4%, at $143.75. "

I wonder by the time this is all over what BSC "book value" is going to be.

in my book they are already $3.2B less on Friday alone......

For dryfly and all those cold nights to come..

Corn Stoves - Golden Grain Corn Stove 

Dryfly,
And history backs this up. Count the times 'deflation' wins vs the number of times 'inflation' wins. It's no contest really.

I agree Completely

Deflation record 100% win rate
Inflation record 0% win rate

I may need some assistance from a few history buffs on this point,

Rome- currency's dead
Egypt- currency's dead
Greece- dead
germany-dead

I thought the Bernanke article, thank you Glenda, was very interesting.

I'm not a brain on these matters, obviously. But when Bernanke says, "By allowing persistent declines in the money supply and in the price leve, the Federal Reserve.... greatly destabilized the U.S. economy..." I infer that he would be in favor of cheap credit and easy money in a downturn. Would that not lead to a lowering of the dollar against other currencies? Or am I missing something?

Or am I missing something?

I think you got that right BD. BB will not willingly allow a deflation - nor should he. tj might be right that he might not be able to beat deflation but he will sure try.

I think we can all 'bank' on that.

Excellent point vader.

goods not be the goods themselves.

Over at mish's site i;ve stated this on occasion
The dollar is the greatest brand in the world- better than mcd,coke, sbux

Great Depression was seeded during the roaring 1920s and the destruction was already being done under the surface of the booming economy. Then Smoot-Hawley and the resulting trade wars worsened the problems. No "helicopters" would prevent nor alleviate the Depression.

It would not have alleviated it but certainly moderated it. The overshoot toward deflation that occurred after the bubble popped was far more painful than the inflation in the 20s. More painful than it needed to be. That was a result of money supply drying up so completely.

And contrary to 'Austrian Theory' it is possible to dampen via money injection & not necessarily overshoot a lot again toward hyperinflation... Some inflation will result 'yes' but not necessarily 'hyper-inflation'.

But that isn't saying mismanaged policy won't lead to hyperinflation. That can happen - has happened.

Or even intensional policy like Germany in Wiemar... they intended for the inflation to destroy the war reparations. Destroyed everyone else in the process too.

But it doesn't have to happen. You don't have to burn down the house because its cold outside.

The excesses of the 20s certainly lead to the 30s mess... but I believe the mess in the 30s would have been less severe - not totally alleviated but less severe - had appropriate stimulus been applied.

Most economists today would agree with that - even the conservative supply-siders & monetarists. The only disagreement is where the stimulus should be applied & how (tax cuts vs spending).

dryfly, I was referring to Sebastian's remark about the BS/subprime problem.

It always pay's to bet on the 25yo,

and most of the money spent on the 77yo is in the last year of his life...
were those last dollars into a viable system worth it, any return??

CB - but societies aren't people and life expectancies aren't the same as history.

A little after the end of the Republic - circa 100 AD - many Roman's predicted the imminent end of the Empire... it lasted 400 more years in Rome and another 1000 years in Constantinople.

Everyone is expecting the immediate demise of the dollar & have been doing so since its inception. But it continues to do its job.

In some ways that is the beauty of any fiat - you should NEVER hold fiat whether paper or metal - rather use it as a short term medium to conduct transactions then once the deals are closed convert any remaining fiat back into a productive asset or wealth preservation vehicle... primarily productive land, enterprise or universal commodity with a low carry cost & long shelf life.

I've always preferred productive assets over the commodity option - but that's just me, my bias, something I understand.

But I try NOT to hold cash. I am holding some now only because I'm not sure which non-cash vehicle I want to invest in. They all look equally risky to me at this time.

dryfly, I was referring to Sebastian's remark about the BS/subprime problem.

I realized that... but we got completely off topic - apocalyptic if you will - because we were running down all the 'what COULD happen' from this story and not just the what 'will happen'. Big difference. The breakdown all starts with what can & will the Fed do if this contagion spreads. They will not sit idle & watch.

But once the discussion gets into the realm of 'WWBD - what will Ben do' it isn't long until the trail leads to the competing & inevitable 'end games' of inflation or deflation. The Chicken Little stuff.

Oh, it doesn't much matter. The inflation-deflation discussion looks about as long on speculation and short on objective measures as the Bear/subprime discussion.

What metrics in 1913 would have predicted the Great Inflation of the 1920s in Germany?

What metrics in 1922 would have predicted the Great Depression say 1932?

Metrics don't tell all.

This whole inflation/deflation argument is completely academic & hypothetical to the extreme - no doubt bout it. And there are no metrics reliable out 10 years that will give us guidance today.

The only value here and now from this is looking at things like the Fed article (BB on the Great Depression) linked to above to try and game what BB MIGHT DO should the situation actually start to look more systemic.

I think its pretty obvious he'd try like hell to inject more liquidity. I wouldn't recommend anyone fight that tape should they do it.