Soon the FED will realize that "dual mandate" doesn't mean "dual capable".
Stop trying to do what you can't do at the expense of what you can.
They have to realize that rate cuts didn't work to save the economy or stop house prices from dropping...it did however succeed at increasing inflation expectations and commodity prices.
"Why aren't they protesting on the street? Workers world wide from Germany to India have taken it to the street."
It's the flip side of the Puritan ethic. Americans have been been told their economic problems are entirely their own fault, and a whole lot of them believe it.
Anybody remember how Peter Schiff was howling last year about how he didn't understand why commodity prices weren't going up when they started to slide in August?
If you are talking about Gas prices then I fear that as long as there is access to it then the charade known as credit will continue here until it doesn't.
I feel that with the Gas prices it's all about accessibility and that "mommy" would fill up the hummer regardless of price.
Says nothing about food prices and I think that is also along the same thought process-but to a lesser extent.
In the U.S. it's all about access, do something to that (ala gas in the 70's) and you might get a response here.
"Americans have been been told their economic problems are entirely their own fault, and a whole lot of them believe it."
It doen't matter whose fault they think it is. If all of the government money-printing keeps on going to the supply side, insolvency will wrap itself around the economy like an anaconda around a sheep.
Of course the rich are too busy counting their profits to figure this out, but when it comes 'round the corner and smacks them in the face they'll be hopping. It ain't gonna be pretty when 60% of the US population has nothing to lose.
Well, sort of, Dobbs. Americans realize that taking to the streets gets them nowhere. It isn't productive. Besides which, Dow's CEO is dead wrong. This is not 1980. In 1980 wages -were- rising. We're in a situation where the entirety of the "inflation" we're seeing is an exogenous price shock.
It's more expensive to do everything because energy costs more. Okay, well, fine, but that doesn't mean a rate hike will fix it. Rate hikes only fix expectations, they don't fix oil prices.
American workers who compete against workers overseas are paid less because our economy is more open. They also benefit from having to pay less for virtually everything they buy because (get this) our economy is more open. This helps holds down inflation developing from a wage/price spiral. It doesn't change knock on effects of exogenous price shocks.
Anyone who read BB advice to Japan knows that BB will not raise rates. never.
But that is exactly what he must do in order to spur demand.
He better talk to people who knows that inflation in 1929 Germany gave worse results that the 1929 GD in the US.
If the bond market or the dollar begin to collapse he simply won't have a choice. If people flee from the dollar or US treasuries en masse it will have the same effect as a massive increase in interest rates.
The Fed has no tools by which they can force people to hold USD based assets or trade them for things with real value, and that is ultimately what is required to keep borrowing costs down in real terms.
BTW if the dollar really does collapse the US government will lose much of its power. If it gets to a point where congress really gets concerned that they're going to lose their primary tool for global coercion, every person in DC will be singing the praises of Volcker and double digit interest rates and talking about how all those unemployed people are just deadbeats who couldn't get a job anyway.
Why are people so eager to have the Fed raise rates? Right now, the inflation-adjusted Fed funds rate is in negative territory (CPI at 3%-plus minus Fed funds at 2%), ensuring that the dodgy banks can continue to make money on their (performing) loans.
Is raising rates going to be good for the financial system? Isn't the only way out of this mess to inflate our way out?
Help is on the way folks. For those of you dis-satisfied with the Fed I am pleased to announce the opening of the Aheadofthecurve Reserve Bank. We will very shortly be issuing our new currency, the Caramba. It will come in the following denominations:
The 1-Featuring a likeness of yours truly in Senatorial toga
The 5-Featuring my beautiful bride and her gorgeous smile
The 10- Sporting a picture of my lovely daughter
The 20- Likewise with my handsome son (just like his dad)
And of course,
The 100- With a picture of our loyal hound in full pursuit of a pesky squirrel
AC, how about a real policy prescription. Easy enough to criticize what Bernanke is doing now, but what would you do in his shoes, considering all the risks?
Great Depression is less painful than Weimar Inflation
Discuss.
Ultimately it's foolish to associate a depression with inflation or deflation when there's plenty of evidence for both inflationary and deflationary depressions (look at Zimbabwe today).
The only reason to prefer the inflationary case is because deflation renders the Federal Reserve impotent, and we're a country of second-class chattel who don't get that their role in life is simply to serve the financial elite and the central banker who sits atop the monarchy.
The thing is, if you think the problem is that inflation is beginning, inflation only solves the debt problem by making everything worth less. It's better to actually deal with the pain.
The problem with Japan is actually twofold. They've done what the bill in Congress does now (failed to face the credit problem by saving bad loans rather than writing them off), which is bad because it puts the burden of those loans on the economy forever rather than moving those resources to productive use.
But they ALSO (and this is what BB wrote about re: Japan) failed to inject enough money to get the economy going again. There wasn't any significant inflation in Japan even at zero interest rates. The Bank should have printed more money, and the fact that they didn't was nearly as criminal a mistake as the carrying of nonperforming loans.
Now, if you think there is actually inflation in the United States, you'd think printing money was bad; it would exacerbate the problem. I don't think there is - it is my view that there is no real underlying inflation in the United States, that what has happened is an exogenous price shock. Things didn't get more expensive because we printed more money (the credit contraction of 2007 vastly decreased the supply of that), but rather because energy prices have increased drastically in a short period of time. This is 1970, not 1980.
Hopefully we will deal with the problem more successfully than last time. We know what to do (let prices for energy float, don't panic, write off the bad debt now rather than later, and get ready to grow again).
jg, that's an interesting thought, i never considered the possibility that the government might coerce americans to put their iras/401ks in treasuries when all other demand for them dries up. obviously you are pessimistic on the economy, what exactly is your outlook?
ac, tell me more about the whole Peter Schiff thing. Are you saying he was wrong in his prediction?
He was correct.
But his prediction did not come true until we got another round of rate cuts from the Federal Reserve that, predictably, led to another bubble, this time in commodities.
But if you recall, prior to these rate cuts commodities were actually declining with stocks.
Peter Schiff's prediction required that Bernanke cooperate by blasting more easy money into the financial system.
As I see it his prediction wasn't really made true by fundamentals. It was yet another artificial economic/financial distortion created by the Federal Reserve.
Ya know baking soda and vinegar are wonderful cleaning agents -- and still cheaper than Dow's stuff...
Plus it's amazing all the stuff you learn you really can get by without. I mean, they could get rid of the entire styrofoam division and do all of us and the environment a great favor....
Great Depression is less painful than Weimar Inflation
Interesting Times,
It's not an alternative. One can have both: an inflationary depression. There were several examples in modern history.
Inflationary and deflationary depressions differ just by who suffers a bit more. Those who had savings or those who had debt. But one cannot cure economy by printing money.
Im with Mish in the deflation camp but there is another aspect to inflation than most discuss.
That is the distribution of wealth.
If all the money is in few hands, then prices won't rise...because those who have the money have limited demand.
But take the same dollars and spread them out amongst more people and you get a greater impact on prices due to a spread out of demand (due to a broader ability to spend more).
For example if there is 1 million total dollars in a town, but most of it is in one man's garage, then the spending power of the dollar stays strong...since the ability to spend more on food and energy is still limited since the demand by one person one can't really make up for the lower demand by all others. There is no price pressure to the upside. Now take that million and spread it evenly among the entire town and you have increased buying power by multiple consumers. The demand for more food and fuel goes up and prices go up.
That is what happened on housing. The easy lending essentially increased the spending power of more people...without the increase in supply (that came later). This increased the number of people who could buy a house fighting for the same number of houses...i.e. higher prices.
Sending out the stimulous checks only increased the spending power of consumers, increasing the broad ability to pay more for gas.
The point is, you can have what looks like inflation without increasing money supply....just artificially spread the spending power out among more consumers and you've increased demand (more money among more people) while maintaining supply.
I for one will be boycotting products and services which abuse me. Although I am a man, refuse to purchase tampon-like products that connect a globalized world of falsified mis-placed hygienic capacity from corporate pirates that rely on marketing to attract consumers to un-needed products which just consume wealth.
Is it my imagination, or is it a fact that there is virtually no difference between a stinking homeless bum and the likes of the symbolic CEO of PG? They both smell like shit!
For me, I would prefer a great depression (deflated money supply and prices).
Those have been prudent with their assets, carried no debt, invested wisely were following the mantra's learned from the first GD. In my case, passed down from grand parents and parents.
There is very little I can do to combat inflation on a personal level.
Specially when the key inflation-hedged commodities are being so clearly manipulated for political purposes.
The U.S. Federal Reserve will undertake a $25 billion Term Securities Lending Facility (TSLF) auction on Thursday, accepting Schedule 1 collateral in exchange for Treasuries, the New York Fed announced on its website on Wednesday.
Good thing the Fed isn't listening to any of that Volcker stuff... Keep on pumping up new Bubbles! Keep inflation high, and then deny it. Keep on helping out the bankers - SOMEBODY needs to buy up all those yachts and other toys!
AC, how about a real policy prescription. Easy enough to criticize what Bernanke is doing now, but what would you do in his shoes, considering all the risks?
First of all I think there's only so much that can be done. We've wrecked a huge part of our economy and financial system, and ultimately something that feels very much like a depression may be unavoidable.
In terms of mitigating the impact my belief is we need to focus more on fiscal solutions (to the extent that we can afford to) as opposed to monetary solution. It may be heresy, but I think using fiscal means to help people refinance mortgages is OK (I worry more about stimulus checks, however). That said we may also need to seriously start thinking where we can cut back spending to pay for fiscal stimulus in such a way that it doesn't exacerbate an economic downturn.
The real reason the rate cuts are problematic not because they're inappropriate given the current macro environment, they're inappropriate because we still have this giant "velocity ramping" industry that can do far more damage with rate cuts than the rest of us can do good. I think you need to let this industry collapse. There may be no way to have that happen in a pleasant fashion.
Again, I don't really propose to have a solution because I don't know that there is one.
What's the best way to flap your arms after jumping off a skyscraper?
look at when Gold went from mid 600's to where it is now. The timing(s) are just a little too coincidental.....of course you have to have a little warning so that you are positioned correctly.....so that takes care of a week or two on either side.
"Great Depression is less painful than Weimar Inflation"
What's to discuss? We survived the Great Depression. Weimar lead to Hitler. It should be easy to figure out which choice is better. Too bad the Fed has picked the wrong choice by hyperinflating.
ac, haven't commodities been going up before the rate cuts started (september 2007 or whenever)? certainly this is true for gold and oil.
Commodities and especially commodity related stocks really started to slide in August. Again at the time they appeared to be "coupled" to stocks in terms of their behavior. That tells me hedge funds may have leveraging stocks and commodities up without distinguishing between the two and then changed tactics after Aug 17 2007.
Frank, the thought on government mandates on investment options is not mine; I read it in Prechter's 'Conquer the Crash.' The Brits did this before, I vaguely remember.
I believe that we are headed for a depression (reduced output and consumption), that will have both inflationary (increase in money supply) periods (when the Japanese, Chinese, and sheikhs sell their Treasuries) and deflationary (decrease in money supply) periods (now and post Treasury panic sell off). This is Janszen's Ka-Poom theory, and it makes great sense to me.
Dow CAN pass through price increases. Example...Walmart 2 months ago. 24 great value 39 gallon lawn and leaf bags @ $5.97. Walmart last week. 18 lawn and leaf for $5.97! Expect more to come.
All you kids that did not live through the last cycle (68 to 82) better go to school on us old grumps. It will save you a lot of time and consternation.
MS, gold broke into mid 600s in mid 2006. i can't think of anything special happening during that time. it was before the real estate bubble popped, and before the democratic victory in congress. what's so special about it?
What's the consensus on today's FOMC? I can't find the link to the futures. My feeling is no way a rate hike today, but more phoney baloney mush mouth, trying to talk down inflation. BB will still roll out the weaker growth = lower inflation line; it's just whether anyone will believe it. Especially after last round, he basically said I'm not worried about growth. Well, then, if he's not, wtf is going to bring down inflation? He's being disingenuous IMO.
But as for today, I think we've built in a scare of higher rates, but we won't get it, and the market will pop, only to be well back below today's level in a week. Good day for loading up the shorts, post 2:15pm Eastern time.
"All you kids that did not live through the last cycle (68 to 82) better go to school on us old grumps"
The difference this time is wages are going nowhere. People will charge up their cards to buy the $5 gas and the $6 trash bags then they'll go bankrupt...for gas and trash bags.
P.S. - I doubt the Fed is going to raise rates. They will spew some BS about uncertainty in the economy and how they want time to see the effects of prior moves yadda yadda and they will stand pat. No up, no down...probably not for at least 2 meetings.
Price hikes, yes. Inflation? No. No wage increases for you!
There are some real contradictions in the statements by Liveris. He says people aren't driving and aren't spending... but thinks Fed action could cut demand? Hmmm...
What's happening to certain commodity prices right now is a speculative bubble. The underlying economy is in recession - cetainly in the US and soon to follow elsewhere. The drop in demand will kill the bubbles. The Fed will be dropping rates again before year-end.
For inflation acts as a gigantic corporate tapeworm. That tapeworm preemptively consumes its requisite daily diet of investment dollars regardless of the health of the host organism. Whatever the level of reported profits (even if nil), more dollars for receivables, inventory and fixed assets are continuously required by the business in order to merely match the unit volume of the previous year. The less prosperous the enterprise, the greater the proportion of available sustenance claimed by the tapeworm. - Warren Buffett, Shareholder Letter - 1981
We just need to get it over with. Deflation would be my poison of choice, because it would reinstitute a lot of the "good" social values that haven't existed for generations: saving, conservation, living within your means, etc;
We should ruthlessly shut down insolvent institutions, kill unhealthy speculation, take any money we need to cover FDIC deposits from the robber barons, and get on with rebuilding the economy.
"Inflationary and deflationary depressions differ just by who suffers a bit more. Those who had savings or those who had debt. But one cannot cure economy by printing money."
--poszi
Well said. And here's another thought: who deserves to suffer more in the post-bubble aftermath? Responsible taxpayer-savers, or parasitic speculators and irresponsible banksters?
Deflation has the merit of punishing those who made poor decisions (because bad loans end up defaulting en masse) whereas inflation punishes those who tried to plan for the future (because savings is wiped out).
Which type of behavior do we want to reward and reinforce?
I see the prices of oil, copper, and some other commodities rising due to increased competition for scarce resources.
Since Americans are not inherently more able than people in other nations, it was inevitable this would eventually happen when the rest of the world finally recovered from WWII and/or abandoned centrally-planned economic systems. The US standard of living was temporarily elevated relative to the rest of the world by the after-effects of WWII, and is now settling back to a more normal relative level.
In the case of some commodities, there may be some additional component of price increase due to hoarding by speculators. But if so, that will eventually be reversed when they start selling off their hoards.
If this were true inflation, wages would be rising, too. They're not.
Since the US standard of living has been further elevated for a very long time by Asian mercantilism, which is also eventually going to end, we must anticipate even greater descent in the future.
Although this may be the end of life as we know it, it will not be the end of the world.
Okay, so the auction is for level 1 collateral instead of level 3.
Watch what they do, not what they say.
So what does this auction mean?
Is this new that they're now taking level 1 collateral only? Assuming so, is the implication that they're so loaded up on level 3 - and now realizing how worthless it is - that the Fed Balance Sheet cannot absorb any more for a period?
OT: Just heard an ad on the radio for Wells Fargo offering reverse mortgages for those 62 and older. The kicker was when they said even use it to buy another home.
MS, so it looks like you're taking about august 2007. as we all know, that's when the credit crisis supposedly started and the fed started taking action. what's so coincidental about the timing? isn't it predictable that lowering rates would create another bubble (in commodities)?
I need to buy a home but feel the market is priced too high. But with interest rates to rise and building costs to increase, I might not be able to afford to wait. Maybe land prices will deflate enough to compensate for building costs.
O.K.. Where do collapsing home prices fit in? Seems to me for someone who hasn't bought it is looking pretty good about now. Sucks if bought in the last 7-8 years though...
What I now know, because I read Calculated Risk, is that the Fed does not care about price inflation. Only wage inflation is of concern. So . . . is Liveris giving Dow employees a raise? No? No problem.
The fed is a side show. The real screwing of America is going down in DC. Lenders writing legislation to dump NPAs off their books. All you democraps need to wake up and pay attention. The representatives YOU sent to DC care a lot more about lenders than your kids or your country...
Look! No DEMs object to lender bailouts!!!! Pay attention to what they do - Not the slick things they con you into believing they'll do...
Bailout nays. Please acknowledge & reward those that refused to buckle to the banking lobby
"Seems to me for someone who hasn't bought it is looking pretty good about now. Sucks if bought in the last 7-8 years though..."
That kind of asset deflation is good for the 20- and 30-somethings who are just starting out with families. Although a general financial deflation would be bad for those with hefty student loans to pay off.
Claudius Maximus writes:
Unless Dow makes something you have to eat...good luck with those price hikes.
Claudius Maximus | 06.25.08 - 12:38 pm | #
I've been reading about Dow in materials lit - what isn't being reported is that Dow is also planning on significant output cuts. They know they can't pass on those increases w/out losing business & falling sales. They said the margin erosion was so bad they had no choice - accept less business but at profitable margins OR lose money on every sale 'and make it up on volume' [false hope].
Lay offs & plant closings will be next.
But that is exactly what he must do in order to spur demand.
Yal | 06.25.08 - 12:46 pm | #
It won't spur demand - it will kill demand. Drop dead kill demand.
But that is what has to happen - you want prices to reverse then you have to kill demand.
Got a bid for new kitchen cabinets. I thought I might get a better deal than last year since residental building has stopped and contractors might need the business. I was quoted a higher price than a year ago. The reason-cabinet materials has increase 10%
"Is raising rates going to be good for the financial system? Isn't the only way out of this mess to inflate our way out?"
It's not the cost of money that's killing the consumer, the trucker and the manufacturer, it's the cost of gas, diesel and raw materials.
Right now a rate raise that chokes off speculation, sending oil and other prices down, would be good.
All those looking to buy....don't believe anyone who says "it's a good time to buy, rates are low".
The best time to buy is when rates are at the peak!
Why? Because prices will fall. You pay less for the house. Yes your interest expense will be a higher portion of you payment, but that means more of you payment is tax deductable.
You can refi when rates drop years later. You can't refi your principle.
Look throughout history, the best time to buy is when rates have peaked and are on their way down.
As rates fall the house you just bought gets cheaper for you as the value of it increases.
All you democraps need to wake up and pay attention.,
If you don't know how to mind your manners, at least learn to ape your betters. Keep this garbage off this blog, and back in the middle school playground you so obviously frequent.
And, in case you didn't notice, an overwhelming majority of both parties voted for the bill.
Actually if you read between the lines Bernanke almost seems to criticize the dual mandate, especially when somebody like Ron Paul is grilling him.
He almost seems to be saying "I don't really have a choice. My hands are tied by the mandate."
ac | 06.25.08 - 12:53 pm | #
I agree. And if he had only ONE mandate - manage the money supply prudently to contain inflation - then congress would have to do the other part... manage policy to retain & promote a 'healthy economy'... meaning be frugal & responsible.
Much easier for congress to dump a 'dual & conflicting mandate' on the fed meanwhile they run massive deficits & allow trading partners to practice predatory merchantilism here unabated. Nice work if you can get it.
I understand that the Fed has 3 vacancies (all regional heads), meaning Bank heads are dominant. I understand that Dodd is holding up these nominations. Anyone have any thoughts on this, I don't recall seeing any discussion on CR?
Ministry of Truth writes:
OT: Just heard an ad on the radio for Wells Fargo offering reverse mortgages for those 62 and older. The kicker was when they said even use it to buy another home.
HR 3221 has a special provision that removes the statutory cap for the number of HECM loans that FHA can insure.
Perhaps instead of price increases some overpaid CEOs should consider cutting there own ridiculously high pay and retirement packages. No sorry...Boards (full of other CEOs) must make sure their pay is in line with all of their peer CEOS.
Let's throw the overpaid athletes into the mix as well since we pay for them via our cable bills and other products that advertise on the networks (paying huges sums of money to the networks, who pay the sports leagues, which gets passed on to the athletes).
Who cares about the 99% of us who aren't in the ultra rich category.
I'm a Democrat, and I'm pretty unhappy at how quickly they've caved - in particular, the Senator from Wall St, Dodd.
That said: this whole mess was created by the unregulated free-for-all (initiated under Democrats Clinton and Rubin) championed by the Repugs for the past 25 years. The pantheon of uber-conservatives (well, excepting their private lives) you list in your roster all have very IB and REIC friendly voting records - let's just say, "people who live in glass houses..." and all that.
This is not a partisan issue - this is a lobbying problem. We have had government of, by and for the Corporations for far too long. This is a campaign finance problem.
It's very curious to me that I never see anything on health care here, either from CR, Tanta or the commenters. Yet it's 15% of GDP. Other industrialized countries spend 30-50% less for comparable results on life expectancy and QOL. So just fixing that problem would give 5% of GDP (5x the recent stimulus) to play with. Why the silence? Health care affects all of us as least as much as the Fed.
Unless Dow makes something you have to eat...good luck with those price hikes.
ever been to a farm lately? You'd be surprised at how much of the stuff they NEED is made by Dow.
insecticies, pesticides, antifungals, films for greenhouses.
not to mention the grocery store:
Food gums, poylglycols, canola and sunflower oil, packaging and precursors to packaging (like acrylates), epoxy to close cans, snack pack bags, and some water purification products.
Dow is, among other things, an agriculture company.
If this were true inflation, wages would be rising, too. They're not.
Read too much Bernanke propaganda haven't you?
I lived through Soviet Union inflationary depression of 1990-1996. Prices were rising and rising. Wages remained the same until their purchasing power dropped to ridiculously low level. Then government (at that time over 2/3 of the country worked for government) stopped paying even those miniscule wages. Many people did not get their wages for over 2 years - but they continued to work for free because they could sometimes steal something of value from their job.
Inflation in Ukraine was in the hundreds of percents during those years. Three denominations were required.
Conjure says, "This is going to be the most severe downturn since 1930."
"Labor has no bargaining power in the current environment, little credit and no savings, so oil and agricultural commodities must come down within the next twelve months, otherwise the household sector will be crushed."
"I say 'Buh bye' to the radioactive Washington Mutual and Wachovia organizations. Yes, they could be takeover candidates, but only at gunpoint from the Fed."
Inflationary and deflationary depressions differ just by who suffers a bit more.
Another completely wrong and short-sighted statement.
Of much more concern is not who loses and how much of wealth but how can economy go forward and continue to generate useful things for the population in the future.
Inflationary environment shuts down all lending and investment in the country's business - effectively strangling the economy. After deflationary collapse people with money are happy to invest/lend immediately after, so sound business can grow.
To put this in perspective, after deflationary depression in US/Canada the GDP of these countries contracted by roughly 30%.
In inflationary depressions of Weimar/USSR the GDP has contracted by 70-80%.
Well, looks like I better get with the program, and make a living speculating in oil and grains.
Shysters, shylocks, and schmucks, the Fed is.
Thanks for $5 gas, Ben; we should see it really soon.
I really look forward to the rotting house -- fiat money, deficit spending Congress, Federal Reserve -- falling down hard during our incipient Greater Depression.
Deflation has the merit of punishing those who made poor decisions (because bad loans end up defaulting en masse) whereas inflation punishes those who tried to plan for the future (because savings is wiped out).
Which type of behavior do we want to reward and reinforce?
ac | 06.25.08 - 1:52 pm | #
Defining a decision as 'poor' or 'good' is a value judgment. Very puritanical if you ask me. Reward & punish w/out the 'values' is a better way to look at it...
More precisely - deflation rewards those who hold cash and do not invest in capital or practice other forms of 'leverage'.
And 'yes' investing in machinery & research & education is 'leverage' even if paid for at the onset in 'cash' without incurring debt.
In mfg we refer to this as 'operational leverage' - taking 'savings' & investing it in future productive capacity. It is every bit as much of a sunken cost as is 'debt'. Borrowing to do so is just the most radical and extreme form of operational leverage - think of it as Operational Leverage Squared.
And deflation punishes this activity severely whether paid with cash or debt.
I am currently in discussions with some folks who have far deeper pockets than I do. They want to start a new biz making parts - I and a friend have skill sets they want and are asking us to join (early market analysis right now). Even though they wouldn't be borrowing to do it - supplying cash they have on hand as seed - none of us go forward if we sense this is turning into a deflationary environment. We don't care if the products save people money, save energy, feed the starving or cure cancer - doesn't matter how noble the cause we aren't going forward if we sense prices are dropping for these products. It would make more sense to do nothing & just sit on the cash.
Eventually enough people do that and the supply drops SO MUCH that prices take off anyway due to supply demand shift and then we look at putting the capital to work. But until then do nothing & just let the cash sitting there 'make us rich'. We'll let somebody else produce the goods.
I don't think that's a good strategy for society but its the logical one for individuals to pursue in a deflationary environment - do nothing, make nothing, until you are 'forced' to. Your money is making money doing nothing.
Inflation has a different punishment pattern as we all know - it hurts the passive saver who lends to the person putting the capital in place to make stuff - it too is destructive but in a different & less immediate fashion.
This is why price stability is so damned important - the distortions are terrible either way. I'm pretty certain the fed doesn't have a lot of good choices to achieve that given our massive past deficits & dollar exportation AND the recent ballooning of the asset space.
Recall that you were talking about the changing environment re volume/low prices vs. fewer sales/higher margins.
Is this where you got that?
homedad43 | Homepage | 06.25.08 - 2:11 pm | #
I am also hearing it DIRECTLY from people I do biz with. Many are of the mindset they had better get decent pricing & margins for their goods OR not sell them at all.
I fully agree with this mindset - if we can't make money making the stuff then let somebody else do it (and let them accept the loss). Understand that also means lay offs - lots of lay offs once everybody starts doing that.
When business gets to that place in their head - we are very close to a real recession... 1970s & 80s style recession.
I think the reason that health care is really not discussed much on most economic blogs is because in this country, health care is more a philosophic or moral issue, which is part of the reason why our costs are so out of control.
Everyone universally agrees that it's insane to give a person a mortgage who has the greatest chance of default. Well, that the way organ transplants are prioritized in this country, the sickest first. Go figure.
Argento: You may be right. I still find it strange that there will be 100 posts on the ins and outs of house prices in some development in Riverside and 15% of the economy passes with nary a word.
The Dow hike really affects my (chemical) company. We're scrambling to buy as much raw material as we can hold before the prices get jacked on July 1st.
Ultimately, we're going to pass those higher prices off on our customers, but it won't be a 25% increase (since raws are not the majority of the cost, labor is)...but still...domino effect.
During the primary season, it was humorous how much press universal health care was getting; I kept trying to explain to my prof that by the general election, it would be an afterthought. By all indications, it appears that Obama really doesn't care that much about it. Anyways, what kind of reform only looks at the payer side, the true reform needs to be done with the "care" aspect of it.
Well, there's going to be a tipping point. As you pointed out, health care is 15-20% of GDP; by 2030, it's projected to be 50%, with Medicare the biggest component. Of course, there's no way that's going to happen; if we even got near that point, the dollar would be literally less than the paper it was printed on.
That's why I'm predicting, given the fact that over 50% of the federal budget is entitlements and with about half of the debt is owed to SS, at some point Congress is going to have to cut it loose, with Medicare the first to get trimmed; how they do it will be interesting. Mysterious virii that only affects 62+ year-olds wouldn't surprise me. Hell, I've even read studies arguing that obesity and smoking would actually help fiscal stability, in that they kill patients earlier.
"Well, sort of, Dobbs. Americans realize that taking to the streets gets them nowhere."
You got some factual basis to support that premise?
maybe factory workers should have STFU instead of protesting the awful conditions so well described by Upton Sinclair?
Maybe African-Americans should have "stayed in their place" instead of protesting?
Since when staying silent make the elites notice there is trouble? It is ONLY when the established order is called upon the carpet that narrow minds start to widen their horizons.
Since they won't see the light, they need to feel the heat.
"Hell, I've even read studies arguing that obesity and smoking would actually help fiscal stability, in that they kill patients earlier.
Argento | 06.25.08 - 3:31 pm | # "
You are quite correct. We need tax credits for cigarettes and potato chips.
Hell, I've even read studies arguing that obesity and smoking would actually help fiscal stability, in that they kill patients earlier.
No. it'll only help fiscal stability if we decide to NOT treat the after-effects.
so as example:
allow people to get fat and smoke, but then NOT give them quadruple bypass surgeries or lung transplants etc.
it doesn't help to encourage obesity and smoking, and then pay up the wazoo when we treat the downstream diseases (diabetes, cholesterol problems, heart issues, lung issues, joint issues, etc)
Actually, the world's first hand transplant was done in France. The recipient was a career criminal from Australia or New Zealand (I forget which). I believe he used the new fingerprints to commit crimes.
Liveris patently has no idea what he's talking about. You can't have an inflationary, overheated economy if people aren't spending money.
The whole point of inflation is people are willing to pay more, spend consistently, and pay for it by increasing wage demands. That isn't happening. Wages aren't rising, and people are afraid to spend what they have; they are holding cash.
Of course, that's the opposite of an inflationary economy.
What a Llama. They ought to oust him for being so ignorant about Econ 101. This dude's a CEO? Seriously?
jg wrote: My fear has been Federally-dictated/mandated holding of U.S. Treasuries in IRAs and 401(k)s: 'For your safety -- see the ugly stock market crash that we just had -- the only thing that you can hold in your IRAs and 401(k)s are Economic Recovery Bonds or U.S. Treasury bills/bonds/notes.'
BINGO jg! I have started the process of locating a lifeboat myself. Wait until our "savior" takes office.
drew wrote: take any money we need to cover FDIC deposits from the robber barons, and get on with rebuilding the economy.
My definition of a robber baron is anyone with a dollar more than me. From each according to his ability to each according to his need...and I have the need. Oh yeah...that should work.
ac wrote:
Deflation has the merit of punishing those who made poor decisions (because bad loans end up defaulting en masse) whereas inflation punishes those who tried to plan for the future (because savings is wiped out).
Your question is answered...count the savers in this society...then count the prolifigate "I want it and I want it now" folks...there's your answer.
it doesn't help to encourage obesity and smoking, and then pay up the wazoo when we treat the downstream diseases (diabetes, cholesterol problems, heart issues, lung issues, joint issues, etc)
No, the study (I'll find the link) explicitly factored that. The debate boiled down to something like this. Would you rather pay all the downstream costs (most of which are not covered by the government) of someone with a life expectancy of 50, or all of the downstream costs of someone that lives to 78, which is now the average life expectancy. Remember once you hit the magic age, SS and Medicare kick in. There's a reason cancer drugs, especially for the elderly, are now in excess of 20K/month.
"The Dow Chemical Company said Tuesday that it was raising prices for the second time in a month to offset a relentless rise in energy costs, a sign that companies may increasingly have to pass on price increases to their customers."
Aha! The reason my roofer was complaining about his shingles going up 10-15% in July isn't because of the low-grade asphalt that is used in them, it is the fiberglass...
Because of differences in life expectancy, however, lifetime health expenditure was highest among healthy-living people and lowest for smokers. Obese individuals held an intermediate position.
You see, there's another problem with this country. When you've got so-called business leaders hearkening back to the era of Paul Volcker, it becomes all too evident a chemical imbalance affecting mental acuity is rampant.
Here, this is made apparent both by a CEO calling for the controlled disintegration of the U.S. economy (Mr. Volcker's stated policy) and any listener who would nod his or her head in agreement thinking this is the very medicine we need.
At least Mr. Liveris has an excuse. He's probably wacked out on benzine.
Inflation is an increase in the general level of prices and wages due to expansion of the money supply at a rate greater than the rate of expansion of the supply of goods and services that can be bought.
Price increases due to supply/demand factors are not inflation, no matter how painful they may be.
Wage increases due to increases in productivity are not inflation.
Distinguishing between price/wage increases due to inflation and those due to other factors is not easy, and sometimes not possible at all.
But according to some very credible people, money supply growth is quite weak, and that and the anemic growth in wages strongly indicate that true inflation is not the real problem.
If this were true inflation, your wages would be rising as rapidly as prices, and you wouldn't be finding it nearly so painful. And Ben Bernanke -- yes, especially Ben Bernanke, whose advocacy of targeting a low, slightly positive inflation rate is a major element of his professional identity -- would already have raised interest rates to suppress it.
First
Sounds like Andrew Liveris knows something that Ben Bernanke doesn't. Hmmm. . .
Unless Dow makes something you have to eat...good luck with those price hikes.
Soon the FED will realize that "dual mandate" doesn't mean "dual capable".
Stop trying to do what you can't do at the expense of what you can.
They have to realize that rate cuts didn't work to save the economy or stop house prices from dropping...it did however succeed at increasing inflation expectations and commodity prices.
What dual mandate? I thought they were only responsible for maintaining Wall Street ceo pay checks.
"They have to realize that rate cuts didn't work to save the economy or stop house prices from dropping"
That wasn't the purpose of the rate cuts.
Why aren't American workers demanding higher wages?
Why aren't they protesting on the street? Workers world wide from Germany to India have taken it to the street.
Anyone who read BB advice to Japan knows that BB will not raise rates. never.
But that is exactly what he must do in order to spur demand.
He better talk to people who knows that inflation in 1929 Germany gave worse results that the 1929 GD in the US.
"Unless Dow makes something you have to eat...good luck with those price hikes."
Cloth diapers are so 60's, of course soap to wash them with is extra.
People haven't taken to the street because they are confuse by what has happened after all the great benefits of FREE TRADE were explained to them.
"Why aren't they protesting on the street? Workers world wide from Germany to India have taken it to the street."
It's the flip side of the Puritan ethic. Americans have been been told their economic problems are entirely their own fault, and a whole lot of them believe it.
Anybody remember how Peter Schiff was howling last year about how he didn't understand why commodity prices weren't going up when they started to slide in August?
Then Bennie came to his rescue and all was well.
TJ-
If you are talking about Gas prices then I fear that as long as there is access to it then the charade known as credit will continue here until it doesn't.
I feel that with the Gas prices it's all about accessibility and that "mommy" would fill up the hummer regardless of price.
Says nothing about food prices and I think that is also along the same thought process-but to a lesser extent.
In the U.S. it's all about access, do something to that (ala gas in the 70's) and you might get a response here.
Ciao
MS
Soon the FED will realize that "dual mandate" doesn't mean "dual capable".
Actually if you read between the lines Bernanke almost seems to criticize the dual mandate, especially when somebody like Ron Paul is grilling him.
He almost seems to be saying "I don't really have a choice. My hands are tied by the mandate."
Of course if he really believes that he should speak out about it. Really it's the responsibility of somebody in his position.
Responsible, lucid Mr. Liveris for Treasury Secretary!
"Americans have been been told their economic problems are entirely their own fault, and a whole lot of them believe it."
It doen't matter whose fault they think it is. If all of the government money-printing keeps on going to the supply side, insolvency will wrap itself around the economy like an anaconda around a sheep.
Of course the rich are too busy counting their profits to figure this out, but when it comes 'round the corner and smacks them in the face they'll be hopping. It ain't gonna be pretty when 60% of the US population has nothing to lose.
Well, sort of, Dobbs. Americans realize that taking to the streets gets them nowhere. It isn't productive. Besides which, Dow's CEO is dead wrong. This is not 1980. In 1980 wages -were- rising. We're in a situation where the entirety of the "inflation" we're seeing is an exogenous price shock.
It's more expensive to do everything because energy costs more. Okay, well, fine, but that doesn't mean a rate hike will fix it. Rate hikes only fix expectations, they don't fix oil prices.
American workers who compete against workers overseas are paid less because our economy is more open. They also benefit from having to pay less for virtually everything they buy because (get this) our economy is more open. This helps holds down inflation developing from a wage/price spiral. It doesn't change knock on effects of exogenous price shocks.
Which is what we have now.
Anyone know what's in the housing bill that Sen. Dodd who got the sweetheart loan from Countrywide is cooking up?
Who gets the breaks who gets gored?
Anyone who read BB advice to Japan knows that BB will not raise rates. never.
But that is exactly what he must do in order to spur demand.
He better talk to people who knows that inflation in 1929 Germany gave worse results that the 1929 GD in the US.
If the bond market or the dollar begin to collapse he simply won't have a choice. If people flee from the dollar or US treasuries en masse it will have the same effect as a massive increase in interest rates.
The Fed has no tools by which they can force people to hold USD based assets or trade them for things with real value, and that is ultimately what is required to keep borrowing costs down in real terms.
BTW if the dollar really does collapse the US government will lose much of its power. If it gets to a point where congress really gets concerned that they're going to lose their primary tool for global coercion, every person in DC will be singing the praises of Volcker and double digit interest rates and talking about how all those unemployed people are just deadbeats who couldn't get a job anyway.
Why are people so eager to have the Fed raise rates? Right now, the inflation-adjusted Fed funds rate is in negative territory (CPI at 3%-plus minus Fed funds at 2%), ensuring that the dodgy banks can continue to make money on their (performing) loans.
Is raising rates going to be good for the financial system? Isn't the only way out of this mess to inflate our way out?
Great Depression is less painful than Weimar Inflation
Discuss.
They're killing the real economy with energy costs in an attempt to save DSL. Is that really a wise choice?
I agree with Liveris.
Help is on the way folks. For those of you dis-satisfied with the Fed I am pleased to announce the opening of the Aheadofthecurve Reserve Bank. We will very shortly be issuing our new currency, the Caramba. It will come in the following denominations:
The 1-Featuring a likeness of yours truly in Senatorial toga
The 5-Featuring my beautiful bride and her gorgeous smile
The 10- Sporting a picture of my lovely daughter
The 20- Likewise with my handsome son (just like his dad)
And of course,
The 100- With a picture of our loyal hound in full pursuit of a pesky squirrel
Is raising rates going to be good for the financial system? Isn't the only way out of this mess to inflate our way out?
The only solution to the problems caused by financial irresponsibility is financial super-irresponsibility.
ac, tell me more about the whole Peter Schiff thing. Are you saying he was wrong in his prediction?
AC, how about a real policy prescription. Easy enough to criticize what Bernanke is doing now, but what would you do in his shoes, considering all the risks?
Great Depression is less painful than Weimar Inflation
Discuss.
Ultimately it's foolish to associate a depression with inflation or deflation when there's plenty of evidence for both inflationary and deflationary depressions (look at Zimbabwe today).
The only reason to prefer the inflationary case is because deflation renders the Federal Reserve impotent, and we're a country of second-class chattel who don't get that their role in life is simply to serve the financial elite and the central banker who sits atop the monarchy.
I get to start this note the same way:
Sort of, Dave.
The thing is, if you think the problem is that inflation is beginning, inflation only solves the debt problem by making everything worth less. It's better to actually deal with the pain.
The problem with Japan is actually twofold. They've done what the bill in Congress does now (failed to face the credit problem by saving bad loans rather than writing them off), which is bad because it puts the burden of those loans on the economy forever rather than moving those resources to productive use.
But they ALSO (and this is what BB wrote about re: Japan) failed to inject enough money to get the economy going again. There wasn't any significant inflation in Japan even at zero interest rates. The Bank should have printed more money, and the fact that they didn't was nearly as criminal a mistake as the carrying of nonperforming loans.
Now, if you think there is actually inflation in the United States, you'd think printing money was bad; it would exacerbate the problem. I don't think there is - it is my view that there is no real underlying inflation in the United States, that what has happened is an exogenous price shock. Things didn't get more expensive because we printed more money (the credit contraction of 2007 vastly decreased the supply of that), but rather because energy prices have increased drastically in a short period of time. This is 1970, not 1980.
Hopefully we will deal with the problem more successfully than last time. We know what to do (let prices for energy float, don't panic, write off the bad debt now rather than later, and get ready to grow again).
jg, that's an interesting thought, i never considered the possibility that the government might coerce americans to put their iras/401ks in treasuries when all other demand for them dries up. obviously you are pessimistic on the economy, what exactly is your outlook?
The American consumer may have to "pass on" bankruptcy to Dow Chemical's CEO. We regret any inconvenience.
It's not quite bad enough yet. And the powers that be have been lying to the public quite effectively.
It's the only thisng they are good at.
ac, tell me more about the whole Peter Schiff thing. Are you saying he was wrong in his prediction?
He was correct.
But his prediction did not come true until we got another round of rate cuts from the Federal Reserve that, predictably, led to another bubble, this time in commodities.
But if you recall, prior to these rate cuts commodities were actually declining with stocks.
Peter Schiff's prediction required that Bernanke cooperate by blasting more easy money into the financial system.
As I see it his prediction wasn't really made true by fundamentals. It was yet another artificial economic/financial distortion created by the Federal Reserve.
Ya know baking soda and vinegar are wonderful cleaning agents -- and still cheaper than Dow's stuff...
Plus it's amazing all the stuff you learn you really can get by without. I mean, they could get rid of the entire styrofoam division and do all of us and the environment a great favor....
Great Depression is less painful than Weimar Inflation
Interesting Times,
It's not an alternative. One can have both: an inflationary depression. There were several examples in modern history.
Inflationary and deflationary depressions differ just by who suffers a bit more. Those who had savings or those who had debt. But one cannot cure economy by printing money.
ac | 06.25.08 - 1:08 pm | #
A+ for snark.
ac, haven't commodities been going up before the rate cuts started (september 2007 or whenever)? certainly this is true for gold and oil.
Im with Mish in the deflation camp but there is another aspect to inflation than most discuss.
That is the distribution of wealth.
If all the money is in few hands, then prices won't rise...because those who have the money have limited demand.
But take the same dollars and spread them out amongst more people and you get a greater impact on prices due to a spread out of demand (due to a broader ability to spend more).
For example if there is 1 million total dollars in a town, but most of it is in one man's garage, then the spending power of the dollar stays strong...since the ability to spend more on food and energy is still limited since the demand by one person one can't really make up for the lower demand by all others. There is no price pressure to the upside. Now take that million and spread it evenly among the entire town and you have increased buying power by multiple consumers. The demand for more food and fuel goes up and prices go up.
That is what happened on housing. The easy lending essentially increased the spending power of more people...without the increase in supply (that came later). This increased the number of people who could buy a house fighting for the same number of houses...i.e. higher prices.
Sending out the stimulous checks only increased the spending power of consumers, increasing the broad ability to pay more for gas.
The point is, you can have what looks like inflation without increasing money supply....just artificially spread the spending power out among more consumers and you've increased demand (more money among more people) while maintaining supply.
I for one will be boycotting products and services which abuse me. Although I am a man, refuse to purchase tampon-like products that connect a globalized world of falsified mis-placed hygienic capacity from corporate pirates that rely on marketing to attract consumers to un-needed products which just consume wealth.
Is it my imagination, or is it a fact that there is virtually no difference between a stinking homeless bum and the likes of the symbolic CEO of PG? They both smell like shit!
For me, I would prefer a great depression (deflated money supply and prices).
Those have been prudent with their assets, carried no debt, invested wisely were following the mantra's learned from the first GD. In my case, passed down from grand parents and parents.
There is very little I can do to combat inflation on a personal level.
Specially when the key inflation-hedged commodities are being so clearly manipulated for political purposes.
The U.S. Federal Reserve will undertake a $25 billion Term Securities Lending Facility (TSLF) auction on Thursday, accepting Schedule 1 collateral in exchange for Treasuries, the New York Fed announced on its website on Wednesday.
Fed to undertake $25 bln TSLF auction on Thursday
| Reuters
Watch what they do not what they say.
Good thing the Fed isn't listening to any of that Volcker stuff... Keep on pumping up new Bubbles! Keep inflation high, and then deny it. Keep on helping out the bankers - SOMEBODY needs to buy up all those yachts and other toys!
AC, how about a real policy prescription. Easy enough to criticize what Bernanke is doing now, but what would you do in his shoes, considering all the risks?
First of all I think there's only so much that can be done. We've wrecked a huge part of our economy and financial system, and ultimately something that feels very much like a depression may be unavoidable.
In terms of mitigating the impact my belief is we need to focus more on fiscal solutions (to the extent that we can afford to) as opposed to monetary solution. It may be heresy, but I think using fiscal means to help people refinance mortgages is OK (I worry more about stimulus checks, however). That said we may also need to seriously start thinking where we can cut back spending to pay for fiscal stimulus in such a way that it doesn't exacerbate an economic downturn.
The real reason the rate cuts are problematic not because they're inappropriate given the current macro environment, they're inappropriate because we still have this giant "velocity ramping" industry that can do far more damage with rate cuts than the rest of us can do good. I think you need to let this industry collapse. There may be no way to have that happen in a pleasant fashion.
Again, I don't really propose to have a solution because I don't know that there is one.
What's the best way to flap your arms after jumping off a skyscraper?
frank-
look at when Gold went from mid 600's to where it is now. The timing(s) are just a little too coincidental.....of course you have to have a little warning so that you are positioned correctly.....so that takes care of a week or two on either side.
FWIW
Ciao
MS
"Great Depression is less painful than Weimar Inflation"
What's to discuss? We survived the Great Depression. Weimar lead to Hitler. It should be easy to figure out which choice is better. Too bad the Fed has picked the wrong choice by hyperinflating.
Is there anyone (a blog?) keeping close track of the FR's balance sheet? I don't think CR and Tanta have been paying enough attention.
ac, haven't commodities been going up before the rate cuts started (september 2007 or whenever)? certainly this is true for gold and oil.
Commodities and especially commodity related stocks really started to slide in August. Again at the time they appeared to be "coupled" to stocks in terms of their behavior. That tells me hedge funds may have leveraging stocks and commodities up without distinguishing between the two and then changed tactics after Aug 17 2007.
Frank, the thought on government mandates on investment options is not mine; I read it in Prechter's 'Conquer the Crash.' The Brits did this before, I vaguely remember.
I believe that we are headed for a depression (reduced output and consumption), that will have both inflationary (increase in money supply) periods (when the Japanese, Chinese, and sheikhs sell their Treasuries) and deflationary (decrease in money supply) periods (now and post Treasury panic sell off). This is Janszen's Ka-Poom theory, and it makes great sense to me.
Ka-Poom Theory is a Rhyme not a Repeat of History - iTulip.com
Dow CAN pass through price increases. Example...Walmart 2 months ago. 24 great value 39 gallon lawn and leaf bags @ $5.97. Walmart last week. 18 lawn and leaf for $5.97! Expect more to come.
All you kids that did not live through the last cycle (68 to 82) better go to school on us old grumps. It will save you a lot of time and consternation.
fw they raise rates this year. nfw!
You can only break out of it one way and you better take on inflation head-on.
Holy cow. He's asking to be hurt and saying he'd like it.
Its time for our medicine. We need a mother Volker to shake up the ship.
Got Popcorn?
Neil
MS, gold broke into mid 600s in mid 2006. i can't think of anything special happening during that time. it was before the real estate bubble popped, and before the democratic victory in congress. what's so special about it?
What's the consensus on today's FOMC? I can't find the link to the futures. My feeling is no way a rate hike today, but more phoney baloney mush mouth, trying to talk down inflation. BB will still roll out the weaker growth = lower inflation line; it's just whether anyone will believe it. Especially after last round, he basically said I'm not worried about growth. Well, then, if he's not, wtf is going to bring down inflation? He's being disingenuous IMO.
But as for today, I think we've built in a scare of higher rates, but we won't get it, and the market will pop, only to be well back below today's level in a week. Good day for loading up the shorts, post 2:15pm Eastern time.
From Cnn.com
Boy are these guys wrong!
"Watch what the Fed says...not what it does"
Watch what the Fed says... - Jun. 25, 2008
Geoff,
I look here:
over 2 to 1
"All you kids that did not live through the last cycle (68 to 82) better go to school on us old grumps"
The difference this time is wages are going nowhere. People will charge up their cards to buy the $5 gas and the $6 trash bags then they'll go bankrupt...for gas and trash bags.
P.S. - I doubt the Fed is going to raise rates. They will spew some BS about uncertainty in the economy and how they want time to see the effects of prior moves yadda yadda and they will stand pat. No up, no down...probably not for at least 2 meetings.
when did it break out of that is what you should be paying attention to.....
Ciao
MS
Until the shadow banking system is brought under control, the Fed will be powerless.
Pay particularly close attention to the move in late Aug/early Sept.
GLD - SharpCharts Workbench : StockCharts.com
This is the ETF however it is just as relevant.
Ciao
MS
Unless Dow makes something you have to eat...good luck with those price hikes.
Raw feedstocks for fertilizers ?
Chemicals for herbicides and pesticides ?
Plastic for bags and bottles to put food, milk, and soda pop in ?
There might be a connection there.
Price hikes, yes. Inflation? No. No wage increases for you!
There are some real contradictions in the statements by Liveris. He says people aren't driving and aren't spending... but thinks Fed action could cut demand? Hmmm...
What's happening to certain commodity prices right now is a speculative bubble. The underlying economy is in recession - cetainly in the US and soon to follow elsewhere. The drop in demand will kill the bubbles. The Fed will be dropping rates again before year-end.
For inflation acts as a gigantic corporate tapeworm. That tapeworm preemptively consumes its requisite daily diet of investment dollars regardless of the health of the host organism. Whatever the level of reported profits (even if nil), more dollars for receivables, inventory and fixed assets are continuously required by the business in order to merely match the unit volume of the previous year. The less prosperous the enterprise, the greater the proportion of available sustenance claimed by the tapeworm. - Warren Buffett, Shareholder Letter - 1981
Thanks for the link, SOZ!
It's good to be the tapeworm! (unless you live inside a WAMU)
We just need to get it over with. Deflation would be my poison of choice, because it would reinstitute a lot of the "good" social values that haven't existed for generations: saving, conservation, living within your means, etc;
We should ruthlessly shut down insolvent institutions, kill unhealthy speculation, take any money we need to cover FDIC deposits from the robber barons, and get on with rebuilding the economy.
``I think the mortgage industry has done more to hurt this country than al-Qaeda ever did,'' Subers said.
Bank of America's Countrywide Tab Signed by Taxpayers (Update4) - Bloomberg.com
"Inflationary and deflationary depressions differ just by who suffers a bit more. Those who had savings or those who had debt. But one cannot cure economy by printing money."
--poszi
Well said. And here's another thought: who deserves to suffer more in the post-bubble aftermath? Responsible taxpayer-savers, or parasitic speculators and irresponsible banksters?
And what Drew said.
Deflation would be my poison of choice
Deflation has the merit of punishing those who made poor decisions (because bad loans end up defaulting en masse) whereas inflation punishes those who tried to plan for the future (because savings is wiped out).
Which type of behavior do we want to reward and reinforce?
Inflation? What inflation?
I don't see inflation.
I see the prices of oil, copper, and some other commodities rising due to increased competition for scarce resources.
Since Americans are not inherently more able than people in other nations, it was inevitable this would eventually happen when the rest of the world finally recovered from WWII and/or abandoned centrally-planned economic systems. The US standard of living was temporarily elevated relative to the rest of the world by the after-effects of WWII, and is now settling back to a more normal relative level.
In the case of some commodities, there may be some additional component of price increase due to hoarding by speculators. But if so, that will eventually be reversed when they start selling off their hoards.
If this were true inflation, wages would be rising, too. They're not.
Since the US standard of living has been further elevated for a very long time by Asian mercantilism, which is also eventually going to end, we must anticipate even greater descent in the future.
Although this may be the end of life as we know it, it will not be the end of the world.
Anon @ 1:23:
Okay, so the auction is for level 1 collateral instead of level 3.
Watch what they do, not what they say.
So what does this auction mean?
Is this new that they're now taking level 1 collateral only? Assuming so, is the implication that they're so loaded up on level 3 - and now realizing how worthless it is - that the Fed Balance Sheet cannot absorb any more for a period?
Appreciate clarification please.
Thanks
jm --
Inflation? What inflation?
I don't see inflation.
Been to a hospital or paid tuition lately?
If this were true inflation, wages would be rising, too.
I see. So if absolutely everything you buy rises in price, year after year after year, but your salary stays the same, that's not "true" inflation?
You should go work for the Fed. You sound eminently qualified...
Geoff --
What's the consensus on today's FOMC?
Either no rate hike, neutral bias, "balanced" assessment, and 1 or 2 dissents; or no rate hike, extra language about inflation risks, and no dissents.
For the rest of the year, lots of jawboning on inflation, but no action. (Yeah I disagree with the futures here.)
OT: Just heard an ad on the radio for Wells Fargo offering reverse mortgages for those 62 and older. The kicker was when they said even use it to buy another home.
MS, so it looks like you're taking about august 2007. as we all know, that's when the credit crisis supposedly started and the fed started taking action. what's so coincidental about the timing? isn't it predictable that lowering rates would create another bubble (in commodities)?
Bad news for homebuilding costs.
I need to buy a home but feel the market is priced too high. But with interest rates to rise and building costs to increase, I might not be able to afford to wait. Maybe land prices will deflate enough to compensate for building costs.
Damn.
Nemo | Homepage | 06.25.08 - 2:01 pm
O.K.. Where do collapsing home prices fit in? Seems to me for someone who hasn't bought it is looking pretty good about now. Sucks if bought in the last 7-8 years though...
Chris
What I now know, because I read Calculated Risk, is that the Fed does not care about price inflation. Only wage inflation is of concern. So . . . is Liveris giving Dow employees a raise? No? No problem.
The fed is a side show. The real screwing of America is going down in DC. Lenders writing legislation to dump NPAs off their books. All you democraps need to wake up and pay attention. The representatives YOU sent to DC care a lot more about lenders than your kids or your country...
Look! No DEMs object to lender bailouts!!!! Pay attention to what they do - Not the slick things they con you into believing they'll do...
Bailout nays. Please acknowledge & reward those that refused to buckle to the banking lobby
NAYs ---9
Barrasso (R-WY)
Bond (R-MO)
Bunning (R-KY)
Crapo (R-ID)
DeMint (R-SC)
Ensign (R-NV)
Enzi (R-WY)
Kyl (R-AZ)
Vitter (R-LA)
U.S. Senate: Legislation & Records Home > Votes > Roll Call Vote
``I think the mortgage industry has done more to hurt this country than al-Qaeda ever did,'' Subers said.
And of course the Tan Man is way more eviler than Bin Laden.
So . . . is Liveris giving Dow employees a raise? No? No problem.
Without even looking, I'm sure that the CEO is getting a raise! Does that count?
"Seems to me for someone who hasn't bought it is looking pretty good about now. Sucks if bought in the last 7-8 years though..."
That kind of asset deflation is good for the 20- and 30-somethings who are just starting out with families. Although a general financial deflation would be bad for those with hefty student loans to pay off.
O.K.. Where do collapsing home prices fit in?
Cobra:
I think that collapsing homes are pretty affordable at any time.
Claudius Maximus writes:
Unless Dow makes something you have to eat...good luck with those price hikes.
Claudius Maximus | 06.25.08 - 12:38 pm | #
I've been reading about Dow in materials lit - what isn't being reported is that Dow is also planning on significant output cuts. They know they can't pass on those increases w/out losing business & falling sales. They said the margin erosion was so bad they had no choice - accept less business but at profitable margins OR lose money on every sale 'and make it up on volume' [false hope].
Lay offs & plant closings will be next.
But that is exactly what he must do in order to spur demand.
Yal | 06.25.08 - 12:46 pm | #
It won't spur demand - it will kill demand. Drop dead kill demand.
But that is what has to happen - you want prices to reverse then you have to kill demand.
There is no painless exit.
Not to worry;inflation is contained. However, demand destruction is just fanning the flames of deflation.
Got a bid for new kitchen cabinets. I thought I might get a better deal than last year since residental building has stopped and contractors might need the business. I was quoted a higher price than a year ago. The reason-cabinet materials has increase 10%
Damn.
Ah, I love the sweet smell of demand destruction!
barely;
I see that a lot of Republithugs have voted for the bailout too.
Dryfly:
Recall that you were talking about the changing environment re volume/low prices vs. fewer sales/higher margins.
Is this where you got that?
PS - And could it be that GM/Cerebus is reading you, too?
superduperdave writes:
"Is raising rates going to be good for the financial system? Isn't the only way out of this mess to inflate our way out?"
It's not the cost of money that's killing the consumer, the trucker and the manufacturer, it's the cost of gas, diesel and raw materials.
Right now a rate raise that chokes off speculation, sending oil and other prices down, would be good.
All those looking to buy....don't believe anyone who says "it's a good time to buy, rates are low".
The best time to buy is when rates are at the peak!
Why? Because prices will fall. You pay less for the house. Yes your interest expense will be a higher portion of you payment, but that means more of you payment is tax deductable.
You can refi when rates drop years later. You can't refi your principle.
Look throughout history, the best time to buy is when rates have peaked and are on their way down.
As rates fall the house you just bought gets cheaper for you as the value of it increases.
All you democraps need to wake up and pay attention.,
If you don't know how to mind your manners, at least learn to ape your betters. Keep this garbage off this blog, and back in the middle school playground you so obviously frequent.
And, in case you didn't notice, an overwhelming majority of both parties voted for the bill.
Actually if you read between the lines Bernanke almost seems to criticize the dual mandate, especially when somebody like Ron Paul is grilling him.
He almost seems to be saying "I don't really have a choice. My hands are tied by the mandate."
ac | 06.25.08 - 12:53 pm | #
I agree. And if he had only ONE mandate - manage the money supply prudently to contain inflation - then congress would have to do the other part... manage policy to retain & promote a 'healthy economy'... meaning be frugal & responsible.
Much easier for congress to dump a 'dual & conflicting mandate' on the fed meanwhile they run massive deficits & allow trading partners to practice predatory merchantilism here unabated. Nice work if you can get it.
[I see that a lot of Republithugs have voted for the bailout too.]
Yes. But at least they didn't ALL act like lemmings following their lender masters. At least a few have a shred of decency.
I understand that the Fed has 3 vacancies (all regional heads), meaning Bank heads are dominant. I understand that Dodd is holding up these nominations. Anyone have any thoughts on this, I don't recall seeing any discussion on CR?
Ministry of Truth writes:
OT: Just heard an ad on the radio for Wells Fargo offering reverse mortgages for those 62 and older. The kicker was when they said even use it to buy another home.
HR 3221 has a special provision that removes the statutory cap for the number of HECM loans that FHA can insure.
Complaint filed by IL AG Madigan against Countrywide (pdf).
Perhaps instead of price increases some overpaid CEOs should consider cutting there own ridiculously high pay and retirement packages. No sorry...Boards (full of other CEOs) must make sure their pay is in line with all of their peer CEOS.
Let's throw the overpaid athletes into the mix as well since we pay for them via our cable bills and other products that advertise on the networks (paying huges sums of money to the networks, who pay the sports leagues, which gets passed on to the athletes).
Who cares about the 99% of us who aren't in the ultra rich category.
Barely
I'm a Democrat, and I'm pretty unhappy at how quickly they've caved - in particular, the Senator from Wall St, Dodd.
That said: this whole mess was created by the unregulated free-for-all (initiated under Democrats Clinton and Rubin) championed by the Repugs for the past 25 years. The pantheon of uber-conservatives (well, excepting their private lives) you list in your roster all have very IB and REIC friendly voting records - let's just say, "people who live in glass houses..." and all that.
This is not a partisan issue - this is a lobbying problem. We have had government of, by and for the Corporations for far too long. This is a campaign finance problem.
What the heck? FOMC slip up, release 5 minutes too early?
Worry about inflation - rates steady.
Naw, people just try to run the futures.
It's been a profitable trade the last 4 times to fade the initial move after the announcement.
"The fed is a side show. The real screwing of America is going down in DC."
Absofuckinglutly
And the inflation jawboning continues...
Hmm...very fishy.
Seems like Ben and Trichet are hitting on the same note now.
They both expect inflation to decrease in 09.
I guess the crisis is worse than previously thought.
Place your bets for the next round.
Just an observation:
It's very curious to me that I never see anything on health care here, either from CR, Tanta or the commenters. Yet it's 15% of GDP. Other industrialized countries spend 30-50% less for comparable results on life expectancy and QOL. So just fixing that problem would give 5% of GDP (5x the recent stimulus) to play with. Why the silence? Health care affects all of us as least as much as the Fed.
Unless Dow makes something you have to eat...good luck with those price hikes.
ever been to a farm lately? You'd be surprised at how much of the stuff they NEED is made by Dow.
insecticies, pesticides, antifungals, films for greenhouses.
not to mention the grocery store:
Food gums, poylglycols, canola and sunflower oil, packaging and precursors to packaging (like acrylates), epoxy to close cans, snack pack bags, and some water purification products.
Dow is, among other things, an agriculture company.
Interesting Times writes:
Place your bets for the next round.
No rate change for this year. They may decrease rates pending on the markets and the financials situation the next time they meet.
I see crude ending higher end of this week.
If this were true inflation, wages would be rising, too. They're not.
Read too much Bernanke propaganda haven't you?
I lived through Soviet Union inflationary depression of 1990-1996. Prices were rising and rising. Wages remained the same until their purchasing power dropped to ridiculously low level. Then government (at that time over 2/3 of the country worked for government) stopped paying even those miniscule wages. Many people did not get their wages for over 2 years - but they continued to work for free because they could sometimes steal something of value from their job.
Inflation in Ukraine was in the hundreds of percents during those years. Three denominations were required.
CONJURE COMMUNIQUE
Conjure says, "This is going to be the most severe downturn since 1930."
"Labor has no bargaining power in the current environment, little credit and no savings, so oil and agricultural commodities must come down within the next twelve months, otherwise the household sector will be crushed."
"I say 'Buh bye' to the radioactive Washington Mutual and Wachovia organizations. Yes, they could be takeover candidates, but only at gunpoint from the Fed."
"Have a nice day."
BB - I am expecting a surprise rate cut before the end of the year.
There will be a wave 4 coming up soon. TED and dollar related.
MS-
I believe I see what your talking about in Link..
OT-
did anyone see this
Yahoo! 404 - Page Not Found
I know if it was my daughter, this guy would be 50K less tax problem without 1m in court costs. I like the old western rules of engagement.
Our country is in shambles with conservatives and liberals. We just need Citizens (not consumers) to stand up before it's to late..
Rant over
We will very shortly be issuing our new currency, the Caramba
how much is the "Aye" Caramba worth? does it have a picture of me on it? Or bart simpson?
BTW:
Fed held rates steady today, in case anybody didn't know.
(is there anybody on Earth who thought they'd raise or lower?)
Inflationary and deflationary depressions differ just by who suffers a bit more.
Another completely wrong and short-sighted statement.
Of much more concern is not who loses and how much of wealth but how can economy go forward and continue to generate useful things for the population in the future.
Inflationary environment shuts down all lending and investment in the country's business - effectively strangling the economy. After deflationary collapse people with money are happy to invest/lend immediately after, so sound business can grow.
To put this in perspective, after deflationary depression in US/Canada the GDP of these countries contracted by roughly 30%.
In inflationary depressions of Weimar/USSR the GDP has contracted by 70-80%.
Interesting Times writes:
BB - I am expecting a surprise rate cut before the end of the year.
I can't fault your logic, but am thinking there's still another shoe to fall for financials.
Trichet has been very compliant this time. He may force Ben's hand next.
Well, looks like I better get with the program, and make a living speculating in oil and grains.
Shysters, shylocks, and schmucks, the Fed is.
Thanks for $5 gas, Ben; we should see it really soon.
I really look forward to the rotting house -- fiat money, deficit spending Congress, Federal Reserve -- falling down hard during our incipient Greater Depression.
ac writes:
Deflation would be my poison of choice
Deflation has the merit of punishing those who made poor decisions (because bad loans end up defaulting en masse) whereas inflation punishes those who tried to plan for the future (because savings is wiped out).
Which type of behavior do we want to reward and reinforce?
ac | 06.25.08 - 1:52 pm | #
Defining a decision as 'poor' or 'good' is a value judgment. Very puritanical if you ask me. Reward & punish w/out the 'values' is a better way to look at it...
More precisely - deflation rewards those who hold cash and do not invest in capital or practice other forms of 'leverage'.
And 'yes' investing in machinery & research & education is 'leverage' even if paid for at the onset in 'cash' without incurring debt.
In mfg we refer to this as 'operational leverage' - taking 'savings' & investing it in future productive capacity. It is every bit as much of a sunken cost as is 'debt'. Borrowing to do so is just the most radical and extreme form of operational leverage - think of it as Operational Leverage Squared.
And deflation punishes this activity severely whether paid with cash or debt.
I am currently in discussions with some folks who have far deeper pockets than I do. They want to start a new biz making parts - I and a friend have skill sets they want and are asking us to join (early market analysis right now). Even though they wouldn't be borrowing to do it - supplying cash they have on hand as seed - none of us go forward if we sense this is turning into a deflationary environment. We don't care if the products save people money, save energy, feed the starving or cure cancer - doesn't matter how noble the cause we aren't going forward if we sense prices are dropping for these products. It would make more sense to do nothing & just sit on the cash.
Eventually enough people do that and the supply drops SO MUCH that prices take off anyway due to supply demand shift and then we look at putting the capital to work. But until then do nothing & just let the cash sitting there 'make us rich'. We'll let somebody else produce the goods.
I don't think that's a good strategy for society but its the logical one for individuals to pursue in a deflationary environment - do nothing, make nothing, until you are 'forced' to. Your money is making money doing nothing.
Inflation has a different punishment pattern as we all know - it hurts the passive saver who lends to the person putting the capital in place to make stuff - it too is destructive but in a different & less immediate fashion.
This is why price stability is so damned important - the distortions are terrible either way. I'm pretty certain the fed doesn't have a lot of good choices to achieve that given our massive past deficits & dollar exportation AND the recent ballooning of the asset space.
There is no easy out.
"Unless Dow makes something you have to eat...good luck with those price hikes."
Dow AgroSciences. Stuff for growing what we eat.
dryfly- "This is why price stability is so damned important."
It is shaping up to be The Perfect Storm.
homedad43 writes:
Dryfly:
Recall that you were talking about the changing environment re volume/low prices vs. fewer sales/higher margins.
Is this where you got that?
homedad43 | Homepage | 06.25.08 - 2:11 pm | #
I am also hearing it DIRECTLY from people I do biz with. Many are of the mindset they had better get decent pricing & margins for their goods OR not sell them at all.
I fully agree with this mindset - if we can't make money making the stuff then let somebody else do it (and let them accept the loss). Understand that also means lay offs - lots of lay offs once everybody starts doing that.
When business gets to that place in their head - we are very close to a real recession... 1970s & 80s style recession.
It is shaping up to be The Perfect Storm.
mp | 06.25.08 - 2:46 pm | #
Those exact words came up in a phone conference I had today.
dryfly writes:
It is shaping up to be The Perfect Storm.
mp | 06.25.08 - 2:46 pm | #
Those exact words came up in a phone conference I had today.
Speaking of which hurricane season wouldn't help.
dryfly:
bravo.
Aheadofthecurve:
I think the reason that health care is really not discussed much on most economic blogs is because in this country, health care is more a philosophic or moral issue, which is part of the reason why our costs are so out of control.
Everyone universally agrees that it's insane to give a person a mortgage who has the greatest chance of default. Well, that the way organ transplants are prioritized in this country, the sickest first. Go figure.
Argento: You may be right. I still find it strange that there will be 100 posts on the ins and outs of house prices in some development in Riverside and 15% of the economy passes with nary a word.
Bloomberg's quoting Buffett today:
"I think the flation' part will heat up and I think thestag' part will get worse."
The Dow hike really affects my (chemical) company. We're scrambling to buy as much raw material as we can hold before the prices get jacked on July 1st.
Ultimately, we're going to pass those higher prices off on our customers, but it won't be a 25% increase (since raws are not the majority of the cost, labor is)...but still...domino effect.
During the primary season, it was humorous how much press universal health care was getting; I kept trying to explain to my prof that by the general election, it would be an afterthought. By all indications, it appears that Obama really doesn't care that much about it. Anyways, what kind of reform only looks at the payer side, the true reform needs to be done with the "care" aspect of it.
Well, there's going to be a tipping point. As you pointed out, health care is 15-20% of GDP; by 2030, it's projected to be 50%, with Medicare the biggest component. Of course, there's no way that's going to happen; if we even got near that point, the dollar would be literally less than the paper it was printed on.
That's why I'm predicting, given the fact that over 50% of the federal budget is entitlements and with about half of the debt is owed to SS, at some point Congress is going to have to cut it loose, with Medicare the first to get trimmed; how they do it will be interesting. Mysterious virii that only affects 62+ year-olds wouldn't surprise me. Hell, I've even read studies arguing that obesity and smoking would actually help fiscal stability, in that they kill patients earlier.
"Well, sort of, Dobbs. Americans realize that taking to the streets gets them nowhere."
You got some factual basis to support that premise?
maybe factory workers should have STFU instead of protesting the awful conditions so well described by Upton Sinclair?
Maybe African-Americans should have "stayed in their place" instead of protesting?
Since when staying silent make the elites notice there is trouble? It is ONLY when the established order is called upon the carpet that narrow minds start to widen their horizons.
Since they won't see the light, they need to feel the heat.
"how much is the "Aye" Caramba worth? does it have a picture of me on it? Or bart simpson?'
It's worth what I say it's worth, got that? What's it worth to you to be on it?
"Hell, I've even read studies arguing that obesity and smoking would actually help fiscal stability, in that they kill patients earlier.
Argento | 06.25.08 - 3:31 pm | # "
You are quite correct. We need tax credits for cigarettes and potato chips.
Hell, I've even read studies arguing that obesity and smoking would actually help fiscal stability, in that they kill patients earlier.
No. it'll only help fiscal stability if we decide to NOT treat the after-effects.
so as example:
allow people to get fat and smoke, but then NOT give them quadruple bypass surgeries or lung transplants etc.
it doesn't help to encourage obesity and smoking, and then pay up the wazoo when we treat the downstream diseases (diabetes, cholesterol problems, heart issues, lung issues, joint issues, etc)
FWIW:
that is exactly what we do in America, and partly why our costs are so high.
How many stomach stapling techniques do you think they do in Europe? Lung transplants on smokers? Liver transplant on alcoholics?
Actually, the world's first hand transplant was done in France. The recipient was a career criminal from Australia or New Zealand (I forget which). I believe he used the new fingerprints to commit crimes.
Liveris patently has no idea what he's talking about. You can't have an inflationary, overheated economy if people aren't spending money.
The whole point of inflation is people are willing to pay more, spend consistently, and pay for it by increasing wage demands. That isn't happening. Wages aren't rising, and people are afraid to spend what they have; they are holding cash.
Of course, that's the opposite of an inflationary economy.
What a Llama. They ought to oust him for being so ignorant about Econ 101. This dude's a CEO? Seriously?
jg wrote: My fear has been Federally-dictated/mandated holding of U.S. Treasuries in IRAs and 401(k)s: 'For your safety -- see the ugly stock market crash that we just had -- the only thing that you can hold in your IRAs and 401(k)s are Economic Recovery Bonds or U.S. Treasury bills/bonds/notes.'
BINGO jg! I have started the process of locating a lifeboat myself. Wait until our "savior" takes office.
drew wrote: take any money we need to cover FDIC deposits from the robber barons, and get on with rebuilding the economy.
My definition of a robber baron is anyone with a dollar more than me. From each according to his ability to each according to his need...and I have the need. Oh yeah...that should work.
ac wrote:
Deflation has the merit of punishing those who made poor decisions (because bad loans end up defaulting en masse) whereas inflation punishes those who tried to plan for the future (because savings is wiped out).
Your question is answered...count the savers in this society...then count the prolifigate "I want it and I want it now" folks...there's your answer.
markel wrote: And, in case you didn't notice, an overwhelming majority of both parties voted for the bill.
Ummm markel...who voted against it? Just asking
it doesn't help to encourage obesity and smoking, and then pay up the wazoo when we treat the downstream diseases (diabetes, cholesterol problems, heart issues, lung issues, joint issues, etc)
No, the study (I'll find the link) explicitly factored that. The debate boiled down to something like this. Would you rather pay all the downstream costs (most of which are not covered by the government) of someone with a life expectancy of 50, or all of the downstream costs of someone that lives to 78, which is now the average life expectancy. Remember once you hit the magic age, SS and Medicare kick in. There's a reason cancer drugs, especially for the elderly, are now in excess of 20K/month.
"The Dow Chemical Company said Tuesday that it was raising prices for the second time in a month to offset a relentless rise in energy costs, a sign that companies may increasingly have to pass on price increases to their customers."
Aha! The reason my roofer was complaining about his shingles going up 10-15% in July isn't because of the low-grade asphalt that is used in them, it is the fiberglass...
Because of differences in life expectancy, however, lifetime health expenditure was highest among healthy-living people and lowest for smokers. Obese individuals held an intermediate position.
PLoS Medicine: Lifetime Medical Costs of Obesity: Prevention No Cure for Increasing Health Expenditure
You see, there's another problem with this country. When you've got so-called business leaders hearkening back to the era of Paul Volcker, it becomes all too evident a chemical imbalance affecting mental acuity is rampant.
Here, this is made apparent both by a CEO calling for the controlled disintegration of the U.S. economy (Mr. Volcker's stated policy) and any listener who would nod his or her head in agreement thinking this is the very medicine we need.
At least Mr. Liveris has an excuse. He's probably wacked out on benzine.
Nemo,
Inflation is an increase in the general level of prices and wages due to expansion of the money supply at a rate greater than the rate of expansion of the supply of goods and services that can be bought.
Price increases due to supply/demand factors are not inflation, no matter how painful they may be.
Wage increases due to increases in productivity are not inflation.
Distinguishing between price/wage increases due to inflation and those due to other factors is not easy, and sometimes not possible at all.
But according to some very credible people, money supply growth is quite weak, and that and the anemic growth in wages strongly indicate that true inflation is not the real problem.
If this were true inflation, your wages would be rising as rapidly as prices, and you wouldn't be finding it nearly so painful. And Ben Bernanke -- yes, especially Ben Bernanke, whose advocacy of targeting a low, slightly positive inflation rate is a major element of his professional identity -- would already have raised interest rates to suppress it.
its not energy prices. Its the debt.