Not in response to this post, but I've seen a lot of talk of inflation lately. I have a hard time seeing where the inflation is supposed to come from. I've seen talk that we are facing deleveraging, not deflation. Was it just deleveraging when Japan's credit bubble burst in 1990? If so, they are still waiting, 18 years later, for the Nikkei and Japanese real estate prices to come anywhere close to what they were almost 20 years ago.
What we are experiencing is the bursting of the greatest credit bubble in history. When credit bubbles burst, asset depreciation and deflation follow because there are the same amount of assets out there, but there's less credit, ergo less money, chasing them. The deflation is especially pronounced in our case because we're not only seeing the bursting of a credit bubble, we are also seeing structural changes resulting in the elimination of enormous sources of credit in our economy that don't look to return any time soon. Mortgage-backed securities being sold as safe investments? Gone. Structured investment vehicles? Gone. Investment banks with 30:1 leverage ratios? They are mostly either out of business or "bank holding companies" with much lower leverage ratios now. Credit card companies looking to loan to anyone with a pulse? They have tightened credit to a very large degree. You add those things up and that is an absolutely incredible amount of credit, and therefore money, that simply does not exist in our economy anymore.
Now fighting against that we've got the Federal Reserve with its quantitative easing policies, but that's a comparative pop gun up against the aforementioned factors. Sure, the Fed can print a lot of money. But Japan tried that starting in 2001 and the money just piled up in bank vaults. The Fed has a really good printing press, but it's much less efficient in actually getting that money out into the economy. Commerical bank lending is the lending that actually ends up in consumers' hands, and that has dried up.
Out in the real world people can see that everyone's house is worth a lot less, that their stocks are worth a lot less, that their wages are stagnant, and that banks are a lot less willing to lend them money. That being the case, where is this money going to come from that is supposedly going to cause inflation? Even if people had money- they are much more likely to save it now since the consumer is more frightened than he has been in many decades. I think people give central banks too much credit as far as their ability to combat deflation. People should really look at Japan's example closely. They had fiscal stimulus and money printing out the wazoo, but it had very little effect at all. In fact, people were saying a few years after the quantitative easing started there in 2001 that it had had no effect at all. Richard Duncan's excellent book "The Dollar Crisis" makes this case very well. A little bit of desirable inflation started up after that, but now prices are falling again. Everyone tries to distinguish Japan because of their consumer's high savings rate, but IMO the US's consumer's debt situation makes deflation more likely here. The US consumer is like a dry sponge now, with very little capital and a lot of debt. He knows he needs to start saving, so to the extent that money gets into his hands, he is more likely to save it than spend it.
So anyway, I see big trouble for our economy, but I see it as being of the deflationary rather than inflationary variety. To have real inflation in our consumer-based economy, you need money in the hands of consumers- not piling up in bank vaults- that the consumer is willing to spend. I just don't see it happening in the foreseeable future with no credit, stagnant wages and terrified consumers. Where is the money going to come from that will cause inflation?
10 PRINT "WANT TO BUY OR SELL A HOME?"
20 INPUT X
30 REM
40 IF X = "YES" THEN GOTO 80
50 IF X = "NO" THEN GOTO 100
60 REM * * REALTARD SPEAK * *
70 REM
80 PRINT "IT'S A GREAT TIME TO BUY OR SELL A HOME !"
90 GOTO 80
100 PRINT "HOW ABOUT A NICE GAME OF CHESS?"
110 END
President George W. Bush has characterized the recent US housing crisis as a product of greed and Wall Street excess.
But that doesn't seem to have been Bush's opinion when he pardoned Isaac Toussie, 30, of Brooklyn, the son of a New York real estate developer, who defrauded the Housing and Urban Development Department government for millions of dollars and pled guilty to inflating the incomes of at least 100 families to make them eligible for federal loans in the lead-up to the worst housing crisis the United States has ever had,
It also helps that his dad reportedly donated $28,000 to the RNC
"We show that the key to separating moral hazard from bad luck is to base closure decisions on relative performance. ... An interesting implication of a relative closure rule is that it leads to forbearance during "bad times," defined as adverse realizations of the common shock. It is important to realize, however, that this forebearance occurs solely for ex ante incentive reasons, not because of irreversibilities or political economy considerations."
Where is the money going to come from that will cause inflation?
Altair | 12.23.08 - 5:09 pm | #
Can't answer that question either.
It just seems like a slow deflationary grind at the moment. The challenge is quantifying the nature of the problem. Without that how can one judge the saliency of a proposed solution?
Take a depression (2 quarters minus 10% GDP) and raise 3 trillion to offset ... but is that enough?
And even if you do spend at that level, is it sustainable GDP or ephemeral .. and if ephemeral aren't we just prolonging and exacerbating the pain...?
We need to dissolve the banks and insurers in an acid mix called the price discovery mechanism until they have a capital structure supported by the free market...
HA! in my dreams...
IMHO, Harrison at Minyanville made the best sound bite of the year when he said, 'they sold the car crash and bought the cancer. But the cancer is bigger than the patient.
The guy who has his pulse on what all of this cash flooding the market will do is Tom Scott. See his post over at Forbes.com, "The Coming Cash Tsunami".
While I am an inflation skeptic, I will say this: if I'm wrong and inflation does arrive, it will be very hard for the Fed to fight it after it has sold banks on the notion that it will keep the fed funds rate low and after it's talked banks into buying long bonds yielding very little.
Anyone recall the S&L crash which followed the inflation of the 70's and early 80s? A similar crisis could befall the banking industry if inflation returns.
Absolutely worst in a "while". Grew up in the business (RE development/const/brockerage). Sat on bank owned homes in NoCal in 81/82. Often, REOs are the flawed crap that only sells when the market is hot I learned then. There is some good stuff mixed in now.
Are investor purchases of REOs in lieu of stock market and other investments as they are looking for "tangible" investments? Is that the difference?
You can't predict the direction of the market unless you can predict when Paulson and Bernake (Pernake?) is going to stop issuing "I thinks" and "maybes" and replaces them with "we will".
Replace the high IQs with some high leadership.
My guess is volume will increase (YOY again) in the spring, bringing health.
I have noticed that existing sales, new home sales, initial claims, etc.....all are revised at the time of a new set of numbers significantly worse for the last set. Is this just coincidence or something more sinister?
[If we remove REOs, existing home sales have tracked much closer to new home sales]
Don't think that's entirely fair. FC sales do attract buyers that may otherwise buy a used or new home so it still counts as a sale... maybe 75% of a sale.
"The guy who has his pulse on what all of this cash flooding the market will do is Tom Scott. See his post over at Forbes.com, "The Coming Cash Tsunami""
Anything is possible, but the Japanese example suggests that quantitative easing money piling up in bank vaults doesn't have much of an effect on inflation at all. It's been almost 8 years since Japan started their quantitative easing, and they appear to be headed to deflation again, even with their version of the fed funds rate near zero.
We've got a consumer-based economy. The way I prefer to look at it is: how will the Fed's money get into the consumer's so he can spend it? I'm having a hard time seeing how that will happen. Of course, even if the Fed's money does get into the consumer's hands, it's very possible that he will choose to save it rather than spend it. There are a lot of investment accounts that have been gutted lately and need to be replenished.
The inflation argument just seems to be a visceral reaction to the Fed's expanding balance sheet without analyzing where that money is heading. It was recently reported that $500 billion in excess bank reserves was transferred by the Fed to the Treasury to keep it from entering the economy. Bernanke is talking a good money printing game, but he's actually being more responsible behind the scenes. Fighting inflation is the Fed's primary job, and no Fed chairman wants to be known as the guy who started the US version of Weimar Republic Germany.
Good posts Altair. You have a huge demographic herd heading down the final chute to retirement. At this point they are down 30% on the 401K, the house is underwater, and the job is looking pretty shakey. They are going to be out there spending? Probably not.
Altair writes:
"The guy who has his pulse on what all of this cash flooding the market will do is Tom Scott. See his post over at Forbes.com, "The Coming Cash Tsunami""
Anything is possible, but the Japanese example suggests that quantitative easing money piling up in bank vaults doesn't have much of an effect on inflation at all
We're not Japan. What was Japan's savings rate, Natl. balance sheet etc.?
The money does not need to get into the publics hands.
Hyperinflation is a monetary phenomenon.
Even during hyperinflation real prices(even nominal for a short while) can fall. The problem is that so many businesses will go under that supply grinds to a halt. The currency becomes worthless so imports grind to a halt.
When supply goes near zero prices go way up, even if the majority of the people have very little income.
Japan is a worthless comparison. Weimer germany on the other hand...
Japan did that starting in 2001. Where's the hyperinflation? The money just piled up in Japanese bank vaults. They seem to be headed to deflation now.
Altair
What percent of their GDP is consumerism? Anywhere near ours?
Yeah, really. I actually believe it, too..... Obama's not stupid, and Blago is (and has been for some time) obviously insane, and under heavy Fed scrutiny. Obama's Chief of Staff is a sitting Illinois Congressman, so he also knows this. I'm sure they were very very very very careful with Blago.
The thing is a week or so of hyperinflation would wipe out the savings of 80%-90% of the US population. At that point it wouldn't matter if the cost of some item went from $100 to $500 and then later reduced to $50, no one would have the money to buy it anyway.
As far as income inflation goes, the states are cutting back (didn't I just read that Tenn is cutting their payroll 10%), no way is the (fed) civil service or social security or the military going to see massive increases. Corporations aren't magically going to give periodic 20% increases.
So I suppose with hyperinflation everyone will just starve. Until the riots begin.
I wonder if there's a market to be made in swapping underwater homes. You swap houses with somebody living where you want to move to, swapping mortages as well.
You're poor but not house-poor. The house you want to buy is cheaper too.
The amount of money and the velocity of money. Right now, even though supply is increasing the velocity is decreasing causing deflation.
Since all money is created by credit , which is being contracted, the money piles up in the banks. This is by design so that the banks have enough money to zombify themselves.
The are only two ways to counteract this deflation ... clean up the banks' balance sheets, with FDRs Bank Holiday Plan, in which case many politically connected banks go bust ( All the Wall Street Banks) or just print the money whereby the government stays solvent but the economy still goes into a depression ...
It's us or the banks folks ... us or the banks ...
Bernanke has suggested that Japan's attempt to stimulate inflation fell short for several reasons. Here are two reasons I remember Bernanke offering: 1) too small an intervention and 2) a lack of coordination between fiscal and monetary policy.
The intervention in the US has obviously not been limited in size and it appears that there will be coordination between fiscal and monetary policies. Whether our policy produces the inflation Bernanke wants remains to be seen. I think it is useful to compare the current US condition to Japan's ongoing situation. However, there are some important differences, e.g. personal consumption habits of residents, reserve currency status, domestic vs foreign holders of national debt.
Calculated Risk: By this measure, 2008 is the worst year for new home sales since the Census Bureau started tracking new home sales (starting in 1963).
Well still snowing, looks like I'm going to have to make the drive in the AM not tonight.
If quantitative easing (aka printing press) has no effect and just piles up in the bank vaults, then Obama can stimulate to his lil hearts content, no need to worry about who buys the debt. Ben buys it all direct from the Treasury, and we put up 1 million wind turbines each year, CA, NY, NJ all get big piles of cash to shore up their penison funds, etc etc etc. Ben can print an infinite number of $.
By the way, most Zimbabweians were far poorer than anyone in the U.S. even in the good times, how did Mugabe manage to get the cash into the hands of his consumers? Obama is one heck of a lot of brighter than Bobby Mugabe, so he will figure it out.
Here are two reasons I remember Bernanke offering: 1) too small an intervention and 2) a lack of coordination between fiscal and monetary policy.
~~~~
Japan had a third problem ... no growth in the population thereby creating a lack of increased demand necessary for fractional reserve banking and an older population with a higher propensity to save.
Fractional Reserve Banking can not survive a level economy. Fractional Reserve Banking either grows or it dies ... just like cancer.
The code would prohibit lenders and their representatives from prodding appraisers to inflate their estimates. But Mr. Cuomo has agreed to water down a provision that would have blocked lenders from using appraisals by their own employees or companies they control. Under the revised code, lenders will be able to use such appraisals if they take steps to ensure that the appraisers aren't pressured to produce estimates on the basis of what's needed to make loans.
Cuomo was all talk....a nothingburger...
Cuomo and GSE oversite on the pulpit..
"I had a dream
I saw comps from other neighborhoods to stop the downward price bloodshed, I saw granite kitchens and big ole pools where thier are none, improvements and upgrades a plenty, people playing in the street. I saw artificial prices surrounded by broken households and debt hangin out underneath the eaves...ohhh I had a dream that housing would come back and take our hand leading the way..
I had a dream
Cuomo wakes up and say the heck with that non bank employee appraiser thingy...
"comrade swan writes:
Where is the money going to come from that will cause inflation?
Altair | 12.23.08 - 5:09 pm | #
Can't answer that question either.
It just seems like a slow deflationary grind at the moment. The challenge is quantifying the nature of the problem. Without that how can one judge the saliency of a proposed solution?"
That's a good question. Perhaps the best approach would be, when creating a cash giveaway to the public, put it on a cash loaded "gift card", and make the rules such that it can only be used for purchases. Otherwise, it'll end up in the bank.
One of the problems we face now is that we can't get the monetary velocity up. Folks are paying off debt rather than spending on consumer items, and with the specter of deflation, it only makes sense to wait to buy, since your cash-on-hand will be worth more in a week or a month.
If inflation gets rolling, then there'll be a perverse incentive to spend now while your money still has value. Money supply - Wikipedia, the free encyclopedia
has an explanation of M0-M3. The Fed needs to create more M0-M1, and when the they've created more than was destroyed as the economy has become more de-leveraged, and as assets backing loans have become negative, then there we'll have inflation, and at that point, they'll need to start raising interest rates, which would seem to be done by putting more of them on the market, though I'll have to admit that this idea of how money actually represents debt (I had it explained, I think) still befuddles me.
Not yet ... but the pump is primed. Instead of auditing the banks they printed money ... They are trying to save insolvent banks at the price of hyperinflation for the rest of us.
The coming crisis will be decided by food production/distribution and electrical supply/distribution. Controlling water to California and electricity for the water pumps can mean the difference between plenty of food and hunger for the country.
Rumors, no links, have utility companies cutting back the ordering of spare parts to the minimum and only crucial parts are allowed ordered.
Read this as waiting for the Obama stimulus plan to pay for the grid upgrades and parts or yet another warning sign of infrastructure on the edge.
Civilization is a thin veneer I enjoy. The third party option is my vote for change.
The third option is to clean up the banks and run them as a public utility whereby the profits are returned to the treasury....
Bad debt will have to be written off but a Nationalized Central Bank can balance the credit contraction with government spending, spending without debt but underwritten by higher taxes on the wealthy and corporations.
Treasuries and dollars are now essentially one and the same.
They can't outright default on treasuries because they are what back the dollar. They can't let treasury prices fall because it will cause a complete deflationary collapse.
When the government issues new debt they are spending money(sterilized money, but still counts towards velocity) AND creating new money(the treasuries).
So far(afawk) the treasuries are not being spent. When a single major holder decides to spend them the government/fed will be forced to monetize(and they have already declared that's what they will do when they say they will manipulate the entire yield curve) and this will cause the dollar to fall and the cascade will begin.
Up until recently most people around here were convinced that this would either never happen or was many years away. I remain convinced it will begin in the next two years, possibly as soon as a few months.
What the deflationists are missing is the sudden velocity of money and credit creation, not just in the U.S. but all over the world at the same time. It's only just begun and it will probably continue for at least another 2-3 years. It might total $50-100 trillion.
It's nothing like Japan.
Imagine if a huge meteor hit Anarctica and destroyed vast icebergs. The water unleashed would rush northward, swamping all coastal areas in a rapid progression. That's hyperinflation.
Imagine that currencies and debts live in the coastal areas. They will be inundated and drowned.
The first place you will see the wave of hyperflation coming is in the price of gold because gold will backwardate and stay backwardated.
Then, you will see rising prices of other commodities such as food, oil and metals.
Then real estate, then stocks, and finally wages. I'll agree wages are a stretch, but govts. will mandate employers to give higher wages.
"The actual inflation has already started.
CashOnlyHousing | 12.23.08 - 6:08 pm | # "
I'm not so sure that's true. The value of currency is ultimately determined by the money divided total amount of goods on the market, or something like that.
We've had a situation where an enormous amount of money has disappeared from the market due to de-leveraging (not that some de-leveraging is a bad thing) and other factors, far more than the "presumed" value of the goods on the market has decreased. That's what's causing deflation at the moment.
Monetary velocity is another factor exacerbating the situation.
When the Fed has increased the supply of money to overcome spiraling deflation resulting lower monetary velocity, THEN we'll be faced with inflation.
What has yet to happen is for lenders, investment firms, GSEs, Fed and Treasury to get real about their holdings. There's still so much lying and hiding and rule-fudging and outright theiving, and no way we can hit bottom while all that's still going on.
Doesn't really matter what solutions anybody tries until the problem is correctly defined. And we won't know the extent of the problem until we know the whole truth.
Lying and rewarding bad behavior are so much a part of the problem, it's not going to end any time soon. I think it'll be at least two years before there is sufficient truth-telling to really understand how bad everything is. Until that happens, there will be no bottom.
You are continually confusing inflation with price increases.
We've had a situation where an enormous amount of money has disappeared from the market due to de-leveraging
Deleveraging and defaults do not destroy money, even the fiat kind. They do however cause a slowdown in the velocity.
Each time credit is extended the money is spent, which has a one time effect on the velocity.
That's what's causing deflation at the moment.
We don't have deflation at the moment. We have deleveraging and slowing velocity which are causing severe price decreases.
The inflation that is happening now is nothing but a monetary phenomenon that will eventually show up as price increases unless we get complete deflationary collapse.
Feckless Ness writes:
What has yet to happen is for lenders, investment firms, GSEs, Fed and Treasury to get real about their holdings. There's still so much lying and hiding and rule-fudging and outright theiving, and no way we can hit bottom while all that's still going on.
~~~~
Exactly why we need to nationalize the banks and other financial institutions and audit them (FDR Bank Holiday). In this way we cleanse the system. CDS and derivatives can be rationalized at the same time getting all future time bombs off the books.
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
The answers to these questions would greatly illuminate what is happening and what we can expect going forward.
"Complete deflationary collapse" has such an ominous tone. I bet the Fed and Treasury would do anything to prevent that.
~~~~
No, they won't nationalize the banks and impose rationalization through an FDR Bank Holiday which is exactly what we need ... This way all debt , CDS and derivatives can be rationalized simultaneously between all institutions.
Citizen Jacked writes:
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
~~~~
They would have to show their books and that would show them , the Wall Street Banks as being largely insolvent.
I wonder if information is traveling too rapidly for governments.
I don't. It's been clear since Ben's jawboning attempts last year that the flow of information is beyond even the mildest spinning. Everyone here two years ago knew that Fed policy would trash the dollar and said so loud and clear. When the fine folks at CR can lay out everything that is going to happen on a macro basis quarters and years in advance and even detail the future failures of specific policies there's really no way to counter. If the FEd so much as acknowledges that there is an amateur group with a near perfect track record, far better than theirs it is truly game over so instead they pretend and periodically exclaim "Hoocoodanode?"
Citizen Jacked writes:
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
The answers to these questions would greatly illuminate what is happening and what we can expect going forward.
Good point.
IIRC, there is a provision in the TARP that requires a listing of how the money was spent to be placed on the internet.
Probably didn't say how detailed the list needed to be.
You are continually confusing inflation with price increases."
I don't see where anyone said they were speaking directly about "monetary inflation". What I've described is:
"In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] The term "inflation" once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation.[2] Inflation can also be described as a decline in the real value of money—a loss of purchasing power in the medium of exchange which is also the monetary unit of account.[3] When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time.[4]"
There is nothing particularly good or bad about monetary inflation. If the amount of goods and services in an economy increase, you "need" monetary inflation, or you will end up with price deflation. I'd like to discuss the rest, but I'm tired and want to go home.
Enjoy-
Citizen Jacked writes:
Does anyone even know how to implement such a plan? Is the expertise and infrastructure even capable of such a huge undertaking?
~~~~~
FDR did it in the 30s and the Scandinavian countries did it in the 90s ...
There is no other way forward without destroying the economy ....
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
The answers to these questions would greatly illuminate what is happening and what we can expect going forward.
Citizen Jacked | 12.23.08 - 6:35 pm | #
Because what they are doing with it is apparently a state secret, and money is fungable. So the thread would be a short one, ask the question and nobody has the data to answer. However apparently the money has gone to:
1) T-bills yielding 0.00%
2) longer term T-notes yielding 1.5-2.5% depending on durration
3) Bonusues for everyone in the head office, lower level guys get laid off
4) dividends to common shareholders
5) Vault Cash
6) accounts in the Cayman Islands
"You do not understand hyperinflation at all. The money does not need to get into the publics hands. Hyperinflation is a monetary phenomenon."
Yes, I'm aware of Friedman's famous quote along those lines, but the fact is that there is $500 billion in excess bank reserves sitting in the Treasury right now. The Fed put it there. Now that $500 billion technically is part of the monetary base, but to argue that it is going to cause inflation in the real economy like having that money in the hands of consumers would is just silly. Bernanke is keeping it at the Treasury specifically so that he can expand the Fed's balance sheet and engage in more lending while at the same time controlling how much new money enters the "real" economy.
The most recent Fed statement was unanimous among the Board of Governors- am I to assume that they are all hyperinflationary maniacs? You're going to lose a lot of money if you base your investments on inflationary expectations in the near term, but knock yourself out if you want to do it anyway. The treasury bond market- including TIPS purchasers - agrees with me that we are facing deflation not inflation.
Probably didn't say how detailed the list needed to be.
PSgirl | 12.23.08 - 6:38 pm | #
The list is up and has been linked several times. The list shows warrants for preferred shares traded for dollar amount. Zero details. (last looked 2 weeks ago)
The TARP also had the loophole about bonuses and pay being limited if the banks used the auction plan which was discarded. TARP isn't worth the effort to examine. No provisions for punishment in case of abuse and generally interpreted with no oversight once the funds have been dispersed. Travesty.
First of all, it is probably impossible to have a bank holiday in the US without having one worldwide.
With electronic transactions happening 24/7/365 any shutdown in the US would cause technical defaults worldwide due to missed payments etc.
The systems are so complicated it would be a nightmare trying to implement such a scheme, and would probably take weeks or months to get everything restarted again.
When this was done in the 1930s everything was written on pieces of paper and foreign debts were settled in physical gold.
Also the US was a net creditor. If we cleaned up all the banks and financial institutions many would have to be declared insolvent and their debt would be written off causes massive losses which would mean severe reductions in federal government receipts. This would put us in no better place when it comes to default/monetization of our foreign debts.
This is why I stick by my assertion that any such plan could only be implemented alongside a debt forgivemess plan.
Seriously considering doing a bustout on my credit cards. 100k free money. Enough is enough. To hell with personal integrity and honoring contractual obligations. I'll take it while I can.
Yeah , that's my take as well. The t-bills dropping to zero has all the earmarks of an inside deal between the banks and the Treasury in providing support for the dollar as those t-bills roll over or they need new capital.
Doesn't that make the system a perpetual motion machine? I thought the laws of thermodynamics proved the PMM would eventually fail? What is the end game or the light at the end of this tunnel? (Don't say a freight train)
Tough to buck the conditioning of keeping the FICO number high. Good luck with that. Judging by the CC companies cutting limits I'd say many did that exactly.
First of all, it is probably impossible to have a bank holiday in the US without having one worldwide.
~ Wrong ... The Swedish Plan Did it ...
With electronic transactions happening 24/7/365 any shutdown in the US would cause technical defaults worldwide due to missed payments etc.
~Wrong ... All normal transactions could continue under the nationalization umbrella. Securities would have to be halted but aren't traded on weekends anyway ...
The systems are so complicated it would be a nightmare trying to implement such a scheme, and would probably take weeks or months to get everything restarted again.
~Wrong ... Everything is transacted as if all dates were pulled forward ... All contracts would be declared unenforceable under a National Emergency Declaration and then everything would be sorted out.
The Swedish accomplished it ... very smoothly indeed ... It could b done here ...
"Japan is a worthless comparison. Weimer germany on the other hand."
Wow- all these people buying 10 year Treasury bonds and TIPS must be raving lunatics. For the record, I wouldn't buy 10 year Treasury bonds at current yields, but the fact that a lot of people are indicates that the bond market sees a deflationary rather than inflationary environment in coming years. If you want to be dismissive of the bond market then go right ahead.
And for those responding to my post to note that Japan has a higher savings rate, it is amazing how that fact gets dusted off any time Japan is used as an example for anything. It might be relevant if the US consumer were still spending like crazy now, but US auto purchases are down 35% from last year at this time.
The truth is that the US consumer is now moving from spending to saving, and that means the US economy faces more deflationary pressure than the Japanese economy did, not less. The Japanese economy was already accustomed to the tight spending practices of its consumers. Our economy, by contrast, has become used to heavy consumer spending, and when that spending shuts down, you see a lot more deflationary pressure because there are a lot of goods out there going unsold.
If we cleaned up all the banks and financial institutions many would have to be declared insolvent and their debt would be written off causes massive losses which would mean severe reductions in federal government receipts. This would put us in no better place when it comes to default/monetization of our foreign debts.
~~~~
Wrong ... those debts are bad now, realizing that will free the remaining banks to lend without fear. Foreign debt in treasuries is paid. Shareholders and bond holders of the insolvent institutions are SOL.
The monetary inflation up until now will not cause price increases. However, it is a hint of what is to come. If they control the yield curve as they have claimed they will do(are doing?), that newly created money certainly will cause price increases.
Once again, hyperinflation caused by debt monetization doesn't mean the cash will hit our local economies and cause price increases, but if it doesn't we can expect more business failures, more job losses, etc. It will cause decreased purchasing power of the dollar on global markets. Supply inside the US will begin to contract quicker than demand and that's when the price increases will manifest.
Dirk's got it, again.
The banks are saying they're not tracking where the cash goes. Specifically, where the TARP money is spent would be tracked is within a budget to actual analysis of cash flows. They should have a rolling cash flow analysis (a managerial version of The Statement of Cash Flows) in spreadsheets. The TARP money would be in an added column, contributing to the rollforward balances.
In Wall St's defense, I've found banks and mutual fund companies can have some of the most unorganized, disfunctional accounting records of any large business (big profits breed complacency).
So, there's a chance they really don't know where it went. If they don't know now, we never will. Never.
This is why I stick by my assertion that any such plan could only be implemented alongside a debt forgivemess plan.
CashOnlyHousing | 12.23.08 - 6:45 pm | #
Good post. Universal default with one world currency. Disregard the years of tinfoil attached to the thought of a single currency. If done properly it might keep civilization moving forward instead of back.
Consider if we do not find a way out of this box then we might have lived during the high water mark of human civilization. I do not want the history books to use McDonalds, Ford, and MSNBC to mark our cultures highpoints.
If you want a solution(none will come without pain), then it's quite simple.
Revalue gold until the gold held by the treasury and the fed can cover the treasury debt and monetary base. Go back to a gold standard. Shut down the insolvent banks and stop manipulating markets(such as interest rates, F&F loan purchases, etc.). Also balancing the budget would help.
This prevents default of dollar based debt and turns the dollar back into a stable currency that people can trust. Global exchanges can continue to function in dollars without disruption.
very good, and explains why I believe that it will be very difficult to reverse the change in consumer sentiment through pouring money into the financial system
people are just not going to party like its 2005 when this is done
mmckinl(Excellent) writes: FDR did it in the 30s and the Scandinavian countries did it in the 90s ...
Lack of political will.
Failed states don't fail because they're successful.
Having your policy engine completely hijacked by vested interests means never having executive control over your policy again. You'll lose the ability to frame the concept -- it's not like they "hijack" the regulators with a makarov and a bomb belt.
Obama has a very narrow window. Is he really a Dynastic reformer? I am skeptical the matter has not been inexorably decided by US indebtedness but await the razzle-dazzle I have been promised.
Obama has a very narrow window. Is he really a Dynastic reformer? I am skeptical the matter has not been inexorably decided by US indebtedness but await the razzle-dazzle I have been promised.
Comrade Byzantine_Ruins
~~~~
Unlike Japan we do not run a trade surplus. There is no way we can use the Japanese model. If we try the economy will implode.
The truth is that the US consumer is now moving from spending to saving, and that means the US economy faces more deflationary pressure than the Japanese economy did, not less. The Japanese economy was already accustomed to the tight spending practices of its consumers. Our economy, by contrast, has become used to heavy consumer spending, and when that spending shuts down, you see a lot more deflationary pressure because there are a lot of goods out there going unsold.
Altair | 12.23.08 - 6:53 pm | #
Yes, this is a generational shock. Note anecdotal evidence that people under 30 years old were already adopting frugal spending practices before the housing bubble burst.
As ac said here once, bears are early and too optimistic.
That's the case here. Most people are never going to risk getting caught out like this again.
mmckinl(Excellent) writes: Unlike Japan we do not run a trade surplus. There is no way we can use the Japanese model. If we try the economy will implode.
Unlike Japan we do not run a trade surplus. There is no way we can use the Japanese model. If we try the economy will implode.
Oh I know.
Comrade Byzantine_Ruins
~~~~~
And if we try inflating without underwriting our role as reserve currency of the world will be kaput. There will be a basket developed , very quickly indeed ...
Roseanne Roseannadanna issues 2009 predictions
Mrs. Richard Feder from Fort Lee, New Jersey writes in and says:
'Dear Roseanne Roseannadanna,
Mr. Feder has lost half of our money due to Bernie Madoff and I need to hide what is left. Should I buy gold or a CD. If I buy gold and the markets crash will gold go up or down? If a CD, and the dollar crashes will a higher interest rate offset the lower dollar?'
Mrs. Feder I didn't think it was possible but you are just as stupid as your husband, but I know exactly what you are thinking cause I Roseanne Roseannadanna lost money with Bernie too.
Imagine if you will a teeny,tiny, teenage Roseanne Roseannadanna, cute as a little doll, going to prom with a boy named Scott Sosnik. 20 years later I'm in Fort Lee, New Jersey at a Starbucks hoping I don't run into either you or Mr. Feder and seeing Scott ordering a triple something. Well we got to talking and well he was honest, and I love honest ... honest talk, honest books, honest people, and most of all honest investments. I hate it when people do these tricks and make themselves look like real great investors, with fancy cars and suits and offices and little kerchiefs and shiny shoes and stuff.
So anyway I'm like at Scott's office and I don't know why but quess who walks in but Bernie Madoff. Kind of a smurfy looking guy and he carrying like a bunch of books.
Anyway after I Roseanne Roseannadanna finished investing most of my money with Scott and went back to my car guess what, when that cutey Bernie left his car which was, not to fancy either, parked next to mine he dropped one of them books! It was long black and perfect and I thought I was gonna die. And just between you and me Roseanne Roaseannadanna I saw your name in it.
It just goes to show you it's always something, if it's not one thing, it's another, if you don't know who you are investing with or in then you need to do it yourself.
Gold over a CD? No then yes, yes then no then yes.
Gold and markets crash? Up or down? Yes, but down before up.
CD.. dollar crashes will a higher rate offset the lower dollar? No then yes.
"Everything that can be converted to cash is being or has been sold: stocks, commodities, real estate, collectibles, and so on."
This is Thomas Scott of Forbes. But he is wrong.
None of these things have been converted to cash the way you would expect in a real deflationary depression.
Small-cap U.S. stocks are more expensive today, relative to their realistic forward earnings prospects, than at any time since 1999. There is still a huge amount of speculative risk appetite in the stock market, and it is another sign that hyperinflation will get here sooner rather than later.
The only way forward is to print money but underwrite it with the profits of Public Central Bank and banking system operated as a public utility and higher taxes on corporations and the wealthy ...
We can't gat out of this debt trap with more debt.
Folks, Japan is the GOOD outcome of all of this. Nobody is starving in the land of the rising sun, no mass riots, relatively low unemployment. Just a very long period of anemic growth. Given the choice between
A) Japan 91-08
B) US 30-41
C) Germany 22-32
I pick A, what do you chose, and is there another likely option (yes Sweeden 90-95, but doubt it happens)
Question. Sorry if this is answered above or elsewhere on the site. When a lender "purchases" the home on the courthouse steps or a similar "auction" to secure their interest does this count as a unique sale? If the lender then sells the house on the open market is this counted as a second sale? And if so, how can we know this in the figures for existing sales?
Dirk writes:
Folks, Japan is the GOOD outcome of all of this. Nobody is starving in the land of the rising sun, no mass riots, relatively low unemployment.
You say "no mass riots" as if that were a good thing.
mmckinl(Excellent) writes:
"FDR did it in the 30s . . . "
Did what in the 30s? FDR tried lots of different things, and many, if not most, of the initiatives were either ineffectual or counterproductive. He even tried to balance the budget in 1937.
FDR cannot be faulted for trying. Eclectic in the extreme.
LOL Dawg, and good point, however remember the French Revolution started with noble sentiments, Liberty, Equality Fraternity. The come Robesperrie and finally Napoleon. While part of me wants to see: Le Machine set up right in front of Federal Hall, violent revolutions scare me.
Besides, I grew up in Larchmont, and my mom still lives there, right in the path if the mobs start marching from the Bronx to Greenwich.
Japan had a third problem ... no growth in the population thereby creating a lack of increased demand necessary for fractional reserve banking and an older population with a higher propensity to save.
Fractional Reserve Banking can not survive a level economy. Fractional Reserve Banking either grows or it dies ... just like cancer.
mmckinl | 12.23.08 - 6:08 pm | #
My what a colorful though blear assessment. Does your point not beg the question: What then of us, how would you describe the US? And what effect will all this have on the desire for people to immigrate?
The Japanese model would implode our economy. - mmckinl
We can change. Look at the velocity with which consumer spending is slowing. We can knuckle under and get back to work, real work not financial engineering.
None of these things have been converted to cash the way you would expect in a real deflationary depression.
Small-cap U.S. stocks are more expensive today, relative to their realistic forward earnings prospects, than at any time since 1999. There is still a huge amount of speculative risk appetite in the stock market, and it is another sign that hyperinflation will get here sooner rather than later.
rich | 12.23.08 - 7:19 pm | #
I think I'm with you on this. But, the deflation is happening and the Fed cannot, even with worldwide cooperation, stem the spiral.
How long? I dunno. But I wouldn't part with my collectibles on a bet. They'll be the last thing I sell, and damn sure might not reorder my life to avoid that.
Rest assured, the day will come, you and I may not be alive, when we will be rewarded for our patience, grit and steadfastness. As has every person who took the long view.
Dawg, yes of course there would be machines in several cities, Faieul Hall would be a good place for Beantown, The corner of Wall and Broad for the Big Apple, K street for DC
I think that low yields on T's can be explained not only because of investors' low expectations of inflation in the outer years, but also because of liquidity pressure on companies that have to place money somewhere without any hint of risk - and many Treasury-only money market funds are not taking any new money
This comment is probably more philosophy and morals than economics, but.... the problem bugs me and my conscience.
I think we'd be better off with a Swedish style bank takeover by a new administration (early on) that removed the huge uncertainty on which financial institutions and instruments are sound/solvent. Or some very strict laws/rules that forced complete bank disclosure enforced by criminal penalties measured in decades.
However, what if that complete transparency resulted in a complete crash of the financial system worldwide, with huge layoffs, civil unrest and hoarding of goods?
The question in my mind is whether in a democracy it is morally OK to hide things from the public because you fear greater consequences from disclosure than you fear the lack of confidence in the institutions and financial forms (cash money, T-bills, LOC's, etc.).
The hide-the-problem solution seems to be the prevalent mode under Bush. Should Obama continue to hide the issue or disclose/force disclosure?
I can't reconcile actors in the government (Fed included) hiding the truth from the people, with an government accountable to the government in a democracy. To justify the hiding is to accept that "if the President does it, it's legal" (the Nixon/Bush/Cheney doctrine). That is the definition of rule by dictat, whether it is a single leader or an aristocratic/ologopolistic set of overlords both in and out of government.
My sense of things is that a moral person, having taken an oath to protect the nation and constitution cannot justify acting such that the public is being mislead about crucial-to-survival matters.
Or, should the citizens/voters just allow big daddy to set the rules and go to their bedroom and play online games and listen to music?
Current GDP levels require substantial debt creation.
Significant sums of this money has to come from other countries.
Interest rates on weaker credits rose significantly
Investors are seeking the safety of US govi debt.
The govi is filling the debt gap.
As govi debt grows and tax receipts decline, investors are likely to demand a risk premium.
There are practical taxation limits.
Demand for risk premium can be quite sudden as we have seen aplenty.
International supply of capital could become scarce driving rates up in general.
JimPortlandOR writes: The question in my mind is whether in a democracy it is morally OK to hide things from the public because you fear greater consequences from disclosure than you fear the lack of confidence in the institutions and financial forms (cash money, T-bills, LOC's, etc.).
Re: Oregon Jim
"Smart people" are already trying to hoard goods. See discussion on commodities, jumping into oil; especially the discussion where members of this board were talking about trading gold & food for oil versus trading dollars for oil.
With ETFs as trading vehicles it doesn't take much. I'll admit I jumped into USO when it was 90, then jumped out at 70. I'm going to be jumping in again soon enough. I'm sure there are people who are holding onto their oil inspite of the loss because it is a valuable item to have.
I started an online brokerage account because reading this forum I realized that I needed at least some place to put my "savings". Paper commodities are better than paper government promises.
My what a colorful though blear assessment. Does your point not beg the question: What then of us, how would you describe the US? And what effect will all this have on the desire for people to immigrate?
~~~~
The U.S. has an expanding population and will need credit expansion well into the future that will feed fractional reserve banking.
I still feel that we need to replace this banking model with a sustainable model.
OT - For the person who wanted to receive David Rosenberg's daily e-mails. I tried e-mailing him. Amazingly enough, he replied and told me that only the ML sales rep is allowed to do that. Does anybody know how to get this done free ?
I was reading down the posts on this thread, and with each time I admired CashOnlyHousing's ones more and more.
I think they are logical and true. Then came this one :
CashOnlyHousing writes:
If you want a solution(none will come without pain), then it's quite simple.
Revalue gold until the gold held by the treasury and the fed can cover the treasury debt and monetary base. Go back to a gold standard. Shut down the insolvent banks and stop manipulating markets(such as interest rates, F&F loan purchases, etc.). Also balancing the budget would help.
This prevents default of dollar based debt and turns the dollar back into a stable currency that people can trust. Global exchanges can continue to function in dollars without disruption.
CashOnlyHousing | 12.23.08 - 7:01 pm | #
It is the best post I ever (!) read on CR.
Thanks CashOnlyHousing !
"I wonder if there's a market to be made in swapping underwater homes. You swap houses with somebody living where you want to move to, swapping mortages as well."
Yes. The arrangement ends up being that each person rents the other one's house.
"Citizen Jacked writes:
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?"
If the Fed tells you where all the money went in real time, depositors might create a run on a particular bank.
Speculators might have better information to use to kill certain banks. There are rumors that certain now-defunct investment banks were taken down deliberately by shorts and people with big CDS bets (not sure if you need a tinfoil hat for this one). There are somewhat more believable rumors that someone may have had inside information and taken a huge options bet on Bear's demise. As I recall, there is an ongoing investigation of that one.
Some of the money is being used for purposes which the Federal Govt really doesn't want to admit to. Perhaps legal purposes, but something that looks like a conflict of interest, ethical problem, indirect equity market pumping, picking winner and loser banks, sausage-making tradeoffs to get other firms to takeover insolvent banks.
Someone has realized that not all of the money is accounted for. You know how some of the money spent on Iraq can't be accounted for? Same kind of thing, except transactions between regulators and banks sounds like a place where money should be easier to account for.
Put on your tinfoil hat and assert that either: someone in the government is channeling a good part of the money to themselves; or, the PPT actually exists and a chunk of the money is being used to prop up the markets.
Again with the home sales. And with the first post.
Quick question, are the numbers adjusted for population growth?
By this measure, 2008 is the worst year for new home sales
We seem to be getting a lot of the "worst since" lately.
What is the largest homebuilder to file for BK so far?
Did we lose any of the top 10?
Not in response to this post, but I've seen a lot of talk of inflation lately. I have a hard time seeing where the inflation is supposed to come from. I've seen talk that we are facing deleveraging, not deflation. Was it just deleveraging when Japan's credit bubble burst in 1990? If so, they are still waiting, 18 years later, for the Nikkei and Japanese real estate prices to come anywhere close to what they were almost 20 years ago.
What we are experiencing is the bursting of the greatest credit bubble in history. When credit bubbles burst, asset depreciation and deflation follow because there are the same amount of assets out there, but there's less credit, ergo less money, chasing them. The deflation is especially pronounced in our case because we're not only seeing the bursting of a credit bubble, we are also seeing structural changes resulting in the elimination of enormous sources of credit in our economy that don't look to return any time soon. Mortgage-backed securities being sold as safe investments? Gone. Structured investment vehicles? Gone. Investment banks with 30:1 leverage ratios? They are mostly either out of business or "bank holding companies" with much lower leverage ratios now. Credit card companies looking to loan to anyone with a pulse? They have tightened credit to a very large degree. You add those things up and that is an absolutely incredible amount of credit, and therefore money, that simply does not exist in our economy anymore.
Now fighting against that we've got the Federal Reserve with its quantitative easing policies, but that's a comparative pop gun up against the aforementioned factors. Sure, the Fed can print a lot of money. But Japan tried that starting in 2001 and the money just piled up in bank vaults. The Fed has a really good printing press, but it's much less efficient in actually getting that money out into the economy. Commerical bank lending is the lending that actually ends up in consumers' hands, and that has dried up.
Out in the real world people can see that everyone's house is worth a lot less, that their stocks are worth a lot less, that their wages are stagnant, and that banks are a lot less willing to lend them money. That being the case, where is this money going to come from that is supposedly going to cause inflation? Even if people had money- they are much more likely to save it now since the consumer is more frightened than he has been in many decades. I think people give central banks too much credit as far as their ability to combat deflation. People should really look at Japan's example closely. They had fiscal stimulus and money printing out the wazoo, but it had very little effect at all. In fact, people were saying a few years after the quantitative easing started there in 2001 that it had had no effect at all. Richard Duncan's excellent book "The Dollar Crisis" makes this case very well. A little bit of desirable inflation started up after that, but now prices are falling again. Everyone tries to distinguish Japan because of their consumer's high savings rate, but IMO the US's consumer's debt situation makes deflation more likely here. The US consumer is like a dry sponge now, with very little capital and a lot of debt. He knows he needs to start saving, so to the extent that money gets into his hands, he is more likely to save it than spend it.
So anyway, I see big trouble for our economy, but I see it as being of the deflationary rather than inflationary variety. To have real inflation in our consumer-based economy, you need money in the hands of consumers- not piling up in bank vaults- that the consumer is willing to spend. I just don't see it happening in the foreseeable future with no credit, stagnant wages and terrified consumers. Where is the money going to come from that will cause inflation?
10 PRINT "WANT TO BUY OR SELL A HOME?"
20 INPUT X
30 REM
40 IF X = "YES" THEN GOTO 80
50 IF X = "NO" THEN GOTO 100
60 REM * * REALTARD SPEAK * *
70 REM
80 PRINT "IT'S A GREAT TIME TO BUY OR SELL A HOME !"
90 GOTO 80
100 PRINT "HOW ABOUT A NICE GAME OF CHESS?"
110 END
A great Christmas present would be a graph that is population adjusted. Come on Santa!
Nice reference, BASIC
"The only winning move is not to play"
Of course this makes sense,
President George W. Bush has characterized the recent US housing crisis as a product of greed and Wall Street excess.
But that doesn't seem to have been Bush's opinion when he pardoned Isaac Toussie, 30, of Brooklyn, the son of a New York real estate developer, who defrauded the Housing and Urban Development Department government for millions of dollars and pled guilty to inflating the incomes of at least 100 families to make them eligible for federal loans in the lead-up to the worst housing crisis the United States has ever had,
It also helps that his dad reportedly donated $28,000 to the RNC
Quick question, are the numbers adjusted for population growth?
asun | 12.23.08 - 5:04 pm | #
That's what CR just did.
Quotes for PHM, RYL, DHI, ... - Yahoo! Finance
a homebulder ticker in re: nemo's ?
Hmmmm..."We never could have seen this coming"..."Buy now or be priced out forever."
etc, etc, etc.
The Madoff news always makes me smille.
Here are REO and short sales as a percentage of closed sales for November for the San Fernando Valley and Ventura County:
Effective Demand: Short Sale & Foreclosure for San Fernando Valley & Ventura County - Novemeber 2008
This is not all inclusive (MLS Only) and is missing some late reporters. But gives an idea of how big the distressed sale issue is in parts of So Cal.
OT, re Bank closures (perhaps belongs on a thread for OTS / FDIC, but interesting that it is in a FED paper.)
SF Fed VP Simon Kwan: Longest recession since WW2.
A little research on the SF Fed site brought up this (PDF alert): The Role of Relative Performance in Bank Closure Decisions - go to the 3rd link
"We show that the key to separating moral hazard from bad luck is to base closure decisions on relative performance. ... An interesting implication of a relative closure rule is that it leads to forbearance during "bad times," defined as adverse realizations of the common shock. It is important to realize, however, that this forebearance occurs solely for ex ante incentive reasons, not because of irreversibilities or political economy considerations."
Where is the money going to come from that will cause inflation?
Altair | 12.23.08 - 5:09 pm | #
Can't answer that question either.
It just seems like a slow deflationary grind at the moment. The challenge is quantifying the nature of the problem. Without that how can one judge the saliency of a proposed solution?
Take a depression (2 quarters minus 10% GDP) and raise 3 trillion to offset ... but is that enough?
And even if you do spend at that level, is it sustainable GDP or ephemeral .. and if ephemeral aren't we just prolonging and exacerbating the pain...?
We need to dissolve the banks and insurers in an acid mix called the price discovery mechanism until they have a capital structure supported by the free market...
HA! in my dreams...
IMHO, Harrison at Minyanville made the best sound bite of the year when he said, 'they sold the car crash and bought the cancer. But the cancer is bigger than the patient.
YAWLESA (Yet Another "Why Leveraged ETFs Suck" Article)
Why Short Sector ETFs Aren't So Smart | ETF | Financial Articles & Investing News | TheStreet.com
The guy who has his pulse on what all of this cash flooding the market will do is Tom Scott. See his post over at Forbes.com, "The Coming Cash Tsunami".
The Coming Cash Tsunami - Forbes.com
While I am an inflation skeptic, I will say this: if I'm wrong and inflation does arrive, it will be very hard for the Fed to fight it after it has sold banks on the notion that it will keep the fed funds rate low and after it's talked banks into buying long bonds yielding very little.
Anyone recall the S&L crash which followed the inflation of the 70's and early 80s? A similar crisis could befall the banking industry if inflation returns.
Well, we just bought 10 Morgan silver dollars. At $13 each not a big deal. Just in case.
Hyperinflation doesn't need increased demand, increased wages, or even distribution of the money to the people.
So many doubters of hyperinflation who seem to have no clue about how it has worked out in the past.
All it takes is the monetization of treasuries.
As the value of the dollar falls, the rush to sell treasuries, then exchange the quickly depreciating dollars for anything of value will accelerate.
The two most common items that will be demanded by our creditors will be food and gold.
Most people living in the US will not experience rising incomes, but simply bread lines, barter, etc.
Poverty in the US will run rampant as most have no real savings and employment prospects will continue to deteriorate.
Absolutely worst in a "while". Grew up in the business (RE development/const/brockerage). Sat on bank owned homes in NoCal in 81/82. Often, REOs are the flawed crap that only sells when the market is hot I learned then. There is some good stuff mixed in now.
Are investor purchases of REOs in lieu of stock market and other investments as they are looking for "tangible" investments? Is that the difference?
You can't predict the direction of the market unless you can predict when Paulson and Bernake (Pernake?) is going to stop issuing "I thinks" and "maybes" and replaces them with "we will".
Replace the high IQs with some high leadership.
My guess is volume will increase (YOY again) in the spring, bringing health.
CR:
I have noticed that existing sales, new home sales, initial claims, etc.....all are revised at the time of a new set of numbers significantly worse for the last set. Is this just coincidence or something more sinister?
[If we remove REOs, existing home sales have tracked much closer to new home sales]
Don't think that's entirely fair. FC sales do attract buyers that may otherwise buy a used or new home so it still counts as a sale... maybe 75% of a sale.
"So anyway, I see big trouble for our economy, but I see it as being of the deflationary rather than inflationary variety."
~~~~
Not to mention our economic model, 70% consumption, 30% production, is broken ....
"The guy who has his pulse on what all of this cash flooding the market will do is Tom Scott. See his post over at Forbes.com, "The Coming Cash Tsunami""
Anything is possible, but the Japanese example suggests that quantitative easing money piling up in bank vaults doesn't have much of an effect on inflation at all. It's been almost 8 years since Japan started their quantitative easing, and they appear to be headed to deflation again, even with their version of the fed funds rate near zero.
We've got a consumer-based economy. The way I prefer to look at it is: how will the Fed's money get into the consumer's so he can spend it? I'm having a hard time seeing how that will happen. Of course, even if the Fed's money does get into the consumer's hands, it's very possible that he will choose to save it rather than spend it. There are a lot of investment accounts that have been gutted lately and need to be replenished.
The inflation argument just seems to be a visceral reaction to the Fed's expanding balance sheet without analyzing where that money is heading. It was recently reported that $500 billion in excess bank reserves was transferred by the Fed to the Treasury to keep it from entering the economy. Bernanke is talking a good money printing game, but he's actually being more responsible behind the scenes. Fighting inflation is the Fed's primary job, and no Fed chairman wants to be known as the guy who started the US version of Weimar Republic Germany.
(F*ck you haloscan!)
Those betting on deflation are betting on complete catastrophic monetary/economic collapse.
A fiat currency can only survive deflation if it's countries external debts are small enough to be serviceable as the value of the money increases.
"So many doubters of hyperinflation who seem to have no clue about how it has worked out in the past. All it takes is the monetization of treasuries."
Japan did that starting in 2001. Where's the hyperinflation? The money just piled up in Japanese bank vaults. They seem to be headed to deflation now.
Good posts Altair. You have a huge demographic herd heading down the final chute to retirement. At this point they are down 30% on the 401K, the house is underwater, and the job is looking pretty shakey. They are going to be out there spending? Probably not.
No Improper Contact With Governor, Says Obama Report
- NY Times
Really????
Altair writes:
"The guy who has his pulse on what all of this cash flooding the market will do is Tom Scott. See his post over at Forbes.com, "The Coming Cash Tsunami""
Anything is possible, but the Japanese example suggests that quantitative easing money piling up in bank vaults doesn't have much of an effect on inflation at all
We're not Japan. What was Japan's savings rate, Natl. balance sheet etc.?
Altair-
You do not understand hyperinflation at all.
The money does not need to get into the publics hands.
Hyperinflation is a monetary phenomenon.
Even during hyperinflation real prices(even nominal for a short while) can fall. The problem is that so many businesses will go under that supply grinds to a halt. The currency becomes worthless so imports grind to a halt.
When supply goes near zero prices go way up, even if the majority of the people have very little income.
Japan is a worthless comparison. Weimer germany on the other hand...
Japan did that starting in 2001. Where's the hyperinflation? The money just piled up in Japanese bank vaults. They seem to be headed to deflation now.
Altair
What percent of their GDP is consumerism? Anywhere near ours?
Really????
Bubbles | 12.23.08 - 5:51 pm | #
Yeah, really. I actually believe it, too..... Obama's not stupid, and Blago is (and has been for some time) obviously insane, and under heavy Fed scrutiny. Obama's Chief of Staff is a sitting Illinois Congressman, so he also knows this. I'm sure they were very very very very careful with Blago.
Was japan forced to monetize their debt in order to keep interest rates down? NO. That's all that matters when it comes to hyperinflation.
Dollar devaluation is it out of our hands?
Why US Dollar Investments Are A Ticking Time Bomb - Contrarian Stock Market Investing News - Featuring Bargain Stocks
The thing is a week or so of hyperinflation would wipe out the savings of 80%-90% of the US population. At that point it wouldn't matter if the cost of some item went from $100 to $500 and then later reduced to $50, no one would have the money to buy it anyway.
As far as income inflation goes, the states are cutting back (didn't I just read that Tenn is cutting their payroll 10%), no way is the (fed) civil service or social security or the military going to see massive increases. Corporations aren't magically going to give periodic 20% increases.
So I suppose with hyperinflation everyone will just starve. Until the riots begin.
"No Improper Contact With Governor, Says Obama Report"
Thank goodness Blago was contained.
btw
I am not convinced one way or the other whether we will get hyperinflation or deflationary collapse.
Those that are sure one way or the other are fools.
I wonder if there's a market to be made in swapping underwater homes. You swap houses with somebody living where you want to move to, swapping mortages as well.
You're poor but not house-poor. The house you want to buy is cheaper too.
There are two components of the money supply.
The amount of money and the velocity of money. Right now, even though supply is increasing the velocity is decreasing causing deflation.
Since all money is created by credit , which is being contracted, the money piles up in the banks. This is by design so that the banks have enough money to zombify themselves.
The are only two ways to counteract this deflation ... clean up the banks' balance sheets, with FDRs Bank Holiday Plan, in which case many politically connected banks go bust ( All the Wall Street Banks) or just print the money whereby the government stays solvent but the economy still goes into a depression ...
It's us or the banks folks ... us or the banks ...
"No Improper Contact With Governor, Says Obama Report"
Not saying that they were involved, but did anyone seriously think that the report would say anything but this?
Don't know why they even bothered "investigating".
obama and blago never spoke. ok . they stared.
Bernanke has suggested that Japan's attempt to stimulate inflation fell short for several reasons. Here are two reasons I remember Bernanke offering: 1) too small an intervention and 2) a lack of coordination between fiscal and monetary policy.
The intervention in the US has obviously not been limited in size and it appears that there will be coordination between fiscal and monetary policies. Whether our policy produces the inflation Bernanke wants remains to be seen. I think it is useful to compare the current US condition to Japan's ongoing situation. However, there are some important differences, e.g. personal consumption habits of residents, reserve currency status, domestic vs foreign holders of national debt.
So I suppose with hyperinflation everyone will just starve. Until the riots begin.
Exactly, and that's essentially what history teaches us.
Of course there is a chance that the government can keep some semblence of stability and keep the bread lines going.
There's plenty of real wealth in this country and we can eventually get back to being able to take care of ourselves.
Destruction of debt money isn't the end of the world, but the transition will be difficult.
The thing is a week or so of hyperinflation would wipe out the savings of 80%-90% of the US population.
Most of those savings are backed by faith and debt that will never be repaid and can hardly be considered real savings in the first place.
Real estate "values" based on market fixed interest rates, stocks of leveraged companies, ponzi insurance policies, etc.
Calculated Risk:
By this measure, 2008 is the worst year for new home sales since the Census Bureau started tracking new home sales (starting in 1963).
Can you post an adjusted graph of this?
Well still snowing, looks like I'm going to have to make the drive in the AM not tonight.
If quantitative easing (aka printing press) has no effect and just piles up in the bank vaults, then Obama can stimulate to his lil hearts content, no need to worry about who buys the debt. Ben buys it all direct from the Treasury, and we put up 1 million wind turbines each year, CA, NY, NJ all get big piles of cash to shore up their penison funds, etc etc etc. Ben can print an infinite number of $.
By the way, most Zimbabweians were far poorer than anyone in the U.S. even in the good times, how did Mugabe manage to get the cash into the hands of his consumers? Obama is one heck of a lot of brighter than Bobby Mugabe, so he will figure it out.
Here are two reasons I remember Bernanke offering: 1) too small an intervention and 2) a lack of coordination between fiscal and monetary policy.
~~~~
Japan had a third problem ... no growth in the population thereby creating a lack of increased demand necessary for fractional reserve banking and an older population with a higher propensity to save.
Fractional Reserve Banking can not survive a level economy. Fractional Reserve Banking either grows or it dies ... just like cancer.
then what are you saying, bubbles?
The amount of money and the velocity of money. Right now, even though supply is increasing the velocity is decreasing causing deflation.
Decreased velocity == reduced demand.
Reduced demand causes falling prices.
Falling prices are not the same thing as deflation.
As long as people continue to use inflation/deflation to describe both price level AND money supply there will be no intelligent discussion.
The price rises caused by hyperinflation won't start until those who hold the money(those who hold treasuries) start spending.
The actual inflation has already started.
[I am not convinced one way or the other whether we will get hyperinflation or deflationary collapse.]
Is this a multiple choice with only 2 options?
OT-my bad if repost.
New Code of Conduct on Home Appraisers Reached
New Code of Conduct on Home Appraisers Reached - WSJ.com
The code would prohibit lenders and their representatives from prodding appraisers to inflate their estimates. But Mr. Cuomo has agreed to water down a provision that would have blocked lenders from using appraisals by their own employees or companies they control. Under the revised code, lenders will be able to use such appraisals if they take steps to ensure that the appraisers aren't pressured to produce estimates on the basis of what's needed to make loans.
Cuomo was all talk....a nothingburger...
Cuomo and GSE oversite on the pulpit..
"I had a dream
I saw comps from other neighborhoods to stop the downward price bloodshed, I saw granite kitchens and big ole pools where thier are none, improvements and upgrades a plenty, people playing in the street. I saw artificial prices surrounded by broken households and debt hangin out underneath the eaves...ohhh I had a dream that housing would come back and take our hand leading the way..
I had a dream
Cuomo wakes up and say the heck with that non bank employee appraiser thingy...
So I suppose with hyperinflation everyone will just starve. Until the riots begin.
~~~~
This doesn't have to happen ... but we have to clean up the banks' balance sheets or it will.
The problem is all these insolvent banks are politically connected.
"comrade swan writes:
Where is the money going to come from that will cause inflation?
Altair | 12.23.08 - 5:09 pm | #
Can't answer that question either.
It just seems like a slow deflationary grind at the moment. The challenge is quantifying the nature of the problem. Without that how can one judge the saliency of a proposed solution?"
That's a good question. Perhaps the best approach would be, when creating a cash giveaway to the public, put it on a cash loaded "gift card", and make the rules such that it can only be used for purchases. Otherwise, it'll end up in the bank.
One of the problems we face now is that we can't get the monetary velocity up. Folks are paying off debt rather than spending on consumer items, and with the specter of deflation, it only makes sense to wait to buy, since your cash-on-hand will be worth more in a week or a month.
If inflation gets rolling, then there'll be a perverse incentive to spend now while your money still has value.
Money supply - Wikipedia, the free encyclopedia
has an explanation of M0-M3. The Fed needs to create more M0-M1, and when the they've created more than was destroyed as the economy has become more de-leveraged, and as assets backing loans have become negative, then there we'll have inflation, and at that point, they'll need to start raising interest rates, which would seem to be done by putting more of them on the market, though I'll have to admit that this idea of how money actually represents debt (I had it explained, I think) still befuddles me.
The actual inflation has already started.
~~~~
Not yet ... but the pump is primed. Instead of auditing the banks they printed money ... They are trying to save insolvent banks at the price of hyperinflation for the rest of us.
Is this a multiple choice with only 2 options?
~~~~~
With the amount of debt that will go bad that is pretty much it ...
The zombie banks will strangle the credit needed to run the economy ...
Asia Times Online :: China News, China Business News, Taiwan and Hong Kong
News and Business.
Henry Liu's link from Jesse's site.
Jesse's Café Américain
Food. Electricity.
The coming crisis will be decided by food production/distribution and electrical supply/distribution. Controlling water to California and electricity for the water pumps can mean the difference between plenty of food and hunger for the country.
Rumors, no links, have utility companies cutting back the ordering of spare parts to the minimum and only crucial parts are allowed ordered.
Read this as waiting for the Obama stimulus plan to pay for the grid upgrades and parts or yet another warning sign of infrastructure on the edge.
Civilization is a thin veneer I enjoy. The third party option is my vote for change.
2008: Year in review
....No CPI news?...look at the bright side also , CR.....
Is this a multiple choice with only 2 options?
~~~~
The third option is to clean up the banks and run them as a public utility whereby the profits are returned to the treasury....
Bad debt will have to be written off but a Nationalized Central Bank can balance the credit contraction with government spending, spending without debt but underwritten by higher taxes on the wealthy and corporations.
Treasuries and dollars are now essentially one and the same.
They can't outright default on treasuries because they are what back the dollar. They can't let treasury prices fall because it will cause a complete deflationary collapse.
When the government issues new debt they are spending money(sterilized money, but still counts towards velocity) AND creating new money(the treasuries).
So far(afawk) the treasuries are not being spent. When a single major holder decides to spend them the government/fed will be forced to monetize(and they have already declared that's what they will do when they say they will manipulate the entire yield curve) and this will cause the dollar to fall and the cascade will begin.
Up until recently most people around here were convinced that this would either never happen or was many years away. I remain convinced it will begin in the next two years, possibly as soon as a few months.
What the deflationists are missing is the sudden velocity of money and credit creation, not just in the U.S. but all over the world at the same time. It's only just begun and it will probably continue for at least another 2-3 years. It might total $50-100 trillion.
It's nothing like Japan.
Imagine if a huge meteor hit Anarctica and destroyed vast icebergs. The water unleashed would rush northward, swamping all coastal areas in a rapid progression. That's hyperinflation.
Imagine that currencies and debts live in the coastal areas. They will be inundated and drowned.
The first place you will see the wave of hyperflation coming is in the price of gold because gold will backwardate and stay backwardated.
Then, you will see rising prices of other commodities such as food, oil and metals.
Then real estate, then stocks, and finally wages. I'll agree wages are a stretch, but govts. will mandate employers to give higher wages.
Then, everything will be fine.
"The actual inflation has already started.
CashOnlyHousing | 12.23.08 - 6:08 pm | # "
I'm not so sure that's true. The value of currency is ultimately determined by the money divided total amount of goods on the market, or something like that.
We've had a situation where an enormous amount of money has disappeared from the market due to de-leveraging (not that some de-leveraging is a bad thing) and other factors, far more than the "presumed" value of the goods on the market has decreased. That's what's causing deflation at the moment.
Monetary velocity is another factor exacerbating the situation.
When the Fed has increased the supply of money to overcome spiraling deflation resulting lower monetary velocity, THEN we'll be faced with inflation.
All good analysis. How does it end? Badly I presume.
No mention of credit in the inflation/deflation
debate ?
All good analysis. How does it end?
~~~~
If the banks aren't cleaned up ... very badly.
The third option is to clean up the banks and run them as a public utility whereby the profits are returned to the treasury....
Any such solution could only be accomplished with debt forgiveness by our foreign creditors.
What has yet to happen is for lenders, investment firms, GSEs, Fed and Treasury to get real about their holdings. There's still so much lying and hiding and rule-fudging and outright theiving, and no way we can hit bottom while all that's still going on.
Doesn't really matter what solutions anybody tries until the problem is correctly defined. And we won't know the extent of the problem until we know the whole truth.
Lying and rewarding bad behavior are so much a part of the problem, it's not going to end any time soon. I think it'll be at least two years before there is sufficient truth-telling to really understand how bad everything is. Until that happens, there will be no bottom.
How does it end? Badly I presume.
Unless by having and disseminating information changes or moderates the outcome. I wonder if information is traveling to rapidly for governments.
Any such solution could only be accomplished with debt forgiveness by our foreign creditors.
CashOnlyHousing
~~~~
Not true ... the debt would paid as any other debt any other treasury ...
xxxxx-
You are continually confusing inflation with price increases.
We've had a situation where an enormous amount of money has disappeared from the market due to de-leveraging
Deleveraging and defaults do not destroy money, even the fiat kind. They do however cause a slowdown in the velocity.
Each time credit is extended the money is spent, which has a one time effect on the velocity.
That's what's causing deflation at the moment.
We don't have deflation at the moment. We have deleveraging and slowing velocity which are causing severe price decreases.
The inflation that is happening now is nothing but a monetary phenomenon that will eventually show up as price increases unless we get complete deflationary collapse.
YANKEES GET TEIXEIRA
EIGHT YEARS, $180 MILLION FOR FIRST BASEMAN
what recession.
caps not mine.
"Complete deflationary collapse" has such an ominous tone. I bet the Fed and Treasury would do anything to prevent that.
Feckless Ness writes:
What has yet to happen is for lenders, investment firms, GSEs, Fed and Treasury to get real about their holdings. There's still so much lying and hiding and rule-fudging and outright theiving, and no way we can hit bottom while all that's still going on.
~~~~
Exactly why we need to nationalize the banks and other financial institutions and audit them (FDR Bank Holiday). In this way we cleanse the system. CDS and derivatives can be rationalized at the same time getting all future time bombs off the books.
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
The answers to these questions would greatly illuminate what is happening and what we can expect going forward.
"Complete deflationary collapse" has such an ominous tone. I bet the Fed and Treasury would do anything to prevent that.
Anoddamoose
What do you think their reason is for their latest actions? ZIRP forever, buy anything etc.
"Complete deflationary collapse" has such an ominous tone. I bet the Fed and Treasury would do anything to prevent that.
~~~~
No, they won't nationalize the banks and impose rationalization through an FDR Bank Holiday which is exactly what we need ... This way all debt , CDS and derivatives can be rationalized simultaneously between all institutions.
Citizen Jacked writes:
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
~~~~
They would have to show their books and that would show them , the Wall Street Banks as being largely insolvent.
mmckinl | 12.23.08 - 6:35 pm | #
Does anyone even know how to implement such a plan? Is the expertise and infrastructure even capable of such a huge undertaking?
Aren't the experts to do this the same experts who got us here?
I wonder if information is traveling too rapidly for governments.
I don't. It's been clear since Ben's jawboning attempts last year that the flow of information is beyond even the mildest spinning. Everyone here two years ago knew that Fed policy would trash the dollar and said so loud and clear. When the fine folks at CR can lay out everything that is going to happen on a macro basis quarters and years in advance and even detail the future failures of specific policies there's really no way to counter. If the FEd so much as acknowledges that there is an amateur group with a near perfect track record, far better than theirs it is truly game over so instead they pretend and periodically exclaim "Hoocoodanode?"
Why was the banks not nationalized until every one of them had been looked at.
The IRS will take every thing you have if you mess up and can't pay them.
Is the IRS not an agency of The US Tresuary?
Citizen Jacked writes:
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
The answers to these questions would greatly illuminate what is happening and what we can expect going forward.
Good point.
IIRC, there is a provision in the TARP that requires a listing of how the money was spent to be placed on the internet.
Probably didn't say how detailed the list needed to be.
"CashOnlyHousing writes:
xxxxx-
You are continually confusing inflation with price increases."
I don't see where anyone said they were speaking directly about "monetary inflation". What I've described is:
"In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] The term "inflation" once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation.[2] Inflation can also be described as a decline in the real value of money—a loss of purchasing power in the medium of exchange which is also the monetary unit of account.[3] When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time.[4]"
There is nothing particularly good or bad about monetary inflation. If the amount of goods and services in an economy increase, you "need" monetary inflation, or you will end up with price deflation. I'd like to discuss the rest, but I'm tired and want to go home.
Enjoy-
Citizen Jacked writes:
Does anyone even know how to implement such a plan? Is the expertise and infrastructure even capable of such a huge undertaking?
~~~~~
FDR did it in the 30s and the Scandinavian countries did it in the 90s ...
There is no other way forward without destroying the economy ....
IIRC, there is a provision in the TARP that requires a listing of how the money was spent to be placed on the internet.
Probably didn't say how detailed the list needed to be. - PSgirl
Taxi Fare to Congressional Oversight Hearings --- $38.50
Miscellaneous --- $7.4 trillio
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?
The answers to these questions would greatly illuminate what is happening and what we can expect going forward.
Citizen Jacked | 12.23.08 - 6:35 pm | #
Because what they are doing with it is apparently a state secret, and money is fungable. So the thread would be a short one, ask the question and nobody has the data to answer. However apparently the money has gone to:
1) T-bills yielding 0.00%
2) longer term T-notes yielding 1.5-2.5% depending on durration
3) Bonusues for everyone in the head office, lower level guys get laid off
4) dividends to common shareholders
5) Vault Cash
6) accounts in the Cayman Islands
Might have the order wrong
Punditry writes:
YANKEES GET TEIXEIRA
EIGHT YEARS, $180 MILLION FOR FIRST BASEMAN
what recession.
caps not mine.
Punditry | 12.23.08 - 6:32 pm | #
I'll do you one better.
You want deflation, you got it.
Just purchased 4 Rose Bowl tickets on the 45-yard line for 2/3rds the cost of last year's which were in the endzone.
Fight on!
Way to go deflation. Mark up was only 1/3 over face. Not bad, for a non-season ticket holder.
My Christmas present to myself, wife, and 2 kids. Okay, mostly for me! HAHA!
"You do not understand hyperinflation at all. The money does not need to get into the publics hands. Hyperinflation is a monetary phenomenon."
Yes, I'm aware of Friedman's famous quote along those lines, but the fact is that there is $500 billion in excess bank reserves sitting in the Treasury right now. The Fed put it there. Now that $500 billion technically is part of the monetary base, but to argue that it is going to cause inflation in the real economy like having that money in the hands of consumers would is just silly. Bernanke is keeping it at the Treasury specifically so that he can expand the Fed's balance sheet and engage in more lending while at the same time controlling how much new money enters the "real" economy.
The most recent Fed statement was unanimous among the Board of Governors- am I to assume that they are all hyperinflationary maniacs? You're going to lose a lot of money if you base your investments on inflationary expectations in the near term, but knock yourself out if you want to do it anyway. The treasury bond market- including TIPS purchasers - agrees with me that we are facing deflation not inflation.
Probably didn't say how detailed the list needed to be.
PSgirl | 12.23.08 - 6:38 pm | #
The list is up and has been linked several times. The list shows warrants for preferred shares traded for dollar amount. Zero details. (last looked 2 weeks ago)
The TARP also had the loophole about bonuses and pay being limited if the banks used the auction plan which was discarded. TARP isn't worth the effort to examine. No provisions for punishment in case of abuse and generally interpreted with no oversight once the funds have been dispersed. Travesty.
Rob Dawg - one thing you kind of missed. We aren't exactly amateurs...we just dont show our cards.
And some of us are worse than amateurs.
First of all, it is probably impossible to have a bank holiday in the US without having one worldwide.
With electronic transactions happening 24/7/365 any shutdown in the US would cause technical defaults worldwide due to missed payments etc.
The systems are so complicated it would be a nightmare trying to implement such a scheme, and would probably take weeks or months to get everything restarted again.
When this was done in the 1930s everything was written on pieces of paper and foreign debts were settled in physical gold.
Also the US was a net creditor. If we cleaned up all the banks and financial institutions many would have to be declared insolvent and their debt would be written off causes massive losses which would mean severe reductions in federal government receipts. This would put us in no better place when it comes to default/monetization of our foreign debts.
This is why I stick by my assertion that any such plan could only be implemented alongside a debt forgivemess plan.
Ask yourself one question ...
What didn't Japan do ?
~~~~
answer: They didn't clean up their banks
Seriously considering doing a bustout on my credit cards. 100k free money. Enough is enough. To hell with personal integrity and honoring contractual obligations. I'll take it while I can.
Exactly why we need to nationalize the banks and other financial institutions and audit them...
mmckinl | 12.23.08 - 6:32 pm | #
'Tis the season - office parties, Christmas bonuses, and industrial-strength document shredders going 24/7 until the Inauguration.
Yes, I'm aware of Friedman's famous quote along those lines,
Altair | 12.23.08 - 6:43 pm | #
Hasn't he been completely discredited?
Dirk | Homepage | 12.23.08 - 6:41 pm | #
Yeah , that's my take as well. The t-bills dropping to zero has all the earmarks of an inside deal between the banks and the Treasury in providing support for the dollar as those t-bills roll over or they need new capital.
Doesn't that make the system a perpetual motion machine? I thought the laws of thermodynamics proved the PMM would eventually fail? What is the end game or the light at the end of this tunnel? (Don't say a freight train)
Hasn't he been completely discredited?
Eric | 12.23.08 - 6:47 pm | #
I wonder what Friedman's ironic punishment is in hell?
(ex. Homer Simpson being forcefed donuts)
What is the end game
Citizen Jacked | 12.23.08 - 6:49 pm | #
Hank is gone in less than one month. Like he cares about end-game.
Anonymous | 12.23.08 - 6:47 pm | #
Tough to buck the conditioning of keeping the FICO number high. Good luck with that. Judging by the CC companies cutting limits I'd say many did that exactly.
First of all, it is probably impossible to have a bank holiday in the US without having one worldwide.
~ Wrong ... The Swedish Plan Did it ...
With electronic transactions happening 24/7/365 any shutdown in the US would cause technical defaults worldwide due to missed payments etc.
~Wrong ... All normal transactions could continue under the nationalization umbrella. Securities would have to be halted but aren't traded on weekends anyway ...
The systems are so complicated it would be a nightmare trying to implement such a scheme, and would probably take weeks or months to get everything restarted again.
~Wrong ... Everything is transacted as if all dates were pulled forward ... All contracts would be declared unenforceable under a National Emergency Declaration and then everything would be sorted out.
The Swedish accomplished it ... very smoothly indeed ... It could b done here ...
"Japan is a worthless comparison. Weimer germany on the other hand."
Wow- all these people buying 10 year Treasury bonds and TIPS must be raving lunatics. For the record, I wouldn't buy 10 year Treasury bonds at current yields, but the fact that a lot of people are indicates that the bond market sees a deflationary rather than inflationary environment in coming years. If you want to be dismissive of the bond market then go right ahead.
And for those responding to my post to note that Japan has a higher savings rate, it is amazing how that fact gets dusted off any time Japan is used as an example for anything. It might be relevant if the US consumer were still spending like crazy now, but US auto purchases are down 35% from last year at this time.
The truth is that the US consumer is now moving from spending to saving, and that means the US economy faces more deflationary pressure than the Japanese economy did, not less. The Japanese economy was already accustomed to the tight spending practices of its consumers. Our economy, by contrast, has become used to heavy consumer spending, and when that spending shuts down, you see a lot more deflationary pressure because there are a lot of goods out there going unsold.
Debt can be:
A) Repaid
B) Defaulted
C) Inflated away
Given the size of it A does not seem reasonably possible, so we are left with B or C. Somehow C seems more politically palitable (more hidden)
Didn't CR run a pool on the annual numbers?
If we cleaned up all the banks and financial institutions many would have to be declared insolvent and their debt would be written off causes massive losses which would mean severe reductions in federal government receipts. This would put us in no better place when it comes to default/monetization of our foreign debts.
~~~~
Wrong ... those debts are bad now, realizing that will free the remaining banks to lend without fear. Foreign debt in treasuries is paid. Shareholders and bond holders of the insolvent institutions are SOL.
Irs? Illegal revenue stream?
Altair-
The monetary inflation up until now will not cause price increases. However, it is a hint of what is to come. If they control the yield curve as they have claimed they will do(are doing?), that newly created money certainly will cause price increases.
Once again, hyperinflation caused by debt monetization doesn't mean the cash will hit our local economies and cause price increases, but if it doesn't we can expect more business failures, more job losses, etc. It will cause decreased purchasing power of the dollar on global markets. Supply inside the US will begin to contract quicker than demand and that's when the price increases will manifest.
Dirk's got it, again.
The banks are saying they're not tracking where the cash goes. Specifically, where the TARP money is spent would be tracked is within a budget to actual analysis of cash flows. They should have a rolling cash flow analysis (a managerial version of The Statement of Cash Flows) in spreadsheets. The TARP money would be in an added column, contributing to the rollforward balances.
In Wall St's defense, I've found banks and mutual fund companies can have some of the most unorganized, disfunctional accounting records of any large business (big profits breed complacency).
So, there's a chance they really don't know where it went. If they don't know now, we never will. Never.
Altair
Ask yourself one question : What didn't Japan do ?
Answer:
Clean up their banks ...
Altair --
If you want to be dismissive of the bond market then go right ahead.
You are certainly correct about the bond market. Negative TIPS spreads mean only one thing.
And yet...
Do you believe our central bank and Federal government lack the desire to prevent deflation? Or do they lack the means? Or the will?
Did the Japanese try everything our own government is willing to try?
Does the dollar's status as the reserve currency have any impact on the answers?
This is why I stick by my assertion that any such plan could only be implemented alongside a debt forgivemess plan.
CashOnlyHousing | 12.23.08 - 6:45 pm | #
Good post. Universal default with one world currency. Disregard the years of tinfoil attached to the thought of a single currency. If done properly it might keep civilization moving forward instead of back.
Consider if we do not find a way out of this box then we might have lived during the high water mark of human civilization. I do not want the history books to use McDonalds, Ford, and MSNBC to mark our cultures highpoints.
If you want a solution(none will come without pain), then it's quite simple.
Revalue gold until the gold held by the treasury and the fed can cover the treasury debt and monetary base. Go back to a gold standard. Shut down the insolvent banks and stop manipulating markets(such as interest rates, F&F loan purchases, etc.). Also balancing the budget would help.
This prevents default of dollar based debt and turns the dollar back into a stable currency that people can trust. Global exchanges can continue to function in dollars without disruption.
Did the Japanese try everything our own government is willing to try?
Does the dollar's status as the reserve currency have any impact on the answers?
Nemo
~~~~
Japan did not have a bank holiday whereby they cleaned up their balance sheets ... that was Japans whole problem ~ Zombie Banks ...
The only way to save our status as the world's reserve currency is to come clean, the sooner the better.
Altair | 12.23.08 - 5:09 pm | #
posted a link to your concise comment on my blog
very good, and explains why I believe that it will be very difficult to reverse the change in consumer sentiment through pouring money into the financial system
people are just not going to party like its 2005 when this is done
mmckinl(Excellent) writes:
FDR did it in the 30s and the Scandinavian countries did it in the 90s ...
Lack of political will.
Failed states don't fail because they're successful.
Having your policy engine completely hijacked by vested interests means never having executive control over your policy again. You'll lose the ability to frame the concept -- it's not like they "hijack" the regulators with a makarov and a bomb belt.
Obama has a very narrow window. Is he really a Dynastic reformer? I am skeptical the matter has not been inexorably decided by US indebtedness but await the razzle-dazzle I have been promised.
Could be the banks drove the dollar like it was a rental taken on a month long cross country trip by a bunch of frat boys using Dad's credit card.
Obama has a very narrow window. Is he really a Dynastic reformer? I am skeptical the matter has not been inexorably decided by US indebtedness but await the razzle-dazzle I have been promised.
Comrade Byzantine_Ruins
~~~~
Unlike Japan we do not run a trade surplus. There is no way we can use the Japanese model. If we try the economy will implode.
The truth is that the US consumer is now moving from spending to saving, and that means the US economy faces more deflationary pressure than the Japanese economy did, not less. The Japanese economy was already accustomed to the tight spending practices of its consumers. Our economy, by contrast, has become used to heavy consumer spending, and when that spending shuts down, you see a lot more deflationary pressure because there are a lot of goods out there going unsold.
Altair | 12.23.08 - 6:53 pm | #
Yes, this is a generational shock. Note anecdotal evidence that people under 30 years old were already adopting frugal spending practices before the housing bubble burst.
As ac said here once, bears are early and too optimistic.
That's the case here. Most people are never going to risk getting caught out like this again.
Anonymous | 12.23.08 - 6:57 pm |
That wuz me.
"Note anecdotal evidence that people under 30 years old were already adopting frugal spending practices before the housing bubble burst."
Because of huge student debt and poor wages in a sorely lacking job market.
"That's the case here. Most people are never going to risk getting caught out like this again."
At least not for another 70-80 years.
"We've got a consumer-based economy."
Altair: I'd say "had." We have moved on to something else now. Don't know what it is . . .
mmckinl(Excellent) writes:
Unlike Japan we do not run a trade surplus. There is no way we can use the Japanese model. If we try the economy will implode.
Oh I know.
Unlike Japan we do not run a trade surplus. There is no way we can use the Japanese model. If we try the economy will implode.
Oh I know.
Comrade Byzantine_Ruins
~~~~~
And if we try inflating without underwriting our role as reserve currency of the world will be kaput. There will be a basket developed , very quickly indeed ...
Roseanne Roseannadanna issues 2009 predictions
Mrs. Richard Feder from Fort Lee, New Jersey writes in and says:
'Dear Roseanne Roseannadanna,
Mr. Feder has lost half of our money due to Bernie Madoff and I need to hide what is left. Should I buy gold or a CD. If I buy gold and the markets crash will gold go up or down? If a CD, and the dollar crashes will a higher interest rate offset the lower dollar?'
Mrs. Feder I didn't think it was possible but you are just as stupid as your husband, but I know exactly what you are thinking cause I Roseanne Roseannadanna lost money with Bernie too.
Imagine if you will a teeny,tiny, teenage Roseanne Roseannadanna, cute as a little doll, going to prom with a boy named Scott Sosnik. 20 years later I'm in Fort Lee, New Jersey at a Starbucks hoping I don't run into either you or Mr. Feder and seeing Scott ordering a triple something. Well we got to talking and well he was honest, and I love honest ... honest talk, honest books, honest people, and most of all honest investments. I hate it when people do these tricks and make themselves look like real great investors, with fancy cars and suits and offices and little kerchiefs and shiny shoes and stuff.
So anyway I'm like at Scott's office and I don't know why but quess who walks in but Bernie Madoff. Kind of a smurfy looking guy and he carrying like a bunch of books.
Anyway after I Roseanne Roseannadanna finished investing most of my money with Scott and went back to my car guess what, when that cutey Bernie left his car which was, not to fancy either, parked next to mine he dropped one of them books! It was long black and perfect and I thought I was gonna die. And just between you and me Roseanne Roaseannadanna I saw your name in it.
It just goes to show you it's always something, if it's not one thing, it's another, if you don't know who you are investing with or in then you need to do it yourself.
Gold over a CD? No then yes, yes then no then yes.
Gold and markets crash? Up or down? Yes, but down before up.
CD.. dollar crashes will a higher rate offset the lower dollar? No then yes.
Have a pleasant tomorrow.
This is Thomas Scott of Forbes. But he is wrong.
None of these things have been converted to cash the way you would expect in a real deflationary depression.
Small-cap U.S. stocks are more expensive today, relative to their realistic forward earnings prospects, than at any time since 1999. There is still a huge amount of speculative risk appetite in the stock market, and it is another sign that hyperinflation will get here sooner rather than later.
Our banking system is doomed.
Hell, I must be the oldest poster on CR.
Worked at banks all over while hub was tranfered from town to town.
Some of this time was before accounts were even numbered, manual posting, yet everyone stayed until books were balanced.
Worked in banks that officers stayed trying to figure out how they would pay the Fed Letter the next day.
Teller windows were checked for deposits every two hours.
There is no reason why we could not have a bank holiday.
The gangs are in power at The US Tresury.
"Obama has a very narrow window. Is he really a Dynastic reformer?"
Ummm...yeah...Timmy and Larry are the kind of people Dynastic reformers appoint.
So far Obama looks like just another corporatist scum bag.
Comrade Byzantine_Ruins
The only way forward is to print money but underwrite it with the profits of Public Central Bank and banking system operated as a public utility and higher taxes on corporations and the wealthy ...
We can't gat out of this debt trap with more debt.
Folks, Japan is the GOOD outcome of all of this. Nobody is starving in the land of the rising sun, no mass riots, relatively low unemployment. Just a very long period of anemic growth. Given the choice between
A) Japan 91-08
B) US 30-41
C) Germany 22-32
I pick A, what do you chose, and is there another likely option (yes Sweeden 90-95, but doubt it happens)
Question. Sorry if this is answered above or elsewhere on the site. When a lender "purchases" the home on the courthouse steps or a similar "auction" to secure their interest does this count as a unique sale? If the lender then sells the house on the open market is this counted as a second sale? And if so, how can we know this in the figures for existing sales?
Thanks!
Dirk writes:
Folks, Japan is the GOOD outcome of all of this. Nobody is starving in the land of the rising sun, no mass riots, relatively low unemployment.
You say "no mass riots" as if that were a good thing.
Dirk
A) Japan 91-08
This is not an option, we do not have a trade surplus to accumulate the currency to pay down our debt.
The Japanese model would implode our economy.
New thread thingy
Rob Dawg
The japanese model is not an option, we do not have a trade surplus to accumulate the currency to pay down our debt.
The Japanese model would implode our economy.
mmckinl(Excellent) writes:
"FDR did it in the 30s . . . "
Did what in the 30s? FDR tried lots of different things, and many, if not most, of the initiatives were either ineffectual or counterproductive. He even tried to balance the budget in 1937.
FDR cannot be faulted for trying. Eclectic in the extreme.
LOL Dawg, and good point, however remember the French Revolution started with noble sentiments, Liberty, Equality Fraternity. The come Robesperrie and finally Napoleon. While part of me wants to see: Le Machine set up right in front of Federal Hall, violent revolutions scare me.
Besides, I grew up in Larchmont, and my mom still lives there, right in the path if the mobs start marching from the Bronx to Greenwich.
Japan had a third problem ... no growth in the population thereby creating a lack of increased demand necessary for fractional reserve banking and an older population with a higher propensity to save.
Fractional Reserve Banking can not survive a level economy. Fractional Reserve Banking either grows or it dies ... just like cancer.
mmckinl | 12.23.08 - 6:08 pm | #
My what a colorful though blear assessment. Does your point not beg the question: What then of us, how would you describe the US? And what effect will all this have on the desire for people to immigrate?
The Japanese model would implode our economy. - mmckinl
We can change. Look at the velocity with which consumer spending is slowing. We can knuckle under and get back to work, real work not financial engineering.
Things not so great in Japan
Poverty, Pension Fears Drive Japan's Elderly Citizens to Crime
More senior citizens are picking pockets and shoplifting in Japan to cope with cuts in government welfare spending and rising health-care costs in a fast-ageing society.
Besides, I grew up in Larchmont, and my mom still lives there, right in the path if the mobs start marching from the Bronx to Greenwich. - Dirk
Methinks the best place for gravity driven justice is in front of Fanieul Hall seeing as the marketplace CRE owners GGP are in default.
None of these things have been converted to cash the way you would expect in a real deflationary depression.
Small-cap U.S. stocks are more expensive today, relative to their realistic forward earnings prospects, than at any time since 1999. There is still a huge amount of speculative risk appetite in the stock market, and it is another sign that hyperinflation will get here sooner rather than later.
rich | 12.23.08 - 7:19 pm | #
I think I'm with you on this. But, the deflation is happening and the Fed cannot, even with worldwide cooperation, stem the spiral.
How long? I dunno. But I wouldn't part with my collectibles on a bet. They'll be the last thing I sell, and damn sure might not reorder my life to avoid that.
Rest assured, the day will come, you and I may not be alive, when we will be rewarded for our patience, grit and steadfastness. As has every person who took the long view.
Dawg, yes of course there would be machines in several cities, Faieul Hall would be a good place for Beantown, The corner of Wall and Broad for the Big Apple, K street for DC
I think that low yields on T's can be explained not only because of investors' low expectations of inflation in the outer years, but also because of liquidity pressure on companies that have to place money somewhere without any hint of risk - and many Treasury-only money market funds are not taking any new money
an anonymous poster wrote:
So far Obama looks like just another corporatist scum bag.
Anonymous | 12.23.08 - 7:21 pm | #
you are quite the quick study
i didnt realize there was that much data on the man that you could render such a judgment...
even before he has served a single day as preznit
We can change. Rob Dawg | 12.23.08 - 7:33 pm | #
Spoken like a real man!
CR, Good work on the housing data today. You deserve a break over the holidays.
This comment is probably more philosophy and morals than economics, but.... the problem bugs me and my conscience.
I think we'd be better off with a Swedish style bank takeover by a new administration (early on) that removed the huge uncertainty on which financial institutions and instruments are sound/solvent. Or some very strict laws/rules that forced complete bank disclosure enforced by criminal penalties measured in decades.
However, what if that complete transparency resulted in a complete crash of the financial system worldwide, with huge layoffs, civil unrest and hoarding of goods?
The question in my mind is whether in a democracy it is morally OK to hide things from the public because you fear greater consequences from disclosure than you fear the lack of confidence in the institutions and financial forms (cash money, T-bills, LOC's, etc.).
The hide-the-problem solution seems to be the prevalent mode under Bush. Should Obama continue to hide the issue or disclose/force disclosure?
I can't reconcile actors in the government (Fed included) hiding the truth from the people, with an government accountable to the government in a democracy. To justify the hiding is to accept that "if the President does it, it's legal" (the Nixon/Bush/Cheney doctrine). That is the definition of rule by dictat, whether it is a single leader or an aristocratic/ologopolistic set of overlords both in and out of government.
My sense of things is that a moral person, having taken an oath to protect the nation and constitution cannot justify acting such that the public is being mislead about crucial-to-survival matters.
Or, should the citizens/voters just allow big daddy to set the rules and go to their bedroom and play online games and listen to music?
Some factors to consider -
Current GDP levels require substantial debt creation.
Significant sums of this money has to come from other countries.
Interest rates on weaker credits rose significantly
Investors are seeking the safety of US govi debt.
The govi is filling the debt gap.
As govi debt grows and tax receipts decline, investors are likely to demand a risk premium.
There are practical taxation limits.
Demand for risk premium can be quite sudden as we have seen aplenty.
International supply of capital could become scarce driving rates up in general.
JimPortlandOR writes: The question in my mind is whether in a democracy it is morally OK to hide things from the public because you fear greater consequences from disclosure than you fear the lack of confidence in the institutions and financial forms (cash money, T-bills, LOC's, etc.).
C'mon Jimbo! Man up! Don't be such a wuss!
JimPortlandOR | 12.23.08 - 7:41 pm | #
Hard times require hard choices.
I agree until someone dear to me suffers to prove the greater good requires sacrifice.
FDR cannot be faulted for trying. Eclectic in the extreme.
JohnR(VA)
~~~~
FDRs Bank Holiday worked ... it sorted out the insolvent banks ... Why you would lump it in with FDRs fiscal policies I don't know.
Re: Oregon Jim
"Smart people" are already trying to hoard goods. See discussion on commodities, jumping into oil; especially the discussion where members of this board were talking about trading gold & food for oil versus trading dollars for oil.
With ETFs as trading vehicles it doesn't take much. I'll admit I jumped into USO when it was 90, then jumped out at 70. I'm going to be jumping in again soon enough. I'm sure there are people who are holding onto their oil inspite of the loss because it is a valuable item to have.
I started an online brokerage account because reading this forum I realized that I needed at least some place to put my "savings". Paper commodities are better than paper government promises.
My what a colorful though blear assessment. Does your point not beg the question: What then of us, how would you describe the US? And what effect will all this have on the desire for people to immigrate?
~~~~
The U.S. has an expanding population and will need credit expansion well into the future that will feed fractional reserve banking.
I still feel that we need to replace this banking model with a sustainable model.
OT - For the person who wanted to receive David Rosenberg's daily e-mails. I tried e-mailing him. Amazingly enough, he replied and told me that only the ML sales rep is allowed to do that. Does anybody know how to get this done free ?
JimPortlandOR | 12.23.08 - 7:41 pm
The Swedish Plan is indeed the way to go ...
Numbers do not lie ... without a Swedish Plan we sink into deflation or print into hyper inflation.
I was reading down the posts on this thread, and with each time I admired CashOnlyHousing's ones more and more.
I think they are logical and true. Then came this one :
CashOnlyHousing writes:
If you want a solution(none will come without pain), then it's quite simple.
Revalue gold until the gold held by the treasury and the fed can cover the treasury debt and monetary base. Go back to a gold standard. Shut down the insolvent banks and stop manipulating markets(such as interest rates, F&F loan purchases, etc.). Also balancing the budget would help.
This prevents default of dollar based debt and turns the dollar back into a stable currency that people can trust. Global exchanges can continue to function in dollars without disruption.
CashOnlyHousing | 12.23.08 - 7:01 pm | #
It is the best post I ever (!) read on CR.
Thanks CashOnlyHousing !
" Eric writes:
Yes, I'm aware of Friedman's famous quote along those lines,
Altair | 12.23.08 - 6:43 pm | #
Hasn't he been completely discredited?
Eric | 12.23.08 - 6:47 pm | # "
I thought that was Keynes
Starting the economy up in 2009:
YouTube - CRANKING A 1947 DODGE
"I wonder if there's a market to be made in swapping underwater homes. You swap houses with somebody living where you want to move to, swapping mortages as well."
Yes. The arrangement ends up being that each person rents the other one's house.
"Citizen Jacked writes:
Why isn't there discussion everyday about what the banks are doing with the billions they have been given? Why are we not allowed to know what the Fed has bought?"
Numbers do not lie ... without a Swedish Plan we sink into deflation or print into hyper inflation.
mmckinl | 12.23.08 - 8:06 pm | #
And in the inflation scenario with wage growth flat or low during the first years of the recovery, home prices remain in a black hole.
some investor guy | 12.23.08 - 9:49 pm | #
Great analysis. Thanks.