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View Full Version : Fed termites to infest bond market - Eric Janszen



EJ
01-28-09, 11:27 PM
http://www.itulip.com/images/termites.jpgFed termites to infest long end of bond market

Many years ago I stayed at the Hotel Pan America in San Jose, Costa Rica. My room was on the second floor. The hotel was the first built in San Jose, at the turn of last century. Termites had eaten the floorboards and they were spongy. Worse, bugs had been working on the support beams, made of a tropical hard wood that's irresistible to termites. When I walked across the room the floor bowed like a giant trampoline. Being young, I found this amusing. The dresser danced, the mirror swayed, and the stand alone clothes cabinet banged against the wall. I jumped up and down. The guest in the next room cursed in Spanish.
Fed Keeps Rate Near Zero, Is Ready to Buy Treasuries (http://www.bloomberg.com/apps/news?pid=20601087&sid=aek1s.x4XxLs)

Jan. 28 (Bloomberg) -- The Federal Reserve left the benchmark interest rate as low as zero, said it’s prepared to purchase Treasury securities to resuscitate lending and warned inflation may recede too quickly.

The Fed is ready to buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement today in Washington. Any purchases before the FOMC’s next meeting in March would still need a vote to authorize the action.
The Fed termites do what they do, they eat and eat, starting with the short end -- the floor boards of the financial system -- and, unable to resist the structure, they move on to the long end -- the support beams of the system -- as they are destined to by their programming, their own internal logic, and their natural aversion -- to a deflation spiral. The Fed has for years said (http://itulip.com/forums/showthread.php?t=5709) that if necessary it stood read in to buy "across the yield curve." Today the future is fast arriving. The termites are getting ready to start in on the very structure of the financial system. Unlike termites, they think they are helping. Like termites, they are destroying the very structure on which they depend.

Years later I heard that the Pan America collapsed. Too bad. It was a great old place.

(Hat tip to Sharky (http://itulip.com/forums/member.php?u=14733) for catching the long awaited Fed buying long bonds story.)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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BadJuju
01-28-09, 11:34 PM
Thank you, iTulip crew.

What kind of inflation numbers should we expect for 2009?

agrawalp1
01-29-09, 01:11 AM
For Fed it is good strategy to manipulate the long term treasury bond market (20+ yrs) which is very small size compared to total treasury bond market. Long end of yield curve has huge consequence on loans such as 30 yr fixed mortgage or long term corp bonds. It is shrewd for Fed to manipulate big market using smaller one. :(

Question is whether they can continue to keep the long term rates low? When is the good time to short long term treasury bonds using ticker such as TBT?

lpk
01-29-09, 02:14 AM
Thanks EJ,
I'm sitting in a predominately cash position which has served well, but do not want to be too conservative in getting back into the market. My sense is that the lows of Nov. 20th will hold (at least for the foreseeable future) based on the Feds aggressive actions.

I understand your point that the Feds actions are not healthy for the structure of the system, and that we won't have a truly healthy market until the debt has been deflated one way or another. But since all logical paths lead to inflation and the speed of the collapse subsequent response is so dramatic and fast, it seems we could be in for a prolonged bouce (measured in years) which may or may not turn out to be a dead cat bounce.

Curious if you and others feel Nov. 20th is a solid bottom or are you sticking with your target range of 5000 or 6000 for the DOW? And if you are sticking with your target range, any revised thoughts on timing and trajectory? I recognize the current environment is riddled with variables that make predictions very difficult, but I'm still interested in people’s thoughts.

Thanks!!

Slimprofits
01-29-09, 04:26 AM
This feels like the prelude to, "It is time to short U.S. Treasuries."

*T*
01-29-09, 05:56 AM
This feels like the prelude to, "It is time to short U.S. Treasuries."

As I have said before, if the fed is supporting nominal Treasury prices, the adjustment must come through the currency.

ax
01-29-09, 07:15 AM
For Fed it is good strategy to manipulate the long term treasury bond market (20+ yrs) which is very small size compared to total treasury bond market. Long end of yield curve has huge consequence on loans such as 30 yr fixed mortgage or long term corp bonds. It is shrewd for Fed to manipulate big market using smaller one. :(

Question is whether they can continue to keep the long term rates low? When is the good time to short long term treasury bonds using ticker such as TBT?

I'm curious to hear this answer as well. Agrawalp1, if it helps/hurts your decision at all, Jim Rogers recommended buying TBT in October.

GRG55
01-29-09, 08:52 AM
For Fed it is good strategy to manipulate the long term treasury bond market (20+ yrs) which is very small size compared to total treasury bond market. Long end of yield curve has huge consequence on loans such as 30 yr fixed mortgage or long term corp bonds. It is shrewd for Fed to manipulate big market using smaller one. :(

Question is whether they can continue to keep the long term rates low? When is the good time to short long term treasury bonds using ticker such as TBT?



This feels like the prelude to, "It is time to short U.S. Treasuries."

Sure seems a few folks can't wait to "fight the Fed".

The Fed has just re-affirmed they won't hesitate to manipulate the Treasury market [prop asset values]. This would seem the usual "jawboning" in response to something they don't like; in this case rising T-bond yields. But this is only the usual step one. If they can't jawbone yields down, what makes anyone think they won't follow up with their threat? After all they are now buying Agencies that are being dumped by foreign holders.

Unless one is convinced the Fed will [ultimately] fail at this effort and, further, one believes their staying power is greater than the Fed's [who apparently can print money], shorting Treasuries seems akin to juggling dynamite with a lit fuse.

goadam1
01-29-09, 09:43 AM
Wait, isn't monetizaiton what you expected and said would be necessary? Don't you advocate for a certain amount of inflation and say hyperinflation won't happen?

Chris Coles
01-29-09, 10:03 AM
http://www.itulip.com/images/termites.jpgFed termites to infest long end of bond market


Fed Keeps Rate Near Zero, Is Ready to Buy Treasuries (http://www.bloomberg.com/apps/news?pid=20601087&sid=aek1s.x4XxLs)

Jan. 28 (Bloomberg) -- The Federal Reserve left the benchmark interest rate as low as zero, said it’s prepared to purchase Treasury securities to resuscitate lending and warned inflation may recede too quickly.

The Fed is ready to buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement today in Washington. Any purchases before the FOMC’s next meeting in March would still need a vote to authorize the action. Full Disclaimer (http://www.itulip.com/GeneralDisclaimer.htm)

Surely these are the first signs of their intent to ignore any early inflationary aspects of their combined strategy? And, once they pass this point, they are from that moment onwards, under the influence of "events"?

phirang
01-29-09, 10:09 AM
I've a new investment thesis for gold: it's the asset that outperforms when everyone else keeps fking up.

I'm not joking.

Slimprofits
01-29-09, 10:16 AM
Sure seems a few folks can't wait to "fight the Fed".

The Fed has just re-affirmed they won't hesitate to manipulate the Treasury market [prop asset values]. This would seem the usual "jawboning" in response to something they don't like; in this case rising T-bond yields. But this is only the usual step one. If they can't jawbone yields down, what makes anyone think they won't follow up with their threat? After all they are now buying Agencies that are being dumped by foreign holders.

Unless one is convinced the Fed will [ultimately] fail at this effort and, further, one believes their staying power is greater than the Fed's [who apparently can print money], shorting Treasuries seems akin to juggling dynamite with a lit fuse.

No, I don't want to fight the fed. Not at all. Unlike for instance, Mega Mike, I'm not outright rooting for a currency event. If one of two non-related (to currency) events occur over the next six months, than Poom will ruin me for good. That was just an expression of a gut feeling about EJ's writing style, not the product of analysis on my part.

ProdigyOfZen8
01-29-09, 11:27 AM
we are already shorting it at 40.... the TBT, the time is nigh!

ProdigyOfZen8
01-29-09, 12:11 PM
Mr. Jansen, this is for you. New article by George Soros on FT times, what do you think????? He is in direct contradiction to Itulip I would say...

http://www.ft.com/cms/s/0/49b1654a-ed60-11dd-bd60-0000779fd2ac.html

FRED
01-29-09, 12:14 PM
Mr. Jansen, this is for you. New article by George Soros on FT times, what do you think????? He is in direct contradiction to Itulip I would say...

http://www.ft.com/cms/s/0/49b1654a-ed60-11dd-bd60-0000779fd2ac.html

EJ answers subscribers' questions on the Ask EJ (http://itulip.com/forums/forumdisplay.php?f=66) forum.

ProdigyOfZen8
01-29-09, 12:17 PM
Not looking for an answer directly to me, but I believe this article is of grave importance to the future. A man as powerful as Soros is advocating import tariffs and the complete overhaul of financial markets worldwide to give "periphery" countries a better advantage as he states. An article needs to be written on this.

c1ue
01-29-09, 01:37 PM
I think some of the eager TBT buyers are missing a fundamental point:

If the Fed is buying long term Treasuries, the objective of this action is to drive yiels on these securities DOWN.

That means your double short is being attacked by Fed money.

This is why I believe it is MUCH too early to buy TBT or any Treasury short fund.

The time to do it is either when the Fed stops buying because inflation is rearing its ugly head, or the Fed is prevented from buying by some other political reason.

FRED
01-29-09, 01:48 PM
Thanks EJ,
I'm sitting in a predominately cash position which has served well, but do not want to be too conservative in getting back into the market. My sense is that the lows of Nov. 20th will hold (at least for the foreseeable future) based on the Feds aggressive actions.

I understand your point that the Feds actions are not healthy for the structure of the system, and that we won't have a truly healthy market until the debt has been deflated one way or another. But since all logical paths lead to inflation and the speed of the collapse subsequent response is so dramatic and fast, it seems we could be in for a prolonged bouce (measured in years) which may or may not turn out to be a dead cat bounce.

Curious if you and others feel Nov. 20th is a solid bottom or are you sticking with your target range of 5000 or 6000 for the DOW? And if you are sticking with your target range, any revised thoughts on timing and trajectory? I recognize the current environment is riddled with variables that make predictions very difficult, but I'm still interested in people’s thoughts.

Thanks!!

Great question! Can you post it to Ask EJ (http://www.itulip.com/forums/forumdisplay.php?f=66) for his roundup of Ask EJ's tomorrow? Thanks.

FRED
01-29-09, 01:56 PM
I think some of the eager TBT buyers are missing a fundamental point:

If the Fed is buying long term Treasuries, the objective of this action is to drive yiels on these securities DOWN.

That means your double short is being attacked by Fed money.

This is why I believe it is MUCH too early to buy TBT or any Treasury short fund.

The time to do it is either when the Fed stops buying because inflation is rearing its ugly head, or the Fed is prevented from buying by some other political reason.

We have had a "Time to Short Treasuries" article drafted and ready to go for over a year. Still waiting. Seems to us that only US creditors can spoil the Fed's "buy across the yield curve" plan. But first a catastrophe has to befall US creditors that makes the outcome of the choice to allow the dollar fall less additionally disastrous than the choice to continue to support it. That scenario is difficult to see.

Slimprofits
01-29-09, 02:32 PM
We have had a "Time to Short Treasuries" article drafted and ready to go for over a year. Still waiting. Seems to us that only US creditors can spoil the Fed's "buy across the yield curve" plan. But first a catastrophe has to befall US creditors that makes the outcome of the choice to allow the dollar fall less additionally disastrous than the choice to continue to support it. That scenario is difficult to see.

Thanks Fred!

jiimbergin
01-29-09, 02:38 PM
we are already shorting it at 40.... the TBT, the time is nigh!


I too am already in TBT, but only in a small way right now.
Jim

ProdigyOfZen8
01-29-09, 02:46 PM
yes at 46 today, it is a good trade for now.... and i stress trade. not investment

magicvent
01-29-09, 03:51 PM
TBT has moved from 35 in December to 47 today. Since you don't believe it is time to short treasuries, do you expect TBT to move lower again?

Chris Coles
01-29-09, 04:19 PM
Not looking for an answer directly to me, but I believe this article is of grave importance to the future. A man as powerful as Soros is advocating import tariffs and the complete overhaul of financial markets worldwide to give "periphery" countries a better advantage as he states. An article needs to be written on this.

Try Adventure and Essential Freedom - The missing elements of a Rich Cultural Life in a Successful Economy http://www.itulip.com/forums/showthread.php?t=5166

*T*
01-30-09, 05:06 AM
I've a new investment thesis for gold: it's the asset that outperforms when everyone else keeps fking up.

exactly why i own it

strittmatter
02-02-09, 07:44 PM
We have had a "Time to Short Treasuries" article drafted and ready to go for over a year. Still waiting. Seems to us that only US creditors can spoil the Fed's "buy across the yield curve" plan. But first a catastrophe has to befall US creditors that makes the outcome of the choice to allow the dollar fall less additionally disastrous than the choice to continue to support it. That scenario is difficult to see.

I don't know if this guys' possible scenerio is too textbook or simplistic or out of sequence to hold any water, but he talks about how unintended consequences of an economic stimulus will turn the tide for US treasuries...........

http://perotcharts.com/2009/01/daily-treasury-yield-curve-rates-1-1-2008-thru-1-16-2009/



In something like a cruel joke, because all the banks are still holding the bad assets that the original $700 billion Troubled Assets Relief Program was supposed to buy, the new “Plan B” may include going back to “Plan A,” this time around forcing the government to actually buy those bad assets.

The same problems exist with the old plan, and no matter how it’s attempted, it will require a lot of money. In addition to this new Plan B, the new stimulus package will require additional outlays for infrastructure investment, as well as for the additional stimulus plans that are still to come.

Here’s where the aforementioned cruel twist of economic fate comes into play. The government will spend trillions of dollars of additional taxpayer money that hasn’t even been collected, yet. Even so, the Treasury Department will have to issue more debt. That means the Federal Reserve will have to print and spend more “worthless” paper money in order to pump liquidity into the failed U.S. credit system.

In spite of all that, of course, the stimulus package should eventually revive the U.S. economy.

And when it does…the hugely inflated bubble in Treasuries will burst.

Investors poured money into safe-haven Treasuries and accepted yields so low that in any normal market they would be unacceptable. When the investing horizon looks more promising, investors will dump their low-yielding Treasuries and venture back into the markets for real estate, the domestic equities, international stocks, corporate bonds, junk bonds, emerging economies, and all the other usual investment nooks and crannies that offer greater return potential.

The cruelest twist of economic fate would be that the Treasury Department will eventually have to raise interest rates to generate demand for the debt they have to continue to issue. And higher interest rates are the last thing our struggling economy needs.


Anyone have a thought on it?

cobben
02-03-09, 03:24 AM
"But first a catastrophe has to befall US creditors that makes the outcome of the choice to allow the dollar fall less additionally disastrous than the choice to continue to support it. That scenario is difficult to see."

The financially motivated buyers of US debt have probably mostly already backed off from buying much more. Political pressure on pensions funds, PIMCOs, etc, might help to keep demand up to a certain extent. (This is happening in for example Sweden also.)

It's the possibly sea-changing (or not?) motivations of the geopolitically motivated foreign national buyers of US debt that are difficult to get a handle on.

vanvaley1
02-03-09, 04:39 AM
I don't know if this guys' possible scenerio is too textbook or simplistic or out of sequence to hold any water, but he talks about how unintended consequences of an economic stimulus will turn the tide for US treasuries...........

http://perotcharts.com/2009/01/daily-treasury-yield-curve-rates-1-1-2008-thru-1-16-2009/



Anyone have a thought on it?

The 'cure' of the Danaides curse. Think plugging the holes in the jugs will hold til the bath is full then the bath will spring leaks. The curse of the Danaides continues. No fair rewriting Greek mythology.

Glenn Black
02-03-09, 08:16 AM
George Soros has done an excellent historical review of the system, how it works, and how we got here.

Value of George's solution for the future is yet to be seen.

Fred, I would suggest putting a link to this article on Itulip's front page as a very useful primer for the new arrivals, aiding their quick study and comprehension.

metalman
02-03-09, 10:03 AM
George Soros has done an excellent historical review of the system, how it works, and how we got here.

Value of George's solution for the future is yet to be seen.

Fred, I would suggest putting a link to this article on Itulip's front page as a very useful primer for the new arrivals, aiding their quick study and comprehension.

mega posted it to news under the title Soros sez we are all F*cked! (http://www.itulip.com/forums/showthread.php?t=7754)

to put it back on the front page, add a new post to it.. that'll bump it to the top of the list and put it back on the front page.

Me
02-05-09, 03:32 AM
This is my first post. So thanks first to all contributers. I find it most stimulating. My understanding and position is that should the Fed move into monetizing long term debt (buying debt issued by the Treasury themselves with money created out of thin air) they will not only put the dollar under pressure but the existing bonds held by foreigners will likely hit the market as foreigners dump those bonds along with the dollar.

To engineer low interest rates in both short and long term debt the Fed will need to mop up some amount of the $11 Trillion out there at present. It is anyone’s guess as to how much of that paper hits the market however I believe that people (in the form of pension funds, government central banks etc) always act in their own self interest. I think it therefore reasonable to expect that those bond holders will not continue to be happy to finance the US Government and its bloated bureaucracy as they send a tidal wave of new paper onto the market thereby diluting the value of existing holdings of those holding US Government bonds.

Looking at the US governments reactions thus far to the crises as it unfolds they have, like any bureaucracy been slow to react. They have been unable to stop the collapsing credit markets and I suspect that they will not be able to stop the coming collapsing bond markets. Even if they are successful they can't be so without simultaneously destroying the currency.

Consider for a moment some numbers as a comparison.
Total Federal debt in 1933 at the height of the Great depression: $360 billion in 2008 dollars. Total federal debt in 1933 as a % of GDP: 40%
Total Federal debt in 2008 Just under $11 Trillion dollars. Total federal debt as a % of GDP: 70%
Now add to that additional debt to be issued in 2009 of just under $3 Trillion dollars bringing total federal debt to around $14 Trillion dollars.
This is not even taking into account current Social Security and Medicare programs now estimated at $53 Trillion.

Long Gold, short bonds. Somethings gotta give.....

metalman
02-05-09, 10:28 AM
This is my first post. So thanks first to all contributers. I find it most stimulating. My understanding and position is that should the Fed move into monetizing long term debt (buying debt issued by the Treasury themselves with money created out of thin air) they will not only put the dollar under pressure but the existing bonds held by foreigners will likely hit the market as foreigners dump those bonds along with the dollar.

To engineer low interest rates in both short and long term debt the Fed will need to mop up some amount of the $11 Trillion out there at present. It is anyone’s guess as to how much of that paper hits the market however I believe that people (in the form of pension funds, government central banks etc) always act in their own self interest. I think it therefore reasonable to expect that those bond holders will not continue to be happy to finance the US Government and its bloated bureaucracy as they send a tidal wave of new paper onto the market thereby diluting the value of existing holdings of those holding US Government bonds.

Looking at the US governments reactions thus far to the crises as it unfolds they have, like any bureaucracy been slow to react. They have been unable to stop the collapsing credit markets and I suspect that they will not be able to stop the coming collapsing bond markets. Even if they are successful they can't be so without simultaneously destroying the currency.

Consider for a moment some numbers as a comparison.
Total Federal debt in 1933 at the height of the Great depression: $360 billion in 2008 dollars. Total federal debt in 1933 as a % of GDP: 40%
Total Federal debt in 2008 Just under $11 Trillion dollars. Total federal debt as a % of GDP: 70%
Now add to that additional debt to be issued in 2009 of just under $3 Trillion dollars bringing total federal debt to around $14 Trillion dollars.
This is not even taking into account current Social Security and Medicare programs now estimated at $53 Trillion.

Long Gold, short bonds. Somethings gotta give.....

great first post, welcome.

can't argue with your 'something's gotta give'.

one addition is that in 1933 the usa was a creditor... now a debtor.

perversely, this ties the usa's hands... it can't just go and crash its bond market ala 1934 by devaluing the dollar 70%.

the idea tossed around here for 10 yrs per ka-poom theory is... a few central banks on the periphery of the global dollar system sell, and the big ones follow. and that's what crashes the bond market.

Me
02-05-09, 02:40 PM
Yes. My contention is that even if the Fed decides to buy across the yield curve they will not be able to do so fast enough to prevent the crash. If however I am wrong then they will be successful but only at the expense of the dollar. As such by shorting bonds and going long gold I am hedged to a certain extent.

Maybe I'm missing something and am hopeful that I can find any flaws to this theory before they become financially painful flaws.

seanm123
03-18-09, 02:28 PM
The U.S. Federal Reserve on Wednesday, in a surprise move, said it will buy up to $300 billion worth of longer-term U.S. government debt over the next six months and expand purchases of mortgage-related debt to help ease credit market conditions.

http://www.cnbc.com/id/29755961

FRED
03-18-09, 02:52 PM
The U.S. Federal Reserve on Wednesday, in a surprise move, said it will buy up to $300 billion worth of longer-term U.S. government debt over the next six months and expand purchases of mortgage-related debt to help ease credit market conditions.

http://www.cnbc.com/id/29755961



Do we have any choice?


http://www.itulip.com/images/agengyandGSEdecurities2004-2008Q.gif

http://www.itulip.com/images/borrowforeign2002-2008Q.gif

http://www.itulip.com/images/borrowforeign1977-2008.gif

goadam1
03-18-09, 04:10 PM
Do we have any choice?


http://www.itulip.com/images/agengyandGSEdecurities2004-2008Q.gif

http://www.itulip.com/images/borrowforeign2002-2008Q.gif

http://www.itulip.com/images/borrowforeign1977-2008.gif




If I were flying the plane into the zirp mountains, I would add more thrust too. If you crash, you crash with style.

Stretch002
03-18-09, 04:15 PM
Looking at those charts implies there to be very little demand for these treasuries by external parties, so the Fed is now going to buy them in order to keep rates low? Why not let the market dictate rates?

Are they doing this to prop up asset prices?


What are the ramifications for the dollar?


Will this affect the housing market at all?

bart
03-18-09, 04:23 PM
Looking at those charts implies there to be very little demand for these treasuries by external parties, so the Fed is now going to buy them in order to keep rates low? Why not let the market dictate rates?

Yes.
The Fed does not believe in free market solutions. It's part of the existing oligarchy.


Are they doing this to prop up asset prices?
Yes, but that's only part of it. They're trying to counteract deflation, debt deflation, TIC flow issues, deficit financing, etc.


What are the ramifications for the dollar?
Down.


Will this affect the housing market at all?
Very little on the short or intermediate term, although it will likely accelerate the arrival of a nominal bottom in house prices. Inflation raises all boats, eventually.

Stretch002
03-18-09, 05:05 PM
Thank you VERY much for the reply Bart. I am new to this type of thing, so it is wonderful to read some bottom line analysis.

So we can anticipate inflation down the line as a result of this. Any idea in terms of the scope? Seems that 1.2T is around 10% of our GDP. Can we expect 10% inflation as a result?

Also, since we are among the first countries to begin doing this, will this help exports and possibly shorten the recession? Will it also cause import prices to rise? Do commodities normally rise as a result of this type of monetary policy? What happens if other countries also begin this process? Does this mean relative price stability but a lessening of the impact of existing debt?

Lots of questions, I know. Thanks in advance to anyone who can answer them...

nero3
03-18-09, 05:12 PM
George Soros is heavily invested in inflation, atleast in his american portfolio. His two biggest positions are potash fertilizer and petrobras. I really think Soros want more balance between the rich and poor. More to BRIC, eastern europe (especially hungary:), asia, even africa and less to the US, this will be the result when a bull in treasuries no longer exist and the US therefore no longer "suck up" the worlds savings. In his book he says the US might face runaway inflation. I think it's possible a number of chain reactions is on it's way as the fed prints more money. The currency cross, USDNOK, seems like to be heading into freefall. I think it's the old commodity bubble that got a hit when bear sterns collapsed, and then got the death knell when Lehman brothers went bankrupt, that's coming back to life.

bart
03-18-09, 05:25 PM
Thank you VERY much for the reply Bart. I am new to this type of thing, so it is wonderful to read some bottom line analysis.

So we can anticipate inflation down the line as a result of this. Any idea in terms of the scope? Seems that 1.2T is around 10% of our GDP. Can we expect 10% inflation as a result?

Also, since we are among the first countries to begin doing this, will this help exports and possibly shorten the recession? Will it also cause import prices to rise? Do commodities normally rise as a result of this type of monetary policy? What happens if other countries also begin this process? Does this mean relative price stability but a lessening of the impact of existing debt?

Lots of questions, I know. Thanks in advance to anyone who can answer them...


Very tough question on inflation, but at least you didn't ask when... and to give you my best guess, I currently expect that actual inflation will hit at least 20% within 18 months and probably sooner.

Since you are new, I'll just refer you to John Williams and his excellent site http://www.shadowstats.com (http://www.shadowstats.com/). He has done a great job on exposing how the CPI has many lies in it and actually provides a chart & adjustment to bring it back to the way it used to be calculated in 1982... and by that measure, CPI is about 7% right now so 20% is "only" 13% more than now.

As far as helping exports and possibly shortening the recession, it will appear to if no attention is paid to inflation but in reality it won't.

Import prices of relative necessities will almost certainly rise, as will most commodities like food. Its an absolutely predictable result of creating excess money - as Milton Friedman famously said, inflation is always and everywhere a monetary phenomena.

Other countries have already begun this process, China for example has a monetary growth target this year of roughly 20%. The bottom line result - world inflation. Its also called "competitive devaluation" in the sense that countries try to devalue their currencies faster than others in order to obtain an export pricing advantage.

It does not mean relative price stability, but will help with lessening of the impact of existing debt although both will not be immediate. It takes quite a while for money to flow into and through an economy after it has been created. Referring to Money supply, lags, velocity (http://www.itulip.com/forums/showthread.php?t=6212) may help your understanding in the area.

doom&gloom
03-18-09, 11:06 PM
The termites came home today...