Page 3 of 3 FirstFirst 123
Results 41 to 59 of 59

Thread: No Deflation! Disinflation then Lots of Inflation - Janszen

  1. #41
    jk's Avatar
    jk is offline Shadow Fed, iTulip Select Member, The Brain
    Join Date
    May 2006
    Posts
    10,187

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by WDCRob
    If someone could expand a bit on the mechanics of how dropping rates/printing money would overcome a strong and collective desire on the part of consumers not to avoid additional debt/save money I'd be grateful.

    i.e. can the Fed reflate without the cooperation of Main Street/Joe Sixpack? And if so, how?
    bernanke's famous helicopter speech was called "can it [deflation] happen here?" what he said was that if necessary the fed could use non-traditional means of intervention, starting with buying tbonds further out on the yield curve. this, in itself, would be major in dropping not only short rates but also longer rates which determine mortgage rates. if that didn't work, they'd buy other things. by purchasing assets they both raise prices on similar assets still in private hands, they put cash into the pockets of the sellers. basically they flood the system with cash so as to overwhelm any hypothesized increase in the desire to hold cash and cash-equivalents.

    you might ask whether this isn't in fact what the boj did. it is, but bernanke's point was to do it much earlier, i.e. before deflation actually sets in. if done early enough, rates can get below a positive rate of inflation and pump things up. the trick is avoiding "the zero bound." sure, you can hypothesize a desire by consumers to repair their balance sheets, but if rates drop quickly enough all along the yield curve people will want to hold real assets, and debt will be attractive because rates will stay below inflation. their houses will be going up in nominal value, their stock holding will be going up in nominal value: why worry? be happy!

    a lot depends on timing. my deflation fear depends on a very rapid dominos-falling daisy chain of bankruptcies and counterparty failures. if the process is slow enough then bernanke's helicopters should work.
    Last edited by jk; 09-16-06 at 05:22 PM.

  2. #42
    bart's Avatar
    bart is offline Shadow Fed, iTulip Select Member, Chief Futurist
    Join Date
    Apr 2006
    Location
    The future
    Posts
    5,032

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by Finster
    Just to make sure we understand this, you're saying that the Treasury is not obligated to repay this debt monetized by the Fed?

    Does it pay interest on this monetized debt?
    No - the Treasury is obligated to repay/redeem debt sold to the Fed as much as any debt it sells to anyone else. But in actual practice as you can see in the chart, the Fed keeps buying so repaying doesn't become an issue.

    Yes, the Treasury pays interest to the Fed on the bonds and bills owned by the Fed, to the best of my knowledge.

  3. #43
    Join Date
    Jun 2006
    Posts
    1,031

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Thanks for the replies.

    Quote Originally Posted by jk
    if that didn't work, they'd buy other things. by purchasing assets they both raise prices on similar assets still in private hands, they put cash into the pockets of the sellers.
    What other assets can they buy? Is EJ (above) suggesting that the rules governing what the Fed can buy outright would be changed if necessary?

    Quote Originally Posted by jk
    basically they flood the system with cash so as to overwhelm any hypothesized increase in the desire to hold cash and cash-equivalents.
    Would it be fair to say that the greater level of fear re: additional debt (whether driven by a decline in housing prices or due to an 'exogenous shock'), the greater the level of POOM when it finally arrives?

    If the Fed faces resistance to it's initial reflating efforts and continues to print money or becomes ever more creative with its reflation strategies in order to 'overwhelm' debt aversion aren't they pretty much guaranteeing EJ's almost-hyper inflation?

    JK, what are you watching as early indicators regarding deflation vs Ka-Poom? What would make you decide that deflation is no longer a possibility?

  4. #44
    jk's Avatar
    jk is offline Shadow Fed, iTulip Select Member, The Brain
    Join Date
    May 2006
    Posts
    10,187

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by WDCRob
    Thanks for the replies.



    What other assets can they buy? Is EJ (above) suggesting that the rules governing what the Fed can buy outright would be changed if necessary?



    Would it be fair to say that the greater level of fear re: additional debt (whether driven by a decline in housing prices or due to an 'exogenous shock'), the greater the level of POOM when it finally arrives?

    If the Fed faces resistance to it's initial reflating efforts and continues to print money or becomes ever more creative with its reflation strategies in order to 'overwhelm' debt aversion aren't they pretty much guaranteeing EJ's almost-hyper inflation?

    JK, what are you watching as early indicators regarding deflation vs Ka-Poom? What would make you decide that deflation is no longer a possibility?
    from bernanke's famous speech, available at:
    http://www.federalreserve.gov/boardD...21/default.htm

    So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities.9 There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

    Lower rates over the maturity spectrum of public and private securities should strengthen aggregate demand in the usual ways and thus help to end deflation. Of course, if operating in relatively short-dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years. Yet another option would be for the Fed to use its existing authority to operate in the markets for agency debt (for example, mortgage-backed securities issued by Ginnie Mae, the Government National Mortgage Association).
    To repeat, I suspect that operating on rates on longer-term Treasuries would provide sufficient leverage for the Fed to achieve its goals in most plausible scenarios. If lowering yields on longer-dated Treasury securities proved insufficient to restart spending, however, the Fed might next consider attempting to influence directly the yields on privately issued securities. Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly.12 However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window.13 Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral.14 For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Pursued aggressively, such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector, over and above the beneficial effect already conferred by lower interest rates on government securities.15

    The Fed can inject money into the economy in still other ways. For example, the Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt.16

    and
    Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.

    and the famous "helicopter" passage, making it clear that bernanke did not coin the concept
    Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.18

  5. #45
    jk's Avatar
    jk is offline Shadow Fed, iTulip Select Member, The Brain
    Join Date
    May 2006
    Posts
    10,187

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by WDCRob
    Would it be fair to say that the greater level of fear re: additional debt (whether driven by a decline in housing prices or due to an 'exogenous shock'), the greater the level of POOM when it finally arrives?

    If the Fed faces resistance to it's initial reflating efforts and continues to print money or becomes ever more creative with its reflation strategies in order to 'overwhelm' debt aversion aren't they pretty much guaranteeing EJ's almost-hyper inflation?
    i think that implication is correct, but presumably they only go to more extreme measures in the face of stronger deflationary forces. we are talking about going where no central bank has gone before.

    Quote Originally Posted by wdcrob
    JK, what are you watching as early indicators regarding deflation vs Ka-Poom? What would make you decide that deflation is no longer a possibility?
    the only deflationary scenario that makes sense to me arrives totally unexpectedly in the form of a financial accident. it would be like the day i recall hearing that the continental illinois bank went belly up. or how about when ltcm had its little problem. yes, we knew that russia had defaulted, we knew that emerging markets were all getting hit, but we didn't know that ltcm was leveraged as much as it was, and to such an extreme that people in high places thought our whole financial system was at risk. so it will be a surprise. the only way to prepare is to have some assets you expect to be worth something after the fall.

  6. #46
    Join Date
    Jul 2006
    Location
    Haunted Manor
    Posts
    7,008

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by bart
    No - the Treasury is obligated to repay/redeem debt sold to the Fed as much as any debt it sells to anyone else. But in actual practice as you can see in the chart, the Fed keeps buying so repaying doesn't become an issue.

    Yes, the Treasury pays interest to the Fed on the bonds and bills owned by the Fed, to the best of my knowledge.
    Thanks for the comment, bart. This is the first time I can recall anyone having directly addressed that question.

    So (correct me if I'm wrong) what this boils to is that principal repayment - because the net balance owed keeps increasing - never really becomes an issue. Even the debt service is unlikely to as long as the pace at which the Fed buys new bonds exceeds the combined burden of principal repayment and interest payment.

    Aside from the risk of hyperinflationary collapse, this has the potential to continue indefinitely. Or is there some other structural element that could fail first?
    Finster
    ...

  7. #47
    bart's Avatar
    bart is offline Shadow Fed, iTulip Select Member, Chief Futurist
    Join Date
    Apr 2006
    Location
    The future
    Posts
    5,032

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by Finster
    Thanks for the comment, bart. This is the first time I can recall anyone having directly addressed that question.

    So (correct me if I'm wrong) what this boils to is that principal repayment - because the net balance owed keeps increasing - never really becomes an issue. Even the debt service is unlikely to as long as the pace at which the Fed buys new bonds exceeds the combined burden of principal repayment and interest payment.

    Aside from the risk of hyperinflationary collapse, this has the potential to continue indefinitely. Or is there some other structural element that could fail first?

    I've never seen it officially stated anywhere but my assumption, which is borne out by the fact of SOMA almost always rising, is that when the treasuries do mature that the Fed rolls them over.

    As far as another structural element failing first, I haven't given it any thought to speak of but given the at least partially Ponzi nature of the beast, I'm sure there are a few. There's always the full derivatives meltdown that some fear too, although I think that's a low probaility event given the continued success over the decades of "rescue" operations by the Fed and others.

  8. #48
    Join Date
    Jul 2006
    Location
    Haunted Manor
    Posts
    7,008

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by bart
    I've never seen it officially stated anywhere but my assumption, which is borne out by the fact of SOMA almost always rising, is that when the treasuries do mature that the Fed rolls them over.

    As far as another structural element failing first, I haven't given it any thought to speak of but given the at least partially Ponzi nature of the beast, I'm sure there are a few. There's always the full derivatives meltdown that some fear too, although I think that's a low probaility event given the continued success over the decades of "rescue" operations by the Fed and others.
    The historically-resorted-to "rescue operation" would presumably be the inflationary option. In a manner of speaking, it "worked" in 1933, again in 1971, and (so far) in 2003 ... :mad:
    Finster
    ...

  9. #49
    bart's Avatar
    bart is offline Shadow Fed, iTulip Select Member, Chief Futurist
    Join Date
    Apr 2006
    Location
    The future
    Posts
    5,032

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by Finster
    The historically-resorted-to "rescue operation" would presumably be the inflationary option. In a manner of speaking, it "worked" in 1933, again in 1971, and (so far) in 2003 ... :mad:
    There's also the post 9/11 operation which did pretty much succeed in stabilizing the markets too - so not everything the Fred does in Open Market Ops is dark or deserving of tinfoil hat enabled comments. Off the top of my head, I think they injected about $150 billion in a very few days.

  10. #50
    doom&gloom's Avatar
    doom&gloom is offline iTulip Resident Farmer & Select Premium Member
    Join Date
    Mar 2007
    Location
    The Great NW where the rain falls mainly on my brain
    Posts
    2,532

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    It seems all the foreign creditors ALONG with the US have decided now to
    pump things up all at the same time, thus, no 'begger thy neighbor' policy
    to occur anytime soon. I would think that after the EU actions to prop up
    their banks, we will see the US action done by next weekend for sure, and
    another rate cut in the offing soon for good measure.

    I tell people there will be no deflation and no depression and they look at
    me like I am nuts. How can I know these things can never occur? I tell
    them simly -- all the national gov't around the world own printing presses
    and they are not afraid to use them!

    Incidentally, the prognosis for stocks to continue to dive opver time ignores
    certain segments. I believe that as oil continues to become
    more expensive, stocks in companies that own energy assets will only
    become more expensive. To this lot I add RDS/A, TOT, E, COP, XOM
    etc.

  11. #51
    Join Date
    Jan 2008
    Location
    Dallas, TX
    Posts
    30

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    CPI-U published monthly by the BLS
    YearJanFebMarAprMayJunJulAugSepOctNovDecAve
    20102.63%2.14%2.31%2.24%NANANANANANANANANA
    20090.03%0.24%-0.38%-0.74%-1.28%-1.43%-2.10%-1.48%-1.29%-0.18%1.84%2.72%-0.34%
    20084.28%4.03%3.98%3.94%4.18%5.02%5.60%5.37%4.94%3.66%1.07%0.09%3.85%
    20072.08%2.42%2.78%2.57%2.69%2.69%2.36%1.97%2.76%3.54%4.31%4.08%2.85%

    Hmm, isn't negative inflation by definition deflation not disinflation?

  12. #52
    metalman's Avatar
    metalman is offline iTulip Select Premium Member, Chief Cynic
    Join Date
    Apr 2006
    Location
    New Hampshire
    Posts
    7,448

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    strictly speaking... yes. but it never turned into this...



    as the deflationists told. only this...


  13. #53
    Join Date
    Jan 2008
    Location
    Dallas, TX
    Posts
    30

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Ah, so the title of this post was meant to read as: No Deflation Spiral! Disinflation then Lots of Inflation - Janszen ;)

    That's fine by me - I'm rooting for inflation to deflate my debt away.

  14. #54
    Join Date
    Jun 2006
    Posts
    1,031

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by zenith191 View Post
    CPI-U published monthly by the BLS
    YearJanFebMarAprMayJunJulAugSepOctNovDecAve
    20102.63%2.14%2.31%2.24%NANANANANANANANANA
    20090.03%0.24%-0.38%-0.74%-1.28%-1.43%-2.10%-1.48%-1.29%-0.18%1.84%2.72%-0.34%
    20084.28%4.03%3.98%3.94%4.18%5.02%5.60%5.37%4.94%3.66%1.07%0.09%3.85%
    20072.08%2.42%2.78%2.57%2.69%2.69%2.36%1.97%2.76%3.54%4.31%4.08%2.85%

    Hmm, isn't negative inflation by definition deflation not disinflation?
    Is that what you think people were worrying about when they talked about 'deflation?' I envisioned a much more dramatic scenario going on much longer.

  15. #55
    Join Date
    Jan 2008
    Location
    Sydney, Australia
    Posts
    428

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by zenith191 View Post
    Ah, so the title of this post was meant to read as: No Deflation Spiral! Disinflation then Lots of Inflation - Janszen
    Exactly; and this would've communicated the point much more clearly than persevering with the disinflation line when inflation was in fact negative. It just created unnecessary confusion and disagreement; that's my take.

  16. #56
    Join Date
    Jan 2008
    Location
    Sydney, Australia
    Posts
    428

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by WDCRob View Post
    Is that what you think people were worrying about when they talked about 'deflation?' I envisioned a much more dramatic scenario going on much longer.
    You are correct, in that when people were talking about 'deflation' they meant 'deflation spiral'. However, I think iTulip would've been better served by simply stating no 'deflation spiral' instead of using the word disinflation; to me, no 'deflation spiral' communicates much more clearly the point iTulip was making, instead of using the word disinflation.

    It may just be me, but I think iTulip have realised this.

  17. #57
    bart's Avatar
    bart is offline Shadow Fed, iTulip Select Member, Chief Futurist
    Join Date
    Apr 2006
    Location
    The future
    Posts
    5,032

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by WDCRob View Post
    Is that what you think people were worrying about when they talked about 'deflation?' I envisioned a much more dramatic scenario going on much longer.

    Now add at least 3-5% (if not 6-7%) to those numbers to account for all the BLS BS in the false CPI statistics.

    *That* is the disinflation to which iTulip refers - there was zero, nada, zip actual deflation.

  18. #58
    Join Date
    Jun 2006
    Posts
    1,031

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by Down Under View Post
    You are correct, in that when people were talking about 'deflation' they meant 'deflation spiral'. However, I think iTulip would've been better served by simply stating no 'deflation spiral' instead of using the word disinflation; to me, no 'deflation spiral' communicates much more clearly the point iTulip was making, instead of using the word disinflation.

    It may just be me, but I think iTulip have realised this.
    I kind of agree, but 'spiral' was said from time to time and it was always clear to me what they meant (and, honestly, I'm enough of a novice at this that if it was clear to me it should have been clear to all).

    I appreciate precision with language (a lot), but I just don't understand the need to try and bust someone's balls when they were, at the end of the day, right about something that so many others were not.

  19. #59
    Join Date
    Sep 2008
    Location
    North Texas
    Posts
    5,971

    Default Re: No Deflation! Disinflation then Lots of Inflation - Janszen

    Quote Originally Posted by Down Under View Post
    However, I think iTulip would've been better served by simply stating no 'deflation spiral' instead of using the word disinflation
    The (in/de/dis/hyper/.../flation) controversy serves our understanding poorly in my view.

    Moderate price changes in the cooked CPI numbers do not tell us the major points we need to know.

    We are not fundamentally dealing here with too much or too little fiat money in circulation. Prices are mostly moving only moderately one way or the other, depending on production volume (lower volumes require higher per-unit prices to cover fixed costs), financing availability and balance sheet health (weak balance sheets and limited financing options require higher prices to stay out of bankruptcy), and various other shifting factors. Meanwhile asset prices are either shell shocked (real estate) or on Plunge Protection Team steroids (stocks.) Personal incomes are either holding steady (no raise) or devastated (out of work), with no more "ATM machine" to fund the difference from one's increasing home equity.

    The essential problem is that an absolutely monstrous pile of derivatives was built on top of a huge pile of debt, temporarily masking huge systemic risk. That Debt and Derivative Death Star is imploding, leaving black holes on the balance sheets of many individuals, corporations, governments (local, state and national), GSE's (Fannie, et al), pension funds and hedge funds, and leaving potholes in most of the remaining balance sheets. The stunning increase in the size of the Federal Reserve's balance sheet (and related off-book balance sheets, such as I presume behind the curtains at Maiden Lane, Goldman, JPMorgan and Blackrock) does not represent some vast influx of circulating currency in the economy. Rather it is evidence of the double entry bookkeeping shenanigans being done in an effort to fill in these black holes and potholes.

    The idea that the major event going on is that the Fed is printing fiat dollars which are causing strongly rising inflation, risking hyperinflation is missing the point (at least for now.)

    Companies are raising prices a little and reducing quality and package sizes a little more, mostly in an effort to keep from going belly-up in the face of declining sales volumes, devastated balance sheets and tight commercial lending.

    We may get to some serious fiat money inflation or hyperinflation, or not. This may happen sooner or later. We live in stormy financial times. But that's not where we are now (outside of a few isolated places such as Zimbabwe I suppose.)
    Most folks are good; a few aren't.

Bookmarks

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •  
Opinions expressed herein are those of the posters, not those of iTulip, Inc., its owners, or management. All material posted on this board becomes the intellectual property of the poster and iTulip, Inc., and may not be reposted in full on another website without the express written permission of iTulip, Inc. By exception, the original registered iTulip member who authored a post may repost his or her own material on other sites. Permission is hereby granted to repost brief excerpts of material from this forum on other websites provided that attribution and a link to the source is included with the reposted material.

Nothing on this website is intended or should be construed as investment advice. It is intended to be used for informational and entertainment purposes only. We reserve the right to make changes, including change in price, content, description, terms, etc. at any time without notice. By using this board you agree that you understand the risks of trading, and are solely responsible for your own investment and trading decisions. Read full legal disclaimer.

Journalists are not permitted to contact iTulip members through this forum's email and personal messaging services without written permission from iTulip, Inc. Requests for permission may be made via Contact Us.

Objectionable posts may be reported to the board administrators via Contact Us.

-->