screwflation

[mooncliff]

Screwflation, like its first cousin stagflation, is an expression of a period of slow and uneven economic growth, but, its potential inflationary consequences have an outsized impact on a specific group. The emergence of screwflation hurts just the group that you want to protect — namely, the middle class, a segment of the population that has already spent a decade experiencing an erosion in disposable income and a painful period (at least over the past several years) of lower stock and home prices. Importantly, quantitative easing is designed to lower real interest rates and, at the same time, raise inflation. A lower interest rate policy hurts the savings classes — both the middle class and the elderly. And inflation in the costs of food, energy and everything else consumed (without a concomitant increase in salaries) will screw the average American who doesn’t benefit from QE 2.
http://wallstreetpit.com/48654-doug-...s-screwflation

The problem, however, is that for the lowest 20% of Americans, as per the BLS, food and energy purchases represent over 50% of their after-tax income (a number which drops to 10% for the wealthiest twenty percentile). In other words ... rampant liquidity end[s] up [doubling] food and energy prices (something that is a distinct possibility currently)
(See graph)
http://www.zerohedge.com/article/how...-hungry-winter

[don]

Re: screwflation

The emergence of screwflation hurts just the group that you want to protect — namely, the middle class...

Me thinks not is the case.

[ST]

Re: screwflation

Wanted: Debtor Alive

[don]

Re: screwflation

``There has been so much discussion recently about "QE 2" that you would think the entire financial sector were about to embark on a transatlantic cruise. Unfortunately, they, and we, are not so lucky. In the year 2010, "QE 2" doesn't refer to a sumptuous ocean liner, but a second, more extravagant round of "quantitative easing" - stimulus. In the past, this technique was simply called "printing money." As if the nation has not already suffered enough from the first round, Captain Ben Bernanke and the Fed are determined to compound the damage by hitting us with another monetary juggernaut. Their stated goal is to boost the economy and create jobs. However, since economic growth cannot be achieved by printing money, their QE 2 will sink just as surely as the Titanic.''

http://seekingalpha.com/article/2334...ove-the-dollar

you know who's in this lifeboat...



(It ain't Captain Nemo)

[ST]

Re: screwflation

That excerpt reminds me of comments I see from Mish - gems like "common sense tells us that QE does nothing" etc....

I am aghast at how everyone is oversimplifying. No one has a more clear picture of what banks' balance sheets and their own (Fed) balance sheet looks like.

What QE is accomplishing is averting a price deflationary spiral and depression style era.

There is no other choice at this point, except of course for cutting mortgage debt as EJ has suggested and spurring some economic growth by freeing up consumer spending in that way. Yet, still I would expect major QE to also accompany it because it would be too slow in materializing tangible benefits.

What the market is hearing is that QE is supposed to stimulate economic growth. What the Fed, of course, cannot say is that the true intent is to avoid a price deflationary spiral scenario.

Too many incremental bad decisions over 15 yrs - there is no other choice now, though some smart economic policy choices could accompany this to rebuild the economy - thus far they are lacking. Asset inflation has become critical to averting something far worse, today.

[karim0028]

Re: screwflation

That excerpt reminds me of comments I see from Mish - gems like "common sense tells us that QE does nothing" etc....

I am aghast at how everyone is oversimplifying. No one has a more clear picture of what banks' balance sheets and their own (Fed) balance sheet looks like.

What QE is accomplishing is averting a price deflationary spiral and depression style era.

There is no other choice at this point, except of course for cutting mortgage debt as EJ has suggested and spurring some economic growth by freeing up consumer spending in that way. Yet, still I would expect major QE to also accompany it because it would be too slow in materializing tangible benefits.

What the market is hearing is that QE is supposed to stimulate economic growth. What the Fed, of course, cannot say is that the true intent is to avoid a price deflationary spiral scenario.

Too many incremental bad decisions over 15 yrs - there is no other choice now, though some smart economic policy choices could accompany this to rebuild the economy - thus far they are lacking. Asset inflation has become critical to averting something far worse, today.

Me thinks you just contradicted yourself... There is another choice, cut debt; reset the system to a sustainable level... But, that will not happen bc the whole point is to benefit a group of select few... Instead of a depression style event where the pain is shared between debtors and creditors and the unemployed at least have relief in lower prices and stronger savings you are giving the green light to the wealthy, the speculators and the banks to remain whole in gold/silver and oil while the only thing the uninformed (your and my parents and grandparents, granny) hold (the dollar and bonds) loses alot of value and the debt still remains.

Houses wont go up, bc incomes wont go up and the savings the non-economic people hold will lose value; thus stripping them of homes and savings. I just cant see it any other way. The rise in stocks will not keep pace with devaluation of the dollar and the increase in food and oil prices as is evident by the 50-100% gain in oil, sugar, cotton, wheat, etc in the last one to two years.... And this comes on the heels of a continual outflow of money from the stock market. Ie. less people actually in stocks... So, who is making this money? Banks and speculators.

It looks pretty on the surface, but this will increase dramatically the gap between rich and poor, the middle class will be extinct.

[ST]

Re: screwflation

Me thinks you just contradicted yourself...

You neglected to digest the sentence following. "Yet, still I would expect major QE to also accompany it because it would be too slow in materializing tangible benefits."

The debt cut solution proposed by EJ makes sense, but likely at this point it is not sufficient to displace further QE because they simply waited too long. Now the system is again threatened by any number of shocks (sovereign debts, currency crisis abroad, china unraveling, etc...)

[karim0028]

Re: screwflation

not sure i follow.... If the fed wanted to really help they could have cut debt or directed this 600B to folks via tax rebates or something along those lines, help pay down debt or something.... Buying bonds and all the other junk just throws money at primary dealer banks who then go and spend it where growth is showing; emerging markets.

[Kadriana]

Re: screwflation

Houses wont go up, bc incomes wont go up and the savings the non-economic people hold will lose value; thus stripping them of homes and savings. I just cant see it any other way. The rise in stocks will not keep pace with devaluation of the dollar and the increase in food and oil prices as is evident by the 50-100% gain in oil, sugar, cotton, wheat, etc in the last one to two years.... And this comes on the heels of a continual outflow of money from the stock market. Ie. less people actually in stocks... So, who is making this money? Banks and speculators.

It looks pretty on the surface, but this will increase dramatically the gap between rich and poor, the middle class will be extinct.

Being a mother I am on a message board for Moms. I asked people a couple months ago if they could afford it if food prices doubled and out of 45, 70% said no and another 13% said barely. On facebook a couple days ago, I had a friend post she was taking her child to the ER because of an allergic reaction and she only had $26.13 her checking account and was worried about the deductible. I'm really worried about this push to create inflation not for myself but a lot of people I know.

[vinoveri]

Re: screwflation

What QE is accomplishing is averting a price deflationary spiral and depression style era.

There is no other choice at this point, except of course for cutting mortgage debt as EJ has suggested and spurring some economic growth by freeing up consumer spending in that way. Yet, still I would expect major QE to also accompany it because it would be too slow in materializing tangible benefits.

What the market is hearing is that QE is supposed to stimulate economic growth. What the Fed, of course, cannot say is that the true intent is to avoid a price deflationary spiral scenario.

Too many incremental bad decisions over 15 yrs - there is no other choice now, though some smart economic policy choices could accompany this to rebuild the economy - thus far they are lacking. Asset inflation has become critical to averting something far worse, today.

There are always other choices. Don't be taken in by the "it's too late now, nothing else to do" mantra. People default, banks go belly up, creditors lose their shirts. Not the end of the world, hardly. Paradox of thrift, blah blah bulls...

I fear you have absorbed some of the euphemistic double speak. Don't say "asset inflation", but "dollar devaluation" - and this is just what they did in 1933 - dollar devaluation after calling in the gold. Value is not being created; money is being debased and prices are going up. People can disagree over policy, but let's call a spade a spade. I for one think it is outright theft. Quite a large percent of the population doesn't have stock portfolio they can ride up to offset the $ depreciation. Widows and orphans you know.

Think of each of us as the stagecoach horse with a bit in our mouth's and Bernanke (and his handlers) at the reins. They want to incite our "animal spirits", for us to champ at the bit. We need to recognize that our gilded cage is a lot smaller and the leash a lot shorter than we originally thought.

Sorry to have to say to my fellow iTulipers (this is not directed at you SA2006), but one is either part of the problem or part of the solution, and accepting what is going on "b/c there is no choice" is tantamount to collaboration IMO.

[karim0028]

Re: screwflation

There are always other choices. Don't be taken in by the "it's too late now, nothing else to do" mantra. People default, banks go belly up, creditors lose their shirts. Not the end of the world, hardly. Paradox of thrift, blah blah bulls...

I fear you have absorbed some of the euphemistic double speak. Don't say "asset inflation", but "dollar devaluation" - and this is just what they did in 1933 - dollar devaluation after calling in the gold. Value is not being created; money is being debased and prices are going up. People can disagree over policy, but let's call a spade a spade. I for one think it is outright theft. Quite a large percent of the population doesn't have stock portfolio they can ride up to offset the $ depreciation. Widows and orphans you know.

Think of each of us as the stagecoach horse with a bit in our mouth's and Bernanke (and his handlers) at the reins. They want to incite our "animal spirits", for us to champ at the bit. We need to recognize that our gilded cage is a lot smaller and the leash a lot shorter than we originally thought.

Sorry to have to say to my fellow iTulipers (this is not directed at you SA2006), but one is either part of the problem or part of the solution, and accepting what is going on "b/c there is no choice" is tantamount to collaboration IMO.

Bingo, i dont see it any other way. Its outright theft. Its impoverishing everyone for the sake of the privileged and front running banking class. But, since the FED is the money supply, i think being in cash is very dangerous right now..... Unfortunately nothing is safe, you have to speculate just to stand still....

[jiimbergin]

Re: screwflation

There are always other choices. Don't be taken in by the "it's too late now, nothing else to do" mantra. People default, banks go belly up, creditors lose their shirts. Not the end of the world, hardly. Paradox of thrift, blah blah bulls...

I fear you have absorbed some of the euphemistic double speak. Don't say "asset inflation", but "dollar devaluation" - and this is just what they did in 1933 - dollar devaluation after calling in the gold. Value is not being created; money is being debased and prices are going up. People can disagree over policy, but let's call a spade a spade. I for one think it is outright theft. Quite a large percent of the population doesn't have stock portfolio they can ride up to offset the $ depreciation. Widows and orphans you know.

Think of each of us as the stagecoach horse with a bit in our mouth's and Bernanke (and his handlers) at the reins. They want to incite our "animal spirits", for us to champ at the bit. We need to recognize that our gilded cage is a lot smaller and the leash a lot shorter than we originally thought.

Sorry to have to say to my fellow iTulipers (this is not directed at you SA2006), but one is either part of the problem or part of the solution, and accepting what is going on "b/c there is no choice" is tantamount to collaboration IMO.

Can you give us your plan that will not result in a deflationary spiral?

[ST]

Re: screwflation

Can you give us your plan that will not result in a deflationary spiral?

I second that. Please do, vinoveri. In fact, if you have a detailed one, you should write a book.

[ST]

Re: screwflation

Being a mother I am on a message board for Moms. I asked people a couple months ago if they could afford it if food prices doubled and out of 45, 70% said no and another 13% said barely. On facebook a couple days ago, I had a friend post she was taking her child to the ER because of an allergic reaction and she only had $26.13 her checking account and was worried about the deductible. I'm really worried about this push to create inflation not for myself but a lot of people I know.

What will they be able to afford if 30% of them lose their jobs - the depression alternative at trillions of OTC derivatives come tumbling down?

The 'right thing to do' is now too little and far too late.

The trick with this inflation push will be to bring on wage inflation. At one point, EJ said he is no longer worried about the Fed's ability to do that. I'm not so sure. That will be pulling a rabbit out of a hat in a stagflationary environment.

On affordability - surely it's horrible. Then again, how many people do you know that act like our parents did all their lives and lived below their means so they could save. Maybe 10% of my educated generation (gen X) thinks that way today. Perhaps some personal responsibility is in order, also. Many people have never had to cut expenses to save, but became reliant on credit. Yes, this is devastating for the middle class - it will be cool to be thrifty and that is when everyone will change quickly.

[vinoveri]

Re: screwflation

Can you give us your plan that will not result in a deflationary spiral?

I'm not convinced a deflationary spiral would result from letting things run their course (but then again I'm not a PhD in economics). Deflation yes, but spiral? Are the only options deflation spiral or bubble generation and wealth confiscation through devaluation?

A main objection I have is that their has been no real reform, assets have not been allowed to go/stay down and more debt is proposed as the answer.

If I was convinced of a deflationary spiral was unavoidable without a major policy response, I would favor debt repudiation across the board.