Eric Janszen on Hyperinflation vs. High Inflation

[Chris Coles]

Re: Eric Janszen on Hyperinflation vs. High Inflation

As I now understand things, there is another unseen problem causing immense difficulties. Major corporates have very recently started to move their money out and back into over night; that they do not trust their own jurisdiction to remain solvent even overnight. Then add the silent withdrawal of deposited funds by millions of ordinary people keen to prevent the loss of their precious savings. Just these two extra ingredients are forcing even greater instability and stress; I do not see any discussion about the effects of such, anywhere.

As for the river analogy; the problem with the river is where is the river bank that retains the flow?

I return to an analogy I first heard in the early 1970's here in the UK where a speaker at a conference, (too long ago to detail), described instead what he called a platform effect. That the capital base of the economy formed a platform, just like a railway station platform. That the size of the platform dictated the number of people that could stand upon it.

Ergo; reduce the size of the capital base of the economy, you automatically reduce the number who can remain as productive users of the economy.

In which case, the underlying problem is not available credit, but the size of the capital base. Trying to add more credit, (water), to the platform, (river), means that it simply flows over the sides unused. In the case of the river, it over flows the riverbank.

Again, with an entirely credit based economy; the only tool at your disposal is the use of credit.

The debate must be turned towards the lack of the availability of equity capital to increase the size of the platform to support the required increase in the number needed to support the full economy.

[Forrest]

Re: Eric Janszen on Hyperinflation vs. High Inflation

Do you get the impression that the policy makers think that higher NAIRU is due to lack of demand rather than structural weakness that simply cannot be fixed by the Fed?

Is employment mobility impaired now, too? by the fact that many job seekers might have to cut a big check to the bank when selling their house in order to move for a job across the country?

Thank you for bringing up these points...they are crucial to the next ten years or more.

The aging Boomers, (myself included) have discovered how time and energy intensive all the pleasurable luxury items the US comes up with are, and are finding themselves a tad worn out by the expenditure of money as well as time and energy that it takes to keep up all That STUFF and still have time to use it all! We also find ourselves with less income as we retire, and the kids that had made it out of the nest are trying to sneak back in.

Those younger ones that follow in our footsteps are up against not only loss of ability to build wealth (or inherit it), but an increased inability to find quality housing, schooing, and jobs all in the same location, and a growing weariness at having to fight so hard to make progress at all.

Add in the dead weight of those that neither produce nor serve, and your average family starts getting a tad resentful of the mess we are in, and the obvious unwillingness of anyone in politics to fix anything that happens to be inconvenient to their re-election plans, and one can almost hear the Bastille falling far away, despite the distance of time.

[bart]

Re: Eric Janszen on Hyperinflation vs. High Inflation

#7 has never made sense to me, partly because it's the exact same money as #8. There is virtually no difference between money from the Fed or money from the Treasury. It all spends the same, and buys 'stuff'.

Koo is also basically asserting (with zero proof that I've seen, historical or otherwise) that regardless of the size of a helicopter drop from Ben or any Central Bank, no inflation will result.
...

So be it.

Apparently everyone but me thinks that Koo is correct.

[jiimbergin]

Re: Eric Janszen on Hyperinflation vs. High Inflation

So be it.

Apparently everyone but me thinks that Koo is correct.

I think if money is simply given to everyone, by helicopter or any other method, you are right. If it is simply given to banks I am not so sure.

[bart]

Re: Eric Janszen on Hyperinflation vs. High Inflation

I think if money is simply given to everyone, by helicopter or any other method, you are right. If it is simply given to banks I am not so sure.

What about if the Fed starts to directly buy assets other than stocks or bonds? Or foreign stocks or bonds?

[jiimbergin]

Re: Eric Janszen on Hyperinflation vs. High Inflation

What about if the Fed starts to directly buy assets other than stocks or bonds? Or foreign stocks or bonds?

Sure, as long as they get money directly into the hands of the 99% then I think it would work. I am just not sure what assets the 99% have that the FED could buy.

[Bundi]

Re: Eric Janszen on Hyperinflation vs. High Inflation

What about if the Fed starts to directly buy assets other than stocks or bonds? Or foreign stocks or bonds?

Does the Fed have the political cover? Would any of the specific Fed actions not lead to responses abroad to strengthen the US$ in relative terms to avoid having exports stolen via US$ devaluation? In other words, when the Fed devalues, doesn't this essentially steal some of the pie, therefore export deflation actually to the rest of the world causing policy responses?

There are a lot of theoretical pathways the Fed could pursue to add water to the river, paths that don't include the US banking system.
1. Fund an infrastructure bank
2. Buy private student loan debt that is non performing
3. Buy foreclosed homes (directly from owners at mortgage value not short)
4. Buy gold
5. Buy girl scout cookies

Or just charge 50 bips for reserves and squeeze more water out of the banks into the river.

I mean with a key stroke as the technical and specific marginal cost hurdle between more money and not adding money, the possibilities are many but they seem to meander into MMT territory pretty quickly.

Not sure the political and/or legal ability is there although these days the legal issues seem to garner minimal respect so may prove less limiting. The political ones, especially in an election year may be more difficult. Also, the ability to sustain any devaluation in the face of foreign policy response is unclear to me. Maybe the Fed should fund foreign trading partners somehow to liquify their purchasing power of US goods for export thereby priming the export pump without having to steal it from trading partners? In other words, pour water into the foreign rivers and let it flow to the US river.

[mmr]

Re: Eric Janszen on Hyperinflation vs. High Inflation

When the next downturn hits, I wouldn't be shocked if the political pressure on the Fed will become severe enough for:

6. Direct Fed "lending" to consumers and small businesses, bypassing the banking system entirely

This was done to a limited extent in the Depression. If it becomes obvious that there needs to be a lender that can make loans in massive size without regard to borrower credit standards or its own capital requirements, well, there's really only one entity to fit the bill. As an added bonus (at least initially), this would eliminate the need for Treasury debt issuance that the Fed would then have to monetize - the Fed would be acting in a fiscal capacity, saving a step.

[bart]

Re: Eric Janszen on Hyperinflation vs. High Inflation

Does the Fed have the political cover?
...

What do you think?
If they don't have it now, will they have enough at some point in the future, givne the strong disinflationary forces?

Do they even actually need cover, given the relative lock up in Congress?
Will Congress be relieved to see pressure off of them, and (while making negative noises) actually glad to see someone doing something?

[thriftyandboringinohio]

Re: Eric Janszen on Hyperinflation vs. High Inflation

....Can you imagine how much more quickly the economy might recover if the highest input cost to business -- payroll -- could adjust to lower demand? Sure everyone would take a pay cut for a while but they'd still be employed. When demand, the economy and labor markets later recover workers will be able to demand full salaries again....

I see the P/C economy by walking the floor every day in modest factories making widgets. Perhaps payroll costs dominate for service businesses, but businesses that make widgets pay perhaps 15% of all costs as wages for people touching the product. Industry has spent decades automating and squeezing efficiency.

I've studied and applied the demand-flow techniques of John Costanza with great success, and they conform well with current lean-manufacturing ideas.
http://en.wikipedia.org/wiki/Demand_flow_technology

Costanza advocates that if one implements his techniques fully, the business should stop tracking direct labor costs altogether, and just roll them into overhead at the actual 10% to 15% number observed.

For most manufacturers, the big direct costs are inventory of raws and finished goods and the associated charges from FIRE, and the big indirect cost is customers changing the orders before the factory can ship the widgets. If one achieves highly predictable production, inventory levels for raw mtl can drop towards zero and just-in-time supply deliveries will work. If one gets production under strict control, dwell time in the plant drops dramatically and the orders fly out the door before the customer can change things and the inventory of finished goods can drop dramatically.

In my world, direct labor costs are not a root cause for problems at the bottom line.

[DRumsfeld2000]

Re: Eric Janszen on Hyperinflation vs. High Inflation

Bart

What other assets are you referring to? What good would buying foreign stocks do although I doubt it is even allowed?I can understand buying bonds as this would in theorey stop yields rising in countries like Italy and Spain and so lower borrowing cost with its associated benefits.

[jk]

Re: Eric Janszen on Hyperinflation vs. High Inflation

I see the P/C economy by walking the floor every day in modest factories making widgets. Perhaps payroll costs dominate for service businesses, but businesses that make widgets pay perhaps 15% of all costs as wages for people touching the product. Industry has spent decades automating and squeezing efficiency.

I've studied and applied the demand-flow techniques of John Costanza with great success, and they conform well with current lean-manufacturing ideas.
http://en.wikipedia.org/wiki/Demand_flow_technology

Costanza advocates that if one implements his techniques fully, the business should stop tracking direct labor costs altogether, and just roll them into overhead at the actual 10% to 15% number observed.

For most manufacturers, the big direct costs are inventory of raws and finished goods and the associated charges from FIRE, and the big indirect cost is customers changing the orders before the factory can ship the widgets. If one achieves highly predictable production, inventory levels for raw mtl can drop towards zero and just-in-time supply deliveries will work. If one gets production under strict control, dwell time in the plant drops dramatically and the orders fly out the door before the customer can change things and the inventory of finished goods can drop dramatically.

In my world, direct labor costs are not a root cause for problems at the bottom line.

thanks, tabio. it's useful now and then to get a little reality check on our assumptions.

[c1ue]

Re: Eric Janszen on Hyperinflation vs. High Inflation

In my world, direct labor costs are not a root cause for problems at the bottom line.

Yes, but labor costs are the easiest to squeeze quickly when a CEO is looking to make his incentive payouts.

Input suppliers and customers? Not so much.

[thriftyandboringinohio]

Re: Eric Janszen on Hyperinflation vs. High Inflation

Yes, but labor costs are the easiest to squeeze quickly when a CEO is looking to make his incentive payouts.

Input suppliers and customers? Not so much.

Yup.
Plus, if your manager corps is doing a lousy job with planning and organizing production, labor rate can appear to be the cause.
A poorly run factory is always chasing labor cost and it never works.

[EJ]

Re: Eric Janszen on Hyperinflation vs. High Inflation

I see the P/C economy by walking the floor every day in modest factories making widgets. Perhaps payroll costs dominate for service businesses, but businesses that make widgets pay perhaps 15% of all costs as wages for people touching the product. Industry has spent decades automating and squeezing efficiency.

I've studied and applied the demand-flow techniques of John Costanza with great success, and they conform well with current lean-manufacturing ideas.
http://en.wikipedia.org/wiki/Demand_flow_technology

Costanza advocates that if one implements his techniques fully, the business should stop tracking direct labor costs altogether, and just roll them into overhead at the actual 10% to 15% number observed.

For most manufacturers, the big direct costs are inventory of raws and finished goods and the associated charges from FIRE, and the big indirect cost is customers changing the orders before the factory can ship the widgets. If one achieves highly predictable production, inventory levels for raw mtl can drop towards zero and just-in-time supply deliveries will work. If one gets production under strict control, dwell time in the plant drops dramatically and the orders fly out the door before the customer can change things and the inventory of finished goods can drop dramatically.

In my world, direct labor costs are not a root cause for problems at the bottom line.

For the kind of business I used to run that made wireless networking gear, payroll was nearly 40% of total costs. But neither your business nor mine is representative of businesses across the entire economy. See The Average Company Budget Allocation. It's the aggregate that matters with respect to the impact of Fed policy.

The Fed put a floor both on wages and commodity prices. It had to because debt levels are so high. Your kind of business as well as service businesses were both impacted.

By the way, when 911 killed a nearly closed fund raising effort in November 2001 and nearly put the company I was running out of business, management including myself took a pay cut for a year so that we could stay in business, the engineers and other employees would not have to take pay cuts and we did not have to lay anyone off.