Eric Janszen on Hyperinflation vs. High Inflation

[mmr]

Re: Eric Janszen on Hyperinflation vs. High Inflation

The Federal Reserve system is best understood as a (loosely organized) political entity interested primarily in its own survival and in maintaining its independence from external control, especially in monetary policy. As such, its interests are aligned with those of its member banks in some but not all cases. Even within the Fed system, there is occasional tension between the Board of Governors (Bernanke, Yellen, etc.) and the 12 regional reserve banks, which may have different agendas at different times.

Especially in the current environment, the Fed faces much greater political risk from being perceived as too close to the bigger banks than from antagonizing the banks.

The regulations that the Fed has imposed since the 2008 recession have actually had the effect of reducing bank profitability and forcing the banks to deleverage over the banks' objections. There have been some areas where the banks have managed to weaken regulations slightly, but for the most part, the banks have not been successful. As a result, banking industry profitability is down substantially as many of the highly-levered businesses that drove earnings in 2004-2007 are gone, the benefit of ZIRP is wearing off (even banks are having a tough time finding yield these days), and there are significant costs for hiring the armies of compliance and regulatory reporting staff that will be required to meet the new regulations.

In the sort of extreme environment where the Fed would resort to direct lending, the Fed would be facing extreme pressure as politicians attempted to pin as much of the blame for the recession / depression on the Fed (or, for that matter, any other entity to which they could point). My guess is that the Fed would do whatever would be necessary to preserve its independence, as long as their response did not go so far as to trigger a wave of bank failures for which they could then also be blamed.

At a certain point, bankers realize that it is in their best interest to go along with the program quietly. (See: 1930s.)

[astonas]

Re: Eric Janszen on Hyperinflation vs. High Inflation

You're addressing a self-selected readership. It's a bit like asking a church choir if they prefer their gospel music live or over the radio.

This is of course true. But if he just needs ammo to tell Jim that written and searchable text something is worth doing, then this is the place to come.

I'll pile on by saying that in general, I avoid any medium that does not give me control over the density of information consumed per unit time. To do otherwise is inefficient.

A video/audio feed must decide what the background knowledge level is of its target audience, and present only content that does not exceed that level of preparation. It is possible to pause a stream and do a quick google search to fill in a term's definition, but most listeners won't do it. Thus, it is very far from text in flexibility, and far more likely to be off-putting to those who can't keep up.

A text string may be skimmed quickly if it contains more background than the reader needs, or studied in great detail if the reader needs to pause and contemplate points that are on the edge of their comprehension limit. Thus it INHERENTLY has a broader potential market, especially at the high-background end of the spectrum.

Of course, if your goal is to find an audience that is seeking to be entertained, rather than educated, the logic runs in reverse. Simply lower the level of content until it appeals to everyone. See for example: the bulk of news media outlets today.

So the question REALLY is: Do you want to have a lot of listeners? Then seek to entertain, and audio/video is fine. Would you rather have fewer listeners, and focus on teaching those who already know something, a few additional things? Then a text/graph companion is probably advisable.

The entertainment route doubtless gives you a much bigger potential market, but also one that is saturated with other finance programs.

The education route is a much smaller demographic, but other than here on iTulip, it is not really being served very well at all.

I've been told by those who invest in entrepreneurial ventures that it is better to define your market as one you could reasonably expect to capture the vast majority of, rather than trying to take a sliver of a vast market. Whether you think that advice applies to you in this case, depends on your motivations for creating the program in the first place.

You may get some satisfaction, but you won't get rich or famous teaching those who are informed.

[vinoveri]

Re: Eric Janszen on Hyperinflation vs. High Inflation

Another member of our group asked precisely this question. Her answer was that "the situation is unfortunate," but what is the Fed supposed to do? Allow a deflation spiral to develop and preside over a second Great Depression?

The Fed's original sin was allowing the credit bubble to develop in the first place.

Was the issue of commodity inflation discussed, e.g, do the Fed easy money and ZIRP policies fuel commodity inflation and price spikes?
Your winsock analogy is particularly apt here as elsewhere.
Liquidity in - oil to $115 and gasoline to $4+
Liquidity slow down - oil to $82 and gas to $3.20

I have watched gasoline in my town go from $3.95 to 3.20 in a matter of a few weeks. To me this magnitude of change in such a short period cannot all be due to consumption supply/demand forecasts e.g., normal hedging in the supply chain, but must be in part do to "speculation". I'd be happy to be shown that I am wrong on this point. Maybe this is not a FED-centric issue?

[lektrode]

Re: Eric Janszen on Hyperinflation vs. High Inflation

....watched gasoline in my town go from $3.95 to 3.20 in a matter of a few weeks. To me this magnitude of change in such a short period cannot all be due to consumption supply/demand forecasts e.g., normal hedging in the supply chain, but must be in part do to "speculation". I'd be happy to be shown that I am wrong on this point. Maybe this is not a FED-centric issue?

+1
other than exporting fairly large quantities out of the country, maybe having some effect?
but i'm sure theres a fairly simple reason for the roller coaster ride:

same thing happened last year, didnt it? (jack it up in the spring, to assure adequate annual profit margin and then drop em in time for the Summer Driving Season, to keep the herd from thinking they too broke to go anywhere - that and to make certain politicians look good in nov - but wouldnt wanna jump kneejerk to conspiracy)

could merely be GS et al setting up the trade for their end of the year bonus, kinda like what happened in 2008...

its simply HILARIOUS what outsized effect merely threatening to release a few extra barrels of production - or strategic reserves - will have on prices, isnt it?

wheres GRG55?, he'll set us straight.

[bart]

Re: Eric Janszen on Hyperinflation vs. High Inflation



























Edit/add:


A simple chart showing about 3 years of retail gasoline prices with an annual change rate. With the MSM going somewhat wild about the recent drops in gas prices, I found it interesting that there's almost zero change in them since last year.

[lektrode]

Re: Eric Janszen on Hyperinflation vs. High Inflation

THANKS mr bart - this one leaves little to 'kneejerk conspiracy' on, eh?

send em up going into spring, make em sweat for awhile, then drop em during 'reservations season' and for 'AAA tripmap' purposes, then let em roll on upto july 4th and then SLAM EM AGAIN IN AUGUST, peaking during labor day appx, with an extra bounce during leaf-peepin season and slide into home plate (SELL!!!) going into the 3rd quarter, just in time to calculate the ole EOY bonus pool = BRILLIANT!

so - i guess the numero UNO question of the moment =
will same thing happen this year with the shiny yellow stuff, or what? (strictly optional/rhetorical, mr B)

but... uhhh.. i gotta shutdown or i'm really gonna get yelled at, any minute now ;)

[bart]

Re: Eric Janszen on Hyperinflation vs. High Inflation

...
so - i guess the numero UNO question of the moment =
will same thing happen this year with the shiny yellow stuff, or what? (strictly optional/rhetorical, mr B)
...

I asked the True Oracle, and here's the answer: http://www.m8ball.com/index.php?answer=5449986

Overall & more seriously, my view is bearish until August or so, even though I currently have a small long futures position.

[lektrode]

Re: Eric Janszen on Hyperinflation vs. High Inflation

I asked the True Oracle, and here's the answer: http://www.m8ball.com/index.php?answer=5449986

whoa!
perty heavy stuff there, mr B - always wondered how you came up with such awesome insight ;)

O&BTW - one of the other oracles (not the one in omaha, the one in newport beach) happened to be a guest commentator on PBS/NBR friday's show -

mr El-Erian mentioned that he thinks the chance of QE3 is at appx 50-70% at the moment, depending on what happens 2morow(sun?) in the med

Overall & more seriously, my view is bearish until August or so, even though I currently have a small long futures position.

roger that... thanks for sharing (esp the T.O.) - would i be somewhat close to correct in assuming that if the greeks vote thumbs down on continued austerity (in whats being called the EU's "Lehman moment" over at ruperts place), that El-Erian's opinion is closer to closer to 70 than 50% ?
(or the other way round? - SO many moving pieces to all this stuff, mr B - its a wonder you - and EJ - ever have time to sleep - sunday night ought to be a doozy for those of us prone to insomnia)

but hey - its 5 oclock somewhere - happy saturday night to all!

[astonas]

Re: Eric Janszen on Hyperinflation vs. High Inflation

The Federal Reserve system is best understood as a (loosely organized) political entity interested primarily in its own survival and in maintaining its independence from external control, especially in monetary policy. As such, its interests are aligned with those of its member banks in some but not all cases. Even within the Fed system, there is occasional tension between the Board of Governors (Bernanke, Yellen, etc.) and the 12 regional reserve banks, which may have different agendas at different times.

Especially in the current environment, the Fed faces much greater political risk from being perceived as too close to the bigger banks than from antagonizing the banks.

Thanks for clarifying this, mmr. It is easy, when ignorant, to oversimplify.

Let me take this picture out for a spin, to see if I've got it right.

Since the primary threat to the Fed is thus in the realm of public relations, this also explains the recent trend in the Bernanke Fed to increase "transparency" by holding regular official press conferences. By NOT letting the central bank actions speak for themselves, the central bankers may potentially increase the spread between public perception of bank capture, and reality. (i.e. spin provides cover for maneuvering.)

This in contrast to the March 2006 Greenspan Fed, which felt perfectly comfortable baldly stating to congress that it wasn't going to bother tracking M3, since it wasn't important. Not much effort to cover the tracks of a weaker-dollar policy there. But AFTER the crisis such brazenness would attract attention, right? Hence, enter spin-city.

Am I getting the hang of it? Or am I still think too superficially?

[think365]

Re: Eric Janszen on Hyperinflation vs. High Inflation

Meanwhile, here in Thailand, my bank is offering 3.8 % on a CD. The term has dropped steadily from 12 months to 11 to 10 to 9 to 8 and is now 7. All in one year.

สวัสดีครับ คุณ Thailandnotes!

สบายดี มั้ย ครับ?

Hope you can understand my poor attempt at writing Thai script.

You mentioned that your bank (Bank of Thailand?) is offering 3.8% on demand deposits. I'm curious to know if there is still a 15% "hot money" tax on foreign investment in Thailand, and if so, does it apply to bank deposits?

Also, you posted awhile back about the air quality in Chiang Mai and I have been meaning to ask you if it has improved at all. I have been in the North (Chiang Mai, Chiang Rai, Phayao, Myanmar, etc.) during the burning of the rice fields and have to admit it was very hard to breathe, and almost everyone chain smoking cigarettes didn't help the situation either. It makes a bad smog day in Los Angeles look pretty good (although Bangkok can be quite a challenge also). The only thing worse as far as air quality was the Vegetarian Festival in Phuket. Between the incense and the non-stop firecrackers it's hard to see down the street, let alone breathe. It's hard to imagine Chiang Mai being worse than that. Was it? I've always wondered why the Thai government doesn't provide tractor equipment to till the rice under (instead of burning it) as part of the subsidy to grow rice and tea instead of opium in the Golden Triangle.

Thailandnotes wrote: Chiang Mai, where I sit writing this is a bowl. To get there by car you climb steadily up and then plunge downward into the metropolis. It is similar to Katmandu. The pollution is so bad people who can are leaving, schools are closing, and flights are canceled. Visibility is decreasing daily.

Also, would you mind sharing where the French guy is putting his cash if not in gold? I know Marc Faber lives in Chiang Mai. Is he giving you guys some neighborly inside information?

Went on a long bike ride today with a guy (French) who claimed quite the opposite. He said savings earning nothing and losing value is pushing his friends to trade it for things they think will be worth more sooner or later. He wasn't talking gold.

สวัสดี ,

คุณ คิดค้น๓๖๕ (think365)

[doom&gloom]

Re: Eric Janszen on Hyperinflation vs. High Inflation

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.

Speaking of labor, and thinking of "money in the pocket" for the avge man v. the mechanism of the Fed putting money in the pockets of banksters who will not lend, I find myself at a loss to see any "traditional" way that the Fed can get money into the pocket of the man on the factory floor. Sure, the CONgress can, ala the Bush $600 stimulus checks, but where is the Fed mechanism? Basic coersion of the banksters has been mentioned, but even that is iffy, as they may not play along.

So EJ, I am curious as to what mechanism you believe they will use? I can think of many unorthodox ones, but what do you see?

[bart]

Re: Eric Janszen on Hyperinflation vs. High Inflation

...
mr El-Erian mentioned that he thinks the chance of QE3 is at appx 50-70% at the moment, depending on what happens 2morow(sun?) in the med
...

I may very well regret this, but WTH.

My current take is no QE3 announcement this week.

I also believe that the Greek elections will be a relative non event, at least partly due to some "math issues" in counting results.







And back on the issue of Koo's opinion about Central Banks being unable to do anything effective via monetary policy and related actions, I point out all the intervention/manipulation or control activities from the Fed - not only for many decades, but also lately with pushed lower interest rates, interest rate "guidance" and pushed higher stock prices. Those are massive effects.

They can also greatly affect the political process via both their normal monetary tools like Open Market Operations and SOMA balance control, and via their attempts to affect sentiment. One current example that will show it is Bernanke's upcoming roasting of Congress about the general fiscal cliff area.
Some also believe that one of the main reasons that Bush #1 did not get re-elected was the relative lack of monetary stimulus.

[Bundi]

Re: Eric Janszen on Hyperinflation vs. High Inflation

Actually, for me it is precisely this lack of 'color' which I prefer.

Video and audio allow the creator to manipulate the viewer/listener on many more levels than intellectual rigor (or lack thereof).

When I'm trying to learn, I don't want to be distracted by the speaker's inability to act trustworthy or to project confidence; I want to understand what he's saying and why he's saying it. And I use the term 'act' deliberately.

Perhaps the format matters. Q and A with multiple follow ups is pretty interesting to watch/listen to when done well. Of course not many interviewers can balance the tough question approach with the desire not to aggravate the interviewee. Perhaps Xpat can add value in this way especially given his knowledge base in certain areas. I would think this would lend itself to an audio and a trascript format that listeners/readers could select on preference.

[Polish_Silver]

Suggestions for The next level

Here's my suggestions for Next level shows:

1) History of fractional reserve banking and alternatives, such as Kotlikoff's Limited purpose banking.

Most of the internet literature is by gold bugs/conspiracy theorists, and not very high quality. (not to disparage my 6 legged colleagues!)

2) Is financial leverage Evil ? In one of Jeremy Grantham's quarterly letters, he said that leverage could not increase economic growth. This seems consistent with Austrian thinking. If this is correct, than public policy should be to discourage leverage as far as possible.

3) History of the gold standard.
Supposedly, Britain did not have a big hoard backing the paper notes outstanding. They just kept the supply of notes limited so that the gold price was always near the target value.

The US did have a gold hoard backing the paper notes, supposedly at a 44% ratio.
The main point is what are the different ways of doing a sound money system and what are the disadvantages of each.

Xpat, PM me when you read this.

[Polish_Silver]

Re: Eric Janszen on Hyperinflation vs. High Inflation

a higher volume of lending than repayment expands the money supply while a higher volume of repayment than lending shrinks it.

Some think that the credit based money system is more "unstable" that is, more susceptible to strong inflation or deflation than other monetary systems. What if the volume of credit in the system is small compared to the non-debt money, eg. silver coins. Wouldn't that work to stabilize the price level? Coins could still be hoarded, causing deflation, but it strikes me this is much less of a problem than a credit crunch induced deflation.

Isn't it also the case that the system "depends" on credit growth, and that a stable credit level would cause a recession? IN particular, the system needs credit growth exceeding real output growth, ie, debts growing faster than aggregate income.