Skip to comments.PIMCO's El-Erian: The Current 'Death' Of Inflation Is Just The Calm Before The Storm
Posted on 05/24/2010 11:10:22 AM PDT by blam
PIMCO's El-Erian: The Current 'Death' Of Inflation Is Just The Calm Before The Storm
Vincent Fernando, CFA
May 24, 2010, 1:16 PM
Despite the fact that U.S. inflation seems to be dying right now, PIMCO's Mohamed El-Erian remains concerned about the future explosion of inflation.
He's worried about an even larger scale use of central bank balance sheets, similar to what was done in the U.S. and more recently in Europe.
We may have gotten away with such activities once, but in the view of Mr. El-Erian, we've used our 'spare tire' and won't be able to repeat these kinds of central bank resources without substantial inflationary effects, among other consequences.
Some argued that given the output gap in industrial countries, it would be very difficult to generate inflationary pressures for the next three years. Indeed, the risks were tilted toward further disinflation. A larger group warned that while the output gap framework was applicable to the next 12 months, the period beyond that could witness the impact of increasing monetization of debt, gradually rising inflation rates and a worsening of inflationary expectations.
This potential evolution from disinflation to inflation will likely proceed at different speeds in different parts of the globe. It is already well in train in emerging economies and will remain so. Over the medium term, the U.S. will be next, with Europe and, even more, Japan lagging.
So in fact, he appears to believe that current U.S. disinflation (low, falling inflation) is only the lull before the storm. If that's the case, then a lot of people have been tricked, as shown by the low treasury yields right now. The ten-year treasury is at just 3.21% right now, which doesn't leave much room for inflation over the next ten years.
(Excerpt) Read more at businessinsider.com ...
Around here, the prices of everything seem to continue going up, especially on things like food.
I’m one of those that believe we will have deflation (already there) followed by inflation worse than the Carter thingee.
“They” actually have no choice. Monetizing this thing is the only way out. Problem is, Monetizing it might piss off a few countries that we borrowed from, like, say, China.
The number of the mounted troops was two hundred million. I heard their number.
“Monetizing it might piss off a few countries that we borrowed from, like, say, China”
Monetizing it WILL piss off a few countries that we borrowed from, like, say, China.
nuevo dólares right around the corner. 100 to 1 exchange rate.
>>Defaulting on the bonds (either by refusal to pay or by printing crisp new billion dollar bills to redeem them) means nothing unless you plan on likewise “defaulting” on promises made for Social Security and Medicare.<<
There is no way out of this. When I hear my friends talk of 2010 and republican saviors I point out that once the Titanic hit the ice, changing captains may affect who gets to the life rafts and how, but the ship is still going down, and there are still not enough life rafts. It is going to be a catastrophe of one type or another no matter who is in charge or what they do.
Japan will get inflation before Europe, and then again before teh U.S.
Of course, Japan has been wishing for inflation every year since 1989 without much success.
Instead, Japan has led the world into deflation.
Next stop: lots of lower home prices, lower and fewer salaries, falling stocks, and falling interest rates.
Just like the Panic of 1893.
Agree as has happened many times in history.
“Where is this mythical lack of inflation?
Around here, the prices of everything seem to continue going up, especially on things like food.”
I was thinking just the opposite. I went to Walmart yesterday (in Fort Worth, Texas), and bought milk for $1.69 a gallon, eggs for 75 cents a dozen, bread for 50 cents a loaf (1-1/2 pound loaf) and bananas for 37 cents a pound. These prices are lower than I’ve seen in a very long time. I wish prices on big ticket items, like automobiles, would also fall back to 1970s prices.
The problem with that analysis is that we have the fed with with two trillion dollars worth of property in their portfolio—that they are holding off the market until the economy heats up.
That two trillion dollars worth of real estate gives the fed a second lever to control inflation besides raising interest rates.
So when the economy heats up the fed can tilt against by
1.)raising interest rates
2.)flooding the market with property to hold down real estate prices.
These are very powerful tools.
I posted this a couple days ahead:
That's exactly the conclusion my friends have made. They say, "There's no bloodless way back from here."
Walmart here is $3.29/gallon on milk ,, lg eggs are $1.09 , and bread (cheapest sandwich sliced) is $1.19 , bananas are $0.59/lb. ... Did a cheap competitor like Aldies move in next door to your WMT?
“Walmart here is $3.29/gallon on milk ,, lg eggs are $1.09 , and bread (cheapest sandwich sliced) is $1.19 , bananas are $0.59/lb. ... Did a cheap competitor like Aldies move in next door to your WMT?”
Yes, an Aldi store did open up nearby recently, but the question is, if inflation is so bad, how can Aldi maintain such low prices on staple foods, and how can Walmart afford to compete with them? I’m worried about inflation too, that’s why I’m sort of surprised that basic foods are still so cheap (here, but apparently not where you live).
"This is neither inflation nor a symptom of inflation, but rather a symptom of an overwhelming deflationary trend coupled with foolhardy government regulation in a completely unbalanced economy."
-- Mike "Mish" Shedlock
I just bought a gallon of 1% milk at WalMart for $2.88.