Posted on 02/16/2014 6:47:43 PM PST by Carbonsteel
One of the biggest stories in the global economy is the lack of inflation in the developed markets.
With central banks around the world aggressively stimulating with easy monetary policy, many experts are struggling to understand why we haven't seen money move in a way that would stoke some inflation.
In fact, the economy remains quite sluggish, which has others worried we could actually be heading for deflation.
(Excerpt) Read more at businessinsider.com ...
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men. ~ Woodrow Wilson
Does 30% to 35% real unemployment help to keep demand, thus, inflation down/
** Does 30% to 35% real unemployment help to keep demand, thus, inflation down/**
Yes, it absolutely suppresses inflation
Banks lost $100s of billions. Capital requirements have increased. Regulations have increased.
Experts wonder why banks haven't increased lending? LOL!
"I am a most unhappy man. I have unwittingly ruined my country"
I love fake quotes!
Ray Dalio, self made billionaire/investor has long pushed the idea we are still in a phase of economic recovery characterized by a balancing act between inflation and deflation in order to return to a level of where valuation of fundamental sectors of our economy, such as real estate, finally touch down back on earth and return to the realm of real valuations.
The lack of inflation is coupled with the lack of real growth due to high unemployment, but also, banks have gambled with the fed money rather than make loans to stimulate the economy. They have some explaining to do.
Ray Dalio, self made billionaire/investor has long pushed the idea we are still in a phase of economic recovery characterized by a balancing act between inflation and deflation in order to return to a level of where valuation of fundamental sectors of our economy, such as real estate, finally touch down back on earth and return to the realm of real valuations.
The lack of inflation is coupled with the lack of real growth due to high unemployment, but also, banks have gambled with the fed money rather than make loans to stimulate the economy. They have some explaining to do.
I have been paying down debt for over 5 years now. Prior to Obama I was highly leveraged, now I am nearly debt free with no intention of borrowing money to buy anything as long as that socialist is in charge.
Banks aren't borrowing money from the Fed.
rather than make loans to stimulate the economy.
Banks are capital constrained, they can't simply make a lot of additional loans.
All that easy money seems to have gone into the stock market rather than into consumer goods. Too few consumers have the money to buy anything beyond necessities, which have seen inflation, even though the prices of food and fuel are ignored by the consumer price index.
Amen!
The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
Some of these so-called experts that author articles make me laugh. A lack of inflation? Seriously? One only has to look at what they typically buy at the grocery store today to see that prices have risen, or the quantity has been reduced in order to maintain the price.
Would you elaborate on this? Specifically the bit about the gambling banks. How can they gamble without loaning or spending their Fed cash?
I am stuck on the problem of massive printing by the Fed with the money going, I assume, to the banks and the Federal Government - but with very low associated inflation. Not as low as advertised but still lower than expected given the Fed printing frenzy. For me it just doesn't add up. Where is all that money? And why don't we see inflation from the Federal Government spending beyond their means with the Fed Monopoly Money?
There’s no price deflation or dollar deflation, yet. See the world flooded with dollars.
The banks are sitting on a couple trillion dollars of excess reserves. This is a unique situation, never seen before in the Fed’s history. Typically excess reserves were calculated in millions, not billions and certainly not trillions.
But the Fed, also for the first time ever, is paying banks interest on that 2 trillion. It’s not much, but with the fed funds rate near zero, it’s enough to get them to sit on them earning what is essentially free money.
The huge excess position has been created by the Fed’s QE program, where they’ve bought trillions of dollars of long treasuries and mortgage bonds. This too is unique.
So, yes, the Fed has been flooding the market with excess reserves, which is how they typically goose the money supply (note: this is a controversial point that others might disagree with), but at the same time they’re paying banks to sit on the reserves.
The problem is that banks aren’t forced to sit on the reserves. If demand for loans picks up, they’ll lend out some of that excess position. This will put the Fed in the awkward position of having to pay a higher interest rate on the excess (to convince the banks to hold onto them instead of lend them out) or they’ll have to drain the entire $2 trillion plus of excess. That will be difficult because it would entail selling their long bond portfolio at what is likely to be a huge loss, on the order of hundreds of billions of dollars of losses.
Alternatively, they could do a huge reverse repo with their current portfolio, draining the reserves that way. The problem there is that the securities used for the repo will have to be priced to market, plus even a long-term repo would have to be repriced eventually, resulting in the Fed paying a much higher interest rate on the huge repo position at some point.
Essentially, Bernanke has done the same thing to the Fed as Obama is doing to the country. He’s put them in a pickle and left the post, just as Obama will eventually be doing to his successor.
We are seeing significant inflation, but not in the CPI. Land prices have skyrocketed over the past five years. Housing prices are recovering. Stock prices are near highs. Bonds are priced at ridiculously high levels. But the economy sucks and that’s holding down CPI prices.
A Republican president who reversed most of Obama’s policies would probably see massive economic growth, but at the same time Yellen would have a terrible time of it trying to hold CPI inflation under control given the mess Bernanke has made of the excess reserve position.
Anyway, that’s how I see it. Anyone holding long bonds at these prices is going to be very disappointed five years from now. We are at risk of not just an inflation, but of a hyperinflation should the Fed not manage to maintain control of the excess reserve position once the economy begins to really recover. If that excess ever really starts to circulate, and it could, the double-digit inflation of the late 70’s will look mild by comparison.
Point taken. I should have been more specific: it’s the “Core CPI” — one of the many consumer price indices — that excludes volatile items such as food and energy. Core CPI is apparently what the Fed uses to decide whether inflation is high enough that interest rates need to be increased.
http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm
The thing is, inflation is being fueled by two unique alternative routes. We are exporting it, to China, who in turn is the source of demand that is fueling the rise in commodities, particularly oil. That by reaction is causing prices rises to basic goods across the spectrum where transportation costs are a significant component of the cost of those goodss.
The other route is directly into the financial markets, where banks keep theirs invested in bonds, aiding the artificially low rates set by the Fed, and where brokerages are speculating in stocks and commodities, inflating both, and in the case of commodities, causing goods inflation. For awhile there was quite a bit of dollar depreciation helping to fuel that.
This is offset of course by the sluggish demand due to exporting of jobs, higher personal debt, high imports, high taxation and regulatory burden, income limitation due to high levels of welfare, and increasing educational gap of the American worker, among other things.
What we really have is kind of a stagflation where we have inflation and deflation going on at the same time. We have the dollar printing creating inflation, but underlying that we have the deflationary aspect of a stagnant domestic economy, yet underneath that we have a dollar that is weak and could collapse, resulting in an inflationary spike as it gets stripped of reserved status, followed by a very deflationary collapse of the economy if that were to happen.
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