Posted on 06/08/2009 12:05:03 AM PDT by TigerLikesRooster
Merkel's inflationary fretting may wake the bears from hibernation
It is lonely in the diminishing camp of bears, says
Ambrose Evans-Pritchard.
Published: 10:11PM BST 06 Jun 2009
Comments 36 | Comment on this article
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
We learned then to thicken our skins with walnut juice, lie down in dark rooms, and dissent from Goldman Sachs. Such seclusion is called for once again as Goldman replays its BRIC anthem and raises its oil forecast to $85 a barrel this year, betting that the world will roar back on a tidal wave of liquidity
It is perhaps unkind to mention that Goldman issued a $200 call at the top of the speculative frenzy last year, just before oil crashed, but they have broad shoulders.
Note that Total's Jean-Jacques Mosconi said markets are awash with so much crude that almost 100m barrels (a near record) are stored on tankers at sea. Note too that May electricity use fell 10pc in China's industrial hub of Guangdong from a year earlier. This is revealing, given that China's fiscal boost has reached peak and will fade later this year.
(Excerpt) Read more at telegraph.co.uk ...
Well, so much for China's rebound. Chimerica is unraveling. Chimerica is breaking up into sick China and sick America, going separate way and could collide sometime in the future.
Ping!
bump
the bank losses are still there, its just being born by fed and tax payers now
the big thing in the USA is that the boomers have had their retirements ripped out from under them. the article is right that savings is now going to go up big time and for the foreseeable future in the USA —which means that the export economies of the east have got to retool. in fact the whole world has to retool and go in another direction.
the big question now is what that direction will be.
This kind of orientation is really messy. It is difficult to pull win-win in this climate.
what I don’t understand is why isn’t oil crashing through the floor . —with all the oil floating around on the high seas. one has to assume that high current oil prices will choke off any meaningful recovery in the fall. which means that sometime later in the year—oil will crash down through 40 again.
Cheap oil increases productivity which goes straight to the wealth of nations.
AEP says, "Goldman replays its BRIC anthem and raises its oil forecast to $85 a barrel this year, betting that the world will roar back on a tidal wave of liquidity. It is perhaps unkind to mention that Goldman issued a $200 call at the top of the speculative frenzy last year, just before oil crashed."
That means if Goldman has made a 33% upward forecast, look for oil to crash.
yitbos
Speculation. Lots of money is betting on a recovery (which is also why the stock market has been rallying). Whether that bet is a good one or not, remains to be seen.
Speculation in anticipation of dollar devaluation.
I confess I am at a loss. My inclinations are to believe that Obama is pitching us into inflation but I am concerned that I am permitting my politics to affect my judgment. In any event, I do not discount the worst of both possible worlds, stagflation.
Where are you on this?
Your planned increase in savings is going to go straight to Washington or your State House if the dems get their way with cap & trade, health care, car prices zooming due to CAFE, state fiscal catastrophes, etc., etc. Just when we get our kids out of college we’ll be slammed with $10k a year in additional government taxes and mandated costs. Where will the additional savings come from?
They are just reacting to events occurring at the market. No adverse movements at bond market and impending insolvency of major financial institutions allow them to pursue money-dumping policy. Now that bond sale is not doing well, they are having second thoughts to some degree. I think they want to dump more money if possible, however now they face realistic prospect of dollar collapse.
I still think that eventually there will be high inflation. Sooner or later they will have to spend further money to prop up financial institutions and dollar will tank badly. Given the choice, they will inflate rather than doing nothing and allow deflation to take hold. Now it is possible that it will happen at a later day than we expected.
Therefore, do we think that the Fed and the administration are cooperating or are they working at cross purposes? Does the Fed think it would be better to restrain spending to keep interest rates low? The Fed would then believe that lower interest rates will stimulate the economy better than spending especially of lower spending accommodates lower taxes. Or does the Fed believe that spending will stimulate the economy and they need not borrow so much? I find the latter proposition to be unpersuasive especially when one examines it from a timing point of view.
You say that the Fed is inclined towards choosing inflation over deflation if it is forced to choose, and I agree with you. Is Obama forcing it to choose? If the Fed is forced to go to the window to fund Obama's spending, is the Fed happy about it? Are Bernake and Obama on the same page?
Am I permitting the tail to wag the dog? Has Federal Reserve put so much money out that Obama's $4 trillion budget is not the significant mover?
When oil comes down, it's going to come down hard.
The credit mechanism is still broken. This is what happened in Japan in its Lost Decade.The ECB says the eurozone economy will contract until mid-2010, at best. Germany's trade association (Wirtschaftsverbände) warned Mrs Merkel last week that the credit drought threatens to become "life-threatening by the summer at the latest". * * *
Which goes to show all here on FR that the charts posted on my freeper page are accurate. They may happen to be far more accurate for the EU than the US. Why is that _______ ? Europe is farther down the road to socialist nirvana than we are. Obama wants to follow the yellow brick road to the imaginary land of Oz just like Europe.
Did you notice that Europeans voted against the Bilderberger script again? They voted more conservative. It is too late now: America is running wildly toward O(z) Heaven. Unlike the European Central Bank which warned Merkel -- Bernanke's fed is lying like crazy to everybody.
And demand is down gas iin california is now at $2.80 a gallon a lot more people using public transportation.
When a tsunami hits, first the water rushes out to see, revealing pretty shells, flopping fish, and the like.
The unwary rush down to the new shoreline, oblivious to the mountain of water which is descending upon them.
The prudent run like blazes for higher ground.
We will have relatively short term deflation: which will destroy the institutions primarily founded upon debt: which will disproportionately affect producers and much of the supply chain (since Congress in its infinite wisdom, has structured the tax laws to make financing with debt tax-advantaged over self-financing, or financing with equity). Once the suppliers have dried up, the excess quantity of liquidity ("quantitatitive easing") will make inflation hit with redoubled force: JUST when there is a lack of producers to create goods to soak up the dollars.
Therefore, prices of necessities will rise -- their demand curve is more inelastic. Prices of pleasures and luxury goods will fall -- they are discretionary, and demand is VERY price-sensitive, and they will be competing for a shrinking number of free consumer dollars left over after buying the necessities.
Put those together and you have a MASSIVE fall in the standard of living.
Which is what is necessary to replace the US middle class with a dependent class, which is necessary to take us down Hayek's Road to Serfdom.
Cheers!
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