Posted on 09/20/2019 11:35:56 PM PDT by Yosemitest
Inevitable consequences of pretending debt is money...
0% is too difficult to hit. Their price measurements have a lag. Deflation is bad. It's easier to just try to target a low, positive number.
I see 5-6% annual inflation in what I buy
What are you buying?
Or do you think Jim W. is way off?
Yes, his imaginary calculations are way, way off.
Interesting. Why did the fire Simon Potter?
“OK, then the repo market is a bank has bond holdings and sells them short term for reserve cash then buys them back in 24 hours type thing? “
Yep.
“That I sorta get...but the N.Y. Fed has to get the cash to buy the bonds from somewhere, so sort-term QE I guess?”
The Fed creates a cash balance to exchange for the bonds. That cash then “disappears” when the Fed hands the bonds back to the banks. It’s converting illiquid bonds into liquid money for the life of the repo.
“Also, what is your opinion on the 2% inflation target shouldnt it be 0%/stable prices, or does that mess with the full employment mandate? “
IMO it comes from the full employment mandate- something that Congress has ordered the Fed to aim at. If we still had the gold standard I think they’d have to go for price stability.
“I see 5-6% annual inflation in what I buy when they shoot for a 2% core rate,”
In the view of Milton Friedman and the Quantity of Money school, inflation is a purely monetary phenomenon that will cause a rise in all prices, not just some prices.
Prices rise (and fall) for all sorts of reasons having nothing to do with the quantity of money, so the prices of familiar items isn’t always a reliable guide.
If we have another inflation like the 1970s you will spend your money on hard goods as fast as you get it. You’ll know there is inflation. Everyone will know.
“Or do you think Jim W. is way off?
I wouldn’t dismiss Williams. Interest rates aren’t including any inflation premium at all. So if he’s right on inflation it would pay to borrow long and pay off the loan in depreciated dollars.
What I am seeing:
Healthcare ave.yearly increase: 12%-18%
PG&E elect. & nat. gas: ave. 8% increase per year.
CA gasoline @ about $3.55/gal. (fluctuates between $2.25 & $4.25 over prior decades).
Restaurants/fast food observed about 5%-7% per year over the last 15 years.
Misc. “Home Goods” (appliances, small electrics, etc.) about 2-3% per year.
Groceries, pretty stable, maybe 1%-2% per year over the last 10 years.
Several of those may be “CA specific” due to crazy regs..
My personal “inflation index” is my Carl’s, Jr./Hardees index: Southwest Chicken Sandwich large combo w/fries-drink = $7.25 in 2007....same combo in the same city in 2019 = $12.50...~73% increase over 12 years equals about 6% inflation per year. My math may be suspect, but my perception/feelings is/are key! ;-)
“Inevitable consequences of pretending debt is money...”
During the National Bank Era from Lincoln until 1913, banks held Treasury paper (debt) as their reserves to back the money that they loaned.
Treating debt as money is about as old as banking itself. Pretty sure that Adam Smith was an advocate of the Real Bills doctrine, Real Bills being a name for short term commercial debt.
Thanks for that info..
So if/when the U.S. has negative rates, I should borrow dollars and buy gold and come out ahead on the loan?!?! Sounds like a good deal! ;-) The Fed needs to publish a white paper/.PDF/web page titled “Why the Fed is on the side of Main Street middle-class Americans”. I get the basic premise...(1920’s/30’s bank failures/bank runs, “regional” currency problems, etc.), but I have a problem when their “inflation target”/core inflation #’s don’t line up with middle-class wage increases over a long time period (i.e. wages are behind the curve).
“So if/when the U.S. has negative rates, I should borrow dollars and buy gold and come out ahead on the loan?!?! “
Your guess is as good as mine. Markets sometimes do the exact opposite of what appears to make sense to me.
I don’t think that negative interest rates filter down to the level of individual savers. I looked into that once and IIRC it’s aimed at huge balances.
Not fair!!! I should be able to borrow $$ at the rates “evil banks” get to!!! (So I can take it and lend it out at 5-12% interest in my “Lending Club” account {arbitrage}). That is why the “private bank owned Fed is ripping us off” argument comes about! They need a PR department.
That works out to a 4.7% increase per year.
And these short term repos are the Fed temporarily "printing" more dollars. Still not sure what you meant by "draw back in some of the worthless dollars"
Then later, when their story is that "we're in better shape economically", they raise interest rates to take back in, or remove from the economy,
Raising the Fed Funds rate doesn't reduce the Fed's balance sheet. Doesn't remove "printed dollars" from the economy. FYI, they just cut the Fed Funds rate on Tuesday.
Nope. Prove it.
The gold standard has its own problems. Nothing is perfect.
Like most people that have a hatred for the Fed you seem to hate things you THINK it does that are bad and miss all the valid reasons for hating the Fed.
I could go on about those, but in the end there isnt a better solution....though it does need to be audited annually. More transparency would be a good thing.
The last time we got a "needed collapse", we suffered through eight years of Obama's idiocy.
Yup. And Bernanke was determined not to repeat that mistake in 2008.
This time, the Fed's setting us up for a Depression that will last a lot longer than 10 years
How?
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