Goldman Sees "Disturbing Signs" If Government Does Not ....Reflate Monetary And Fiscal Bubbles

Zero Hedge ^ | 07/06/10 | Tyler Durden

[TigerLikesRooster]

Goldman Sees "Disturbing Signs" If Government Does Not Bow Down To Krugman, Reflate Monetary And Fiscal Bubbles

Submitted by Tyler Durden on 07/06/2010 19:09 -0500

Last week, Goldman, in a piece unambiguously titled The Second Half Slowdown has Begun, made it all too clear that unless the US government were to succumb to yet another, and another, and another round of drunken sailor spending, the gratuitous ability of its sellside analyst to place crap companies on Conviction Buy lists may suddenly become mysteriously impaired as reality seeps through the gaps, thereby infuriating CEOs of worthless and overlevered widget makers, who know all too well their corporate earnings are about to be taxed through the nose by the Obama crack economic team, as their stock is about to plunge. Today, just in case the threat may have been missed by the cheap seats the first time around, here comes Jan Hatzius with the ominously titled "Disturbing Signs" which reads like Paul Krugman's induction essay into the Useless Economists' Society.

[TigerLikesRooster]

P!

[silverleaf]

Tyler Durden is the MAN!

[Leisler]

Goldman wants working class, middle, professionals, small and mid size business and generation in the future, and savers to take on inflation and debt to have the Treasury funnel cash they can cleave off their 20 percent ‘handling fee’?

[Lazamataz]

Goldman Sachs is a Continuing Criminal Enterprise.

[NeoCaveman]

Goldman Sachs is a Continuing Criminal Enterprise.

Yes, they are.

[Kartographer]

No won't happen, nothing to see here, no worries. The ‘One’ has everything well in hand and happy days are just around the corner. Did you see that story about Lindsay Lohan getting 90 days? Is American Idol on tonight?

[CPT Clay]

I dont buy into the deflation argument.

[Da Coyote]

Goldman can shove it up their Obama.

[Wolfie]

“Disturbing Signs”? What? No million dollar bonuses this year?

[TigerLikesRooster]

Oh, no, that’s a hate speech. /s

[A Strict Constructionist]

“Goldman Sachs is a Continuing Criminal Enterprise.”

I consider them the modern day Visigoths.

[org.whodat]

Goldman is worried about someone else shaking down the tax payer besides them.

[TigerLikesRooster]

Well, you are defaming Visgoths.:-) At least, they were not cowards. As for Vampire Squids....

[Wyatt's Torch]

I agree with GS on the monetary side as we are far more at risk for deflation than inflation but disagree vehemently with the fiscal side.

On the monetary side, this is from John Mauldin:

Money Supply Concerns

After the explosion in the money supply by the Fed in the depths of the Great Recession, growth in the money supply has gone flat. We recently looked at the fact that M-3 (the broadest measure of money supply) has turned negative for the first time in many decades. Look at the adjusted monetary base, below.

And now let's look at MZM, or Money of Zero Maturity. MZM is a measure of the liquid money supply within an economy. MZM represents all money in M2, less the time deposits, plus all money market funds. MZM has become one of the preferred measures of money supply because it better represents money readily available for spending and consumption. This measurement derives its name from its mixture of all the liquid and zero-maturity money found within the "three M's" (Investopedia). Notice that it too has gone flat, for over a year now.

These charts suggest that deflation is in the wind.

[catnipman]

All this means is that Goldman bet on Obama continuing to spend like a drunken sailor and Goldman stands to lose boatloads of money on these bets if the drunken spending doesn’t continue. Means nothing more and nothing less than that.

I don’t know why people even listen to Goldman anymore. I for sure don’t know why anyone trades with them, since Goldman’s sold objective in a trade is to f**k the other guy, which they are very, very good at.

[LomanBill]

Is being told to eat their own A$$Paper a disturbing sign for the Golden Sack boys?

 

Complete document here.

 

Bon Appetit, Sachs of...???... hmmm, well Sachs of whatever you're full of when you're forced to eat your own A$$Paper.

 

 

[reed13]

I am convinced that we are seeing a bifurcated situation. Consumables are inflating and hard assets and real estate are deflating. I think this is due to two things.

People have to eat and they are not going to resteraunts, as they either can’t due to their situation (unemployment, reduced ot, etc) or they are fearing the worst and cutting their spending where it will do as much good as possible. This creates additional demand for basic goods causing a corresponding increase in price.

A corrolary can be made for the banks and business who are sitting on wads of cash to either deal with their fiscal situation (housing collapse, drop in demand, etc) or fortifying against the worst (upcoming tax increase, continued economic malaise, sovereign defaults, etc). However, THIS reduces demand for the goods they would normally buy and this is resulting in a decrease in price (houses, capital equipment, vehicles, etc).

Now most of the pricing decrease was avoided by reducing capacity through OT reduction, layoffs, older factory closures, inventory reduction. However, as the demand continues to remain flat, they are going after market share in order to generate some form of growth. The best way to pursue that is through a price reduction. And don’t forget that companies are continuing to go after productivity to reduce cost as well, providing additional opportunity for cost reductions.

Thus we end up with base goods rising in price as “more” money chases an equal amount of goods, and capital and real estate falling in price as “less” money chases an equal (real estate) or even in some cases fewer (idled factories) of goods. Resulting in a bifurcated market based on supply/demand.

The argument for inflation across the board is a valid argument - provided those with the cash were actually using it to obtain some good or service. But they aren’t they are hoarding wads of cash in the banks and company reserves in order to either wait out the situation or resolve balance sheet issues over time.

Deflation is viable across the board, except when you consider base goods and the emperical data (one reason many of those items aren’t in the inflation models). The stuff that cities need to survive will still be required to survive and as long as the demand is there the prices will follow.

Personally, I am leaning toward macroeconomic deflation at this point because no one wants to be the first in the game to put their neck out. There is no incentive for anyone to take the risk. If the govt issue a ton more $ what are they going to spend it on - more roads? That won’t inflate anything. The banks still won’t have incentive to loan as they still need to cleanup their books (something no one will force) and there is another round of foreclosures coming to drive them to keep the funds. Companies have no incentive is they are going to be hit with addl regulation and taxes. So where would the increase demand come from?

Do they want to inflate - oh yeah - are they pretty much stuck in a corner - I think so. I still see things inflating on a microeconomic/base goods standpoint at the grocer...because that demand isn’t going anywhere. At the macro level I just don’t see demand coming from anywhere.

[Wyatt's Torch]

Personally, I am leaning toward macroeconomic deflation at this point because no one wants to be the first in the game to put their neck out. There is no incentive for anyone to take the risk.

Agree and you see it in the velocity charts. Money is being hoarded in the system and is not being spent.

[4Liberty]