Why ___ ? Because there is no "real economy" . . .
Posted on 02/12/2011 7:33:56 PM PST by sickoflibs
Well it's about time. The headline on Monday's CNBC article announces: "Investors Starting to Believe That Inflation Threat is Real."
For some time, I have been a proud member of the fuddy duddies who have been predicting the return of serious stagflation. Thus far, our prognostications have clearly been half-right — the "real economy" is indeed caught in a terrible rut, far worse than most of the Keynesian economists recognized even in late 2008.
However, on the (price) inflation front, things are not as clear-cut. Although asset prices and producer prices have surged in response to Bernanke's monetary pumping, retail consumer prices (at least as officially reported by the Bureau of Labor Statistics) have not been rising at alarming rates.
I am not the first economist to explain this apparent anomaly by reference to Wile E. Coyote: The serious inflation won't hit until everyone thinks it is going to hit. And although the "fundamentals" of serious price inflation have been in place since late 2008, we are seeing more and more signs that Bernanke's dam of obfuscation is starting to crack.
A Simple Picture Simplistic as it may seem, I still cannot shake the feeling that the below chart is all we really need to know that eventually, we will experience large price hikes:
Yes, yes, there are all sorts of sophisticated arguments for why there's nothing to see here, just keep moving along, the dollar will be fine. In particular, there are arguments about the demand for holding "base" money totally offsetting Bernanke's injections, and the huge increase in excess reserves means that the new money isn't "leaking out" into the broader economy.
However, when the serious price inflation comes — as I still believe it will — I think we will all look back at the above chart and be shocked that people were worried about deflation in 2008-2010. And there is precedent for this sort of thing; remember that in 2005 and 2006 plenty of really smart people (including Ben Bernanke) denied that there was a housing bubble[1]:
In Bernanke I Don't Trust
It is true that Bernanke could reverse course before things are too late, as far as the purchasing power of the dollar is concerned. But this would entail devastating pain to the banking sector, since the Fed would have to reverse the policies that bailed out the overleveraged titans in the first place. If Bernanke has to choose between saving rich bankers or the dollar, I am confident he will choose the former.
When Bernanke made his infamous appearance on 60 Minutes, most analysts understandably focused on his absurd claim that he wasn't printing money. But the thing that most alarmed me was this exchange (starting at about 7:20 in this video):
BERNANKE: There really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation at the appropriate time. …
Q: You have what degree of confidence in your ability to control this?
BERNANKE: A hundred percent.
Now that should be terrifying. Realistically, Bernanke shouldn't have 100 percent confidence that he can control his toaster. I mean, he might turn the dial up too high, or someone might spill water on it. It could happen.
By the same token, there are all sorts of scenarios where the natural "unwinding" of the Fed's extraordinary policies won't work as planned. In particular, if even official CPI inflation starts creeping above 4 and 5 percent on an annual basis, while unemployment remains above (say) 8 percent, then it will become apparent that Bernanke's "exit strategy" leads into a brick wall.
"Well, If the Fed Started Monetizing the Debt, Then I'd Worry About Inflation …" One of the more absurd stances rejecting the inflationist warnings comes from people who think Federal Reserve policy is completely divorced from the Treasury's fiscal position. Such naïve analysts think that Bernanke's decision to soak up more than one trillion in government debt had nothing to do with the massive deficits that the government has been and will continue to run.
Those pooh-poohing our current situation will concede that interwar Germany or modern Zimbabwe got into trouble all right, but those were situations where the central bank "monetized the debt." This supposedly stands in sharp contrast to the scientific monetary policies of the "independent" Federal Reserve.
To put these claims in context, note that in the 2nd quarter of 2009, the Fed's absorption of Treasury debt amounted to 48 percent of the new debt issued in that period. And ZeroHedge posted the following chart showing that the Fed is currently the world's largest single holder of Treasury securities, surpassing China:
Conclusion
No one knows the future for certain. But given the economic and political realities, I still remain confident that prices quoted in US dollars will continue to escalate, not only in commodities and certain asset classes, but eventually in most consumer goods. At some point it will be so obvious that not even Ben Bernanke will be able to deny it.
When will the breakout occur? Again, no one can know such things for sure, but there are growing signs that "the market" will soon recognize that Bernanke & Co. have painted us into a very tight corner.
If you realize both parties in Washington think that our money is theirs and you trust them to do the wrong thing, this list is for you.
If you think there is a Santa Claus who is going to get elected in Washington and cut your taxes, spend a few trillion and that will jump-start the economy, this list is not for you.
You can read past posts by clicking on : schifflist , I try to tag all relevant threads with the keyword : schifflist.
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The Austrian School’s Commandments plus :From : link
1) You cannot spend your way out of a recession
2) You cannot regulate the economy into oblivion and expect it to function
3) You cannot tax people and businesses to the point of near slavery and expect them to keep producing
4) You cannot create an abundance of money out of thin air without making all that paper worthless
5) The government cannot make up for rising unemployment by just hiring all the out of work people to be bureaucrats or send them unemployment checks forever
6) You cannot live beyond your means indefinitely
7) The economy must actually produce something others are willing to buy
8) Every government bureaucrat should keep the following motto in mind when attempting to influence the economy: “First, do no harm!”
9) Central bank-supported fractional reserve banking is an economically distorting, ethically questionable activity. In particular, no government should ever do anything to save any bank from the full consequences of a bank run, no matter what the short-term consequences.
10) Gold is God’s money.
Add mine:
1) Businesses don't hire workers just because of demand for products or services, they hire because it makes them money. Sorry to have to state the obvious.
2) Government spending without taxing is still redistribution
3) Taking one man's money and giving it to another is not a job.
4) Paul Krugman and Bernake have been wrong about everything, as well as the other best and brightest Keynesian's who have been fixing our economy for over a decade.
5) Republicans in the minority (esp out of the White House) act like Republicans, in the majority they act like Democrats .
“Bernanke 100% sure he can control inflation)”
While we all would just love to think that ONE PERSON could control inflation, it will be controlled or (in our case) NOT be controlled by policy, not a single person.
Even From would likely agree.
He should bet his life if he is so sure. I think the opposite, they are intentionally destroying our economy and lying about it.
Bernake must have an unlimited supply of incredibly powerful ‘shrooms.
That, and a wicked huge bong.
Apparently the Ben Bernank has a nice beard and is therefore qualified.
Whatever. We’ll buy less, and the libs still won’t get their payday. No revenues for you.
What do you mean we are out of money? We OWN the printing presses!
A beard like that means you're one of two things; either a college professor, or a child molester. He went with the former (we hope).
BS. He already knows it. This is all intentional. Hubris such as these people have is never tempered by reality.
Geithner came right out and said they could print their way out of anything.
There are no epiphanies forthcoming. We are so screwed.
Why ___ ? Because there is no "real economy" . . .
This just in — Ben has chartered 200 helicopters for next week.
Controlling it . . . i.e.
running it through the stratosphere as ordered to do by his puppet masters.
Keel haul em all for treason.
Looks like Bernanke has successfully beat deflation.
Heck, I pre-positioned for inflation back in November, 2008 under Bush. I’ve been doing quite nicely, and will stick with it until the interest rate curve hits its peak and the Fed tightens.
A little “Bank Sim” from 1983 can do wonders for working the sine curve of interest rates.
“A little “Bank Sim” from 1983 can do wonders for working the sine curve of interest rates.”
What does your model predict?
ben’s 100% sure he can control inflation? sounds great.
i guess i’ll move another 20% into gold on monday
not that i don’t trust him... i do. 100%.
i trust him to make the wrong call.
Helicopter Ben needs a dry shave and a swirly.
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