Posted on 04/27/2011 4:41:36 PM PDT by blam
Can We Give The Hyperinflation Thing A Rest?
Economics / HyperInflation
Apr 27, 2011 - 06:20 AM
By: Mike Whitney
The Federal Reserve is not going to push the economy into Zimbabwean hyperinflation. That's pure bunkum. The Fed's plan is to weaken the dollar to boost exports and to force China to let its currency appreciate to its fair-market value. The policy should help to lower the US's bulging current account deficit. By purchasing $600 billion in US Treasuries (QE2), the Fed effectively reduces the supply of risk-free assets, which sends investors into riskier assets like stocks and commodities. Is there an element of class warfare in the policy?
You bet, there is. It's a direct subsidy to the investment class while workers are left to face higher prices on everything from gasoline to corn flakes. It's a royal screwjob. But while Ben Bernanke may be a prevaricating class warrior and a charlatan, he's not insane. He's not going to print the country into Wiemar-type oblivion or shower the nation with increasingly-worthless greenbacks like they were confetti. Even so, that's the kind of blabber that one reads on the Internet every day. It's just baseless scaremongering from people who don't know what they're talking about.
Inflation is NOT the problem. We're in the middle of a Depression. And, yet, every day more and more ominous-sounding articles pop up warning of "The End of America" or "Gold to Soar to $10,000 per ounce" or some other such nonsense. It's ridiculous. Gloom and Doom has become a cottage industry employing a thriving class of worrywarts who all preach from the very same songbook. It's always some portentous bulletin about the machinations of the "bank cabal" conspiring to enslave the populous by "debasing" the currency. Good grief.
Memo to Inflationists: The economy is dead. Not moving. Not breathing. Dead. Yes, the Fed can tie QE strings around the hands and feet and make them move like a marionette, but it's all make-believe. Without the props and the support-system, the economy would drop to its knees, gasp for air, and expire. Dead.
Have you noticed that 1st Quarter GDP has been revised-down to 2 percent and could be headed lower still? (Maybe even negative!) Have you noticed that unemployment is stuck at 8.8 percent and underemployment at 16.2 percent with more people falling off the rolls and into abject poverty every day? Did you see that manufacturing is starting to slip and "the production index, a key measure of state manufacturing conditions, fell from 24 to 8, indicating slower growth in output." Do you realize that the downturn in housing is getting more ferocious even after falling steadily for 5 years straight? Have you considered the fact that the government and Fed have pumped trillions of dollars of monetary and fiscal stimulus into the financial system with just about nothing to show for it? And, do you know why? Because we're in a Depression and the economy is pushing up daisies, that's why.
It's ridiculous to wail about "money supply" when velocity is zilch. It's pointless to crybaby over "bank reserves" when people are broke. It's crazy to yelp about "printing presses" when lending is down, credit is contracting and the economy is mired in the most vicious slump in 80 years. We're in a liquidity trap where normal monetary policy doesn't work. This is old territory, Keynes figured it out more than 60 years ago. But because Bernanke is so much smarter than Keynes, we get to relearn it all over again. Now that QE2 is ending, the verdict is in. And what have we learned? That monetary policy doesn't work in a liquidity trap. What a revelation!
All the hullabaloo about inflation is just plain kooky.
China's not going to dump its $3 trillion stockpile of mainly USD and US Treasuries. Who started that cockamamie story? China's doing everything it can just to keep its currency cheap just so to keep its people working. Are they suddenly going to do an about-face and commit economic harikari just to strike a blow against Uncle Sam? Get real.
And, now the gloomsters are worried that no one will buy Treasuries when QE2 ends in June. Sheesh. We just leapfrog from one paranoid fantasy to the next. Here's a blurp from the Wall Street Journal that explains what's likely to happen in June:
"The direction of interest rates after the Fed ends its bond-buying program is crucial for the economy. The issue will be in sharp focus this week, when Fed policy makers hold a two-day policy meeting, starting Tuesday, to discuss their efforts to steer the economy between the shoals of recession and inflation.
They face an economy that has shown signs of losing momentum in recent months, with first-quarter economic growth now widely believed to be less than 2% annualized....
One yardstick for the immediate future of Treasury yields after QE2 could be QE1, which included a $1.25 trillion Fed buying spree of mortgage bonds from late 2008 to March 2010. The mortgage-bond market felt barely a ripple when the Fed stopped buying. Treasurys, some observers reason, may follow the same path.
Treasury yields "moved up significantly at the onset of QE1 but then fell precipitously when it ended," Mr. Rieder says. "So it's not a given that Treasury yields will rise this time either." ("Fund Giants Take Competing Stands On US Bond Outlook", Wall Street Journal)
True, that doesn't guarantee that yields won't rise when QE2 ends, but how high can they go when the economy is still stuck in the mud?
Not very high. And, who's going to buy the Treasuries? The same people who always buy them when the economy starts to crater; investors looking for a "safe harbor" from deflation. Don't worry, there will be buyers. It's just a matter of price.
So, forget about inflation. It just diverts attention from the real issue, which is finding a way to dig out of the mess we're in and put people back to work. QE2 has been a total flop; we know that now. It's time to return to traditional fiscal policies that have a proven track record of success.
And, most of all, it's time to stop scaremongering about hyperinflation. For good or bad, the dollar's going to be with us for a while longer. Deal with it.
Will someone kindly tell me what are 'traditional fiscal policies'?
I wish I could but I keep getting reminded of it every time I buy stuff.
I posted this earlier on the above thread:
"I went to Lowe's today. (Lowe's is like Home Depot) As I walked into the garden section from outside, I looked down and there is a (1) tomato plant in a one gallon black plastic pot, nice looking plant, about nine inches high, with blooms and 2-3 small tomatoes on it."
Price each - $12.99.
One tomato plant!!
...something Odumbo fails to mention when he praises China...
http://www.sbs.com.au/dateline/story/watch/id/601007/n/China-s-Ghost-Cities
$12.99?
Just think, under hyperinflation that plant would go from $12.99 to $129.99 in two days.
By the time my soggy state dries out enough to plant, it’ll be July.
Seriously though, I’m going to attempt a small garden this year in spite of my black thumb. Our little acreage used to be pasture many years ago, so hopefully its been fallow long enough to grow something.
You want to shed tears in the produce aisle, and it’s not from the onions.
I was speaking to someone who works in the restaurant the other day, and he said the price of tomatoes has increased fourfold. I think this is more so something that specifically has to do with tomatoes and not necessarily inflation happening here. I know Wendy’s started requiring you to request tomatoes on your burgers a couple of months ago because of a problem with the crops. Otherwise, they just wouldn’t put them on there because they were few and far between and of bad quality.
Good luck. I already have tomatoes as big as silver dollars on my plants.
***in the restaurant business***
Now that you mention it...I think I read that it’s related to freezes in Florida (and Mexico) this year.
Amen
He’s right about what the Fed’s trying to do with the slow ride down, but there is inflation. We don’t have enough manufacturing. East Asia (China and others) is increasing manufacturing for quite a few years now.
As manufacturing in East Asia and other places increases, those countries use more oil and fuel. Right now, American businesses are increasing exports of fuel. That’s right—gasoline and the like. So US refineries know that they can pay more for more oil.
Also, increasing manufacturing in those “developing” countries means more consumer demand, pushing costs of their products up. So we’ll pay more for those products, and our dollar is adjusting down internationally. It’s a correction against globablism.
Big American agriculture companies are exporting more foods, so you see inflation in those. See?
So contrary to the special interest propagandists for about four years now, oil is going up. The dollar continues to fall. Without enough sustainable revenues (manufacturing instead of foreign debt), government at all levels will default.
What led us here? Well, there were employers campaigns to hire women instead of men. I have proof of that (briefs filed by Fortune 500s in favor of affirmative action), and many of you have anecdotes of employers who preferred women instead of men.
There have been assumptions by superior folks that our population is getting out of hand (fear of redneck goons being in public without style, etc.) along with the preference for more submissive foreigners (pride, sadism, etc.).
This is a depression brought on by political correctness (social pathologies), in part. One such pathology is that of romantic feelings for foreign cultures—even communist ones. Another is the general societal scoff against morality (loyalty to G-d, family and country).
Do you see what the debt regime is supporting? ...bad and temporary support at that.
Hopefully, those clues will help others to see through the bipartisan propaganda. Get yourselves ready. Avoid buying anything that you don’t need (generates revenues for the rotten). Save things that you’ll need. Learn to grow, rebuild and manufacture what you need.
Enjoy the ride. If our federal leaders do a good job of making it a slow ride, the decline will be slow. Well, mostly. But they won’t easily let go of the debt regime and won’t repudiate, until there’s nothing left.
Think of the interesting times that we’re entering as an adventure. Try to emulate the best of Americans past.
****Inflation is NOT the problem. ***
So why is it that Levis which used to cost $2.60 now cost $35.00?
Why does a 3 cent stamp now cost over 44 cents?
Why does a penny post card now cost 29 cents to mail?
Why does a $1500 pick up truck now cost $35,000?
Why does a 10 cent coke now cost $1.59?
No, there is no inflation!
Sarc/off
Those trillions in deficit "stimulus" spent will do wonders for the economy too.
While he makes some valid points, he isn’t thinking clearly in regards to China’s leadership’s desire to keep their population employed.
China has a clear path to buy more raw materials direct from producers in transactions not denominated in US Dollars. Alternatively, China can buy as much raw materials as they can using as many of their US Dollars as they please, offloading their US currency risk on to the seller of the raw materials.
Foreign printed confetti has little value in the mercantilist trade policies China has endeavoured upon in the developing and emerging markets.
Today, FNC reported that the cost of beef, pork, chicken, eggs, etc. went up 7.8% last month. At that rate, they will be more than double what they are now by this time next year.
Now, I doubt that this will happen, but I feel confident that by this time next year, I will be sorely wishing I could buy a good rack of spare ribs for $2.29/lb (current price for a decent rack). I guess I'll be paying in the range of $3+, close to $4, per pound.
If that isn't real inflation, then what is?
The only thing going up is commodities because of the devalued dollar. The economy is dead as a doornail and in depression. without Social Security, Welfare and Unemployment Ins. It would already be like the 30’s.
Keeping inflation at 2% to 3 % a year to devalue the dollar to pay down the debt
...or in other words: slowly screw the USA taxpayer every year until Congress can spend like drunken whores on crack again
Hysteria \Hys*te"ri*a\, n. [NL.: cf. F. hyst['e]rie. See
Hysteric.] (Med.)
A nervous affection, occurring almost exclusively in women,
in which the emotional and reflex excitability is
exaggerated, and the will power correspondingly diminished,
so that the patient loses control over the emotions, becomes
the victim of imaginary sensations, and often falls into
paroxism or fits.
[1913 Webster]
Note: The chief symptoms are convulsive, tossing movements of
the limbs and head, uncontrollable crying and laughing,
and a choking sensation as if a ball were lodged in the
throat. The affection presents the most varied
symptoms, often simulating those of the gravest
diseases, but generally curable by mental treatment
alone. Hysteric
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