The Old Monster is Back

Popo, what your suggesting sounds right, but how much is the enormous uptick in money supply going to push inflation? Will it make it into the system before the present deflating homes and commodities? Does anyone have some timing models available?

The Fed is trying to adjust the economic-body temperature by putting the interest-head in the oven to raise the average total temperature, which is being driven lower by the housing-feet being in the icebox.

It’ll look like a comfortable average temperature,
but that’s what we get when academics run real
economies from a model in their ivory tower computer.

Maybe I’m missing something. Deflation just seems inevitable. So why chew up what little savings there is with inflation?

Given the gross mismanagement of our economy during the past decade – in both the public and private sectors – the only way out is to further debase our debt. That is the essence of the Fed’s game. To gradually, and stealthily, inflate our debt away. “Strong dollar”, “inflation control” etc are merely for public consumption. In today’s United States inflation is salvation.

BR off subject but I have to say it: how the hell can CNBC claim that Cramer was on-top of the bank and credit problems when we all know that he was pumping their stocks why too late in the game??? Why doesn’t someone call him and CNBC out on it?

They must be living in those castles in the clouds:

FED FEARS WAGE SPIRAL THAT IS LITTLE IN EVIDENCE

The surges this year in oil and food prices could not have come at a worse moment for the typical American worker, who has not had a raise to speak of in this decade. Workers’ leverage is gone. Companies are not creating jobs. Unions that negotiated big wage increases in the 1970s are shadows of their former selves. Cost-of-living adjustments, once commonplace, have disappeared. And the movement of jobs offshore, or the threat of it, has conditioned workers to not even ask for a raise, fearing they will join the millions already laid off.

Still, the Federal Reserve’s policy makers – its governors and the presidents of its regional banks – are convinced that wage pressures could emerge unexpectedly. That concern, and the idea that wage pressures could lead to yet higher prices and a rising inflation rate, showed up in half-a-dozen interviews with policy makers over the last week.

NYTIMES LINK

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I think we better start inflating real people’s wages in a hurry (lord knows the CEOs have been inflating their own pay for worse and worse performance for years!) so people can pay their mortgage payments or the banks are not just going to be holding bad paper, they are going to be owners of ghost towns…and we sure don’t want that to happen in an election year, do we?

They gotta inflate away the debt and SS.

Anyone got any thoughts on the revisionists out there who said “this time it’s different” in the oil market and now are saying “well we always knew it was a bubble”..?? I am thinking of a specific NYT economist.

Mainstream media is now reporting the big fall in crude oil futures….down $27 – this despite KRUGMAN stating there was NO SPECULATION in the market. He is a bright guy but sometimes he can be a complete tool for no obvious reason.

Unfortunately by the law of MSM contrarian indicators, this means we will see a rebound in oil in the next few days. Surely the $ strengthening (based on Fed “tightening”/jawboning) is done unless ECB eases, which I do not think will happen.

Oil will continue to decline into next year due to demand destruction but it will fluctuate, and TA suggests we are due for a bounce ….. but the peak is in for this cycle, IMO.

Another idea..The US goes to a Fed similar to Europe with single mandate.

“No wage pressure = no inflation spiral.”

Not to be insulting, but I swear some people need to go back to school. Where did this BS get started about no wage pressure = no inflation spiral.

It is called a REDUCTION in the standard of living. What do people think . . . we’re going to have inflation so we can keep living the same lifestyle??

My goodness . . . 1970 american’s spent around 14% of their income on food, it is somewhere around 7% today. Meaning food prices could easily DOUBLE without any meaningful wage increases.

Inflation is ALL about the money supply, it has NOTHING to do with wages. Wages do not come into play with inflation! There is NO SUCH THING as wage price spiral! They are the result rather than the cause of inflation.

If Zimbabwe stopped printing money cold turkey, things would stabilize REAL quick, real fast.

The Fed is pushing on a string. They are seriously concerned about the massive credit destruction in banking/housing. So they are trying to keep rates low and keep banks borrowing to offset the destruction. The problem is all the new money being created to take place of the old money is not going to the same location as the old money. It’s going into commodities. While oil is above the so-called inflation adjusted highs, the vast majority of commodities are not.

So in the end, the Fed is trying to re-inflate, without inflating, and that is a lost cause.

They run the real risk that if they open the spigots too much, they will lose control, and if they don’t open it enough many of their banking buddies go belly-up.

>>it’s a blueprint for what they are doing today.

It’s theory, not a blue print. After reading Pimco’s Mc-furball’s (gag) article on the “paradox of deleveraging/thrift” and the presumption that the Government should dilute the money supply backstopping the consumer in deflationary cycles, this is ludicrous aiding and abbeting of government sanctioned theft, followed by more theft, rape of your dollars purchase power via dilution. This is not economic management just plain old fascist fiat wealth redistribution. One can not inflate away debt if the holder of said debt receives only consumables inflation, followed by wage deflation or worse under/un employment

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/07/28/the-paradox-of-deleveraging.aspx

>>If Zimbabwe stopped printing money cold turkey, things would stabilize REAL quick, real fast.

Exactly the printers would actually have to produce something of real value in order to eat, other than “paper”. Our debt-note/credit expansion is in reverse we may not have been printing as much currency as in the Zimbabwe example but the “worthless contract” paper generation, previously fully convertible to the former debt-notes can’t be significantly behind and the previous holders of that paper have already cashed out for real tangible hoarding of productive assets making everything that much more expensive for those late to the party.

> Your “wage-price cycle” will occur when corporations pass on expenses which have increased to consumers.

Not this time. This time, corporations will eventually be forced to raise prices on a consumer with flat wages,
which will cause consumers to reduce their shopping
list to keep it under budget.

Unless we go to montly stimulus checks, which would probably finally cause our lender/currency-peggers to flee…

One of these days it will be refreshing to hear someone in the MSM comment that oil prices do not cause inflation. Someday. Poor ole Milton.

RE: Bill Gross comments below. No kidding…… They actually stressed alot of the economic slowdown today in their comments, acknowledging much of the obvious. Credit is being destroyed, obliterated. In this environment they dare not restrict it further, else GD2 on its way. Not a chance in hell they risk that, especially before an upcoming election or anytime shortly after unless Ben wants to set a landspeed record for getting his butt canned by the new guy, whomever that may be. C’mon folks, lets get real here. We all know what would happen to home affordability if they raised rates and what the repercussions would be when we’re facing tsunami of other credit woes in Alt-A, prime, CC, HELOCS, Auto, student loans….etc etc etc.. Raise rates, go for it. Our Grandkids’s grandkids would be still paying for it. Sometimes I wonder how some of these talking heads make it to TV. They must know somebody.

CNBC
Gross: Fed Can’t Raise Rates
Tuesday August 5, 3:57 pm ET

The Federal Reserve’s decision to hold the line on interest rates was the only move the central bank could make considering the state of the US economy, PIMCO chief Bill Gross said on CNBC.
Reacting to the Fed’s move to hold its key interest rate at 2 percent, Gross called talk of rate hikes “comical.”

“We’re in a recession. When has the Fed ever raised rates in a recession?” he said. “Unemployment is headed toward 6 percent, mortgage rates on home buyers are at 7 percent, and these guys want to raise rates?”

Gross said the central bank has a responsibility now to provide liquidity.

“We’re in an asset deflation of near-historic proportions. That calls for the use of the government’s balance sheet and not for the Federal Reserve to raise interest rates,” he said. “To the extent that the central banks now must prevent that deflation, interest rates don’t go up, they go down.”

However, Gross said the Fed cannot lower its key rate, but rather he called on central banks across the world to examine their monetary policy.

“In the US, 2 percent is pretty much the floor. I think the Fed made that clear,” he said. “They’re going to provide liquidity in different forms and fashions.”

As for investments at this point in the market, Gross advised against junk bonds and toward government-backed securities.

“We want to stay under the umbrella to the extent that we have an umbrella that shelters large banks and to the extent that we have an umbrella that shelters the agencies, Fannie (NYSE:FNM – News) and Freddie (NYSE:FRE – News), that’s where you want to be,” he said. “Why mess with junk bonds? Let’s stick to high quality and stay under that umbrella. Let’s stay dry.”

Yupp, seven year itch, what goes around comes around, Go Go Greenspanzilla, it’s those hey, hey ______.con pre-’00 bubble mania days all over again! Shall we play healthcare.con this time? Everyone needs a doctor sooner or later.