Armed Polite Society
Main Forums => Politics => Topic started by: brimic on September 13, 2012, 02:45:18 PM
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In an unprecedented and controversial move the Federal Reserve today announced the initiation of an open-ended round of Quantitative Easing (QE3) and extended the period for which it will keep rates between 0 and 1/4% to mid-2015.
Translating from Fed-Speak the purchase of mortgage-backed securities is Quantitative Easing. Unlike QE1 and QE2, no dollar amount or time-limit was placed on the program. The Fed essentially announced that it will be purchasing $40 billion in MBS per month until further notice.
This is a monster, huge, gargantuan change from prior operations. QE1 "cost" $1.7 trillion. QE2 was half a trillion, give or take. The new plan isn't really QE3 because it's never scheduled to end. It is an entirely different, frightening animal.
http://finance.yahoo.com/blogs/breakout/bernanke-goes-means-180402117.html;_ylt=At7BdWUKBPtzsScxSFhkG6uiuYdG;_ylu=X3oDMTQzcWJsaGc4BG1pdANGaW5hbmNlIEZQIEp1bWJvdHJvbiBMaXRlBHBrZwNiOWNlNjE0Mi05MDY2LTMzYmYtOTQxOC01NTdiZjcwYzVkNzgEcG9zAzEEc2VjA2p1bWJvdHJvbgR2ZXIDMzc3YmRmNTAtZmRkMi0xMWUxLWJmNzctZDY3Y2NhNmNkMjUx;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3
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Bernanke speaks, and:
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fwww.kitco.com%2Fimages%2Flive%2Fsilver.gif&hash=d20199cfa787721e8d96b8d7e63decb6209f7e38)
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fwww.kitco.com%2Fimages%2Flive%2Fgold.gif&hash=f8b7abb4f8ccef0cba660abc0551ee776ca726e2)
(These are live gifs, so they'll change as this post ages... but basically he opens his mouth and silver and gold go up 5% immediately.)
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Yes, but he opened his mouth in a big way this time- there might be no end to this QE.
:facepalm:
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http://acrossthestreetnet.wordpress.com/2012/08/31/gold-is-a-barbeque-relish/
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The markets are up; but that doesn't mean what you think it means. Investors are not betting on stocks, they are betting against the dollar.
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The markets are up; but that doesn't mean what you think it means. Investors are not betting on stocks, they are betting against the dollar.
Ayup. I see a lot of talk about mining stocks.
Yeah, they're stocks... but they're people that pull PM's out of the ground. ;)
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Dump, Dump, Dump yer dollers while ya can... :laugh:
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Dump, Dump, Dump yer dollers quickly while ya can... :laugh:
Easing, easing, easing, easing, Bernanke's got a plan!
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It's time to do as Olivia Newton-John said:
Let's get physical, physical
I wanna get physical
Let's get into physical
Seriously, anyone holding any form of savings in dollars is going to get fleeced....FLEECED.
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fwww.therichest.org%2Fcelebnetworth%2Fwp-content%2Fuploads%2F2011%2F06%2FBen-Bernanke.jpg&hash=f5bb03ee7499b174337c5b900f42f2b8bed05516)
"I dunno where all the wealth went!"
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I used to trade silver a lot, but I never saw a price move like that. The value of just one contract jumped $6550 from yesterday's close.
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Silver and gold are pretty out of reach for me. I'm putting it all in brass, copper, and lead.
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It will be real interesting to see how the Chinese react.
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Awesome...not
I'd like to think, hey, I made a grand in like 5 minutes, when in fact, I didn't, just the dollar got that much weaker. Stupid fed.
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Silver and gold are pretty out of reach for me. I'm putting it all in brass, copper, and lead.
Nice
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Come on fixed rate mortgage, I can pay it off with cheap money later when they print themselves out of this lil mess.
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Come on fixed rate mortgage, I can pay it off with cheap money later when they print themselves out of this lil mess.
But a burger will cost $20 and gas will be $15 a gallon.
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But a burger will cost $20 and gas will be $15 a gallon.
...and that will only be the beginning...
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You know what... eff 'em.
I'm refinancing my house.
I'm happy with my 5.45% right now, but I can evidently get as low as 3.375%. A couple of friends of mine just did. And if I want to go to a 20 or 15 year instead of a 30, I can get into the high 2's.
They're paying ME to stay in my house at that rate. That's less than inflation by anybody's numbers.
I'll take all those savings (cutting my interest nearly in half will save me about $300 or so a month) and buy PM's with it and laugh all the way to the crash.
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I'm happy with my 5.45% right now, but I can evidently get as low as 3.375%. A couple of friends of mine just did. And if I want to go to a 20 or 15 year instead of a 30, I can get into the high 2's.
They're paying ME to stay in my house at that rate. That's less than inflation by anybody's numbers.
You know the next step is to adjust the principal on home loans and student loans? Basically, index them against the value of hyperinflated dollars. We have to protect the banks (and screw you)
I can't tell if the Fed and Obama are in cahoots here, or if the Bernanke is doing this on his own and Obama is just a useful idiot. But somebody is trying to destroy all the private wealth in this country, except maybe for the top small fraction who are both very rich and politically connected.
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You know the next step is to adjust the principal on home loans and student loans? Basically, index them against the value of hyperinflated dollars. We have to protect the banks (and screw you)
I've got a binding contract that says I owe $XXX,YYY dollars over ZZZ months of payment.
They "reindex" I'm gonna let them take the house instead. I don't have that much equity that it'll be worth it, versus the freedom of not having obligations while also having a small mountain of precious metals. I'll take my PM's and flat-out buy some land somewhere else. Or not. Maybe I'll buy a boat and escape to the Caribbean with a hot sport biker chick instead. =D
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I'm happy with my 5.45% right now, but I can evidently get as low as 3.375%. A couple of friends of mine just did. And if I want to go to a 20 or 15 year instead of a 30, I can get into the high 2's.
Run the math, you might be surprised at what you can save.
We just recently refi'd down about a percentage point which saves about $26,000 in interest.
It also means that we will have it paid off in 10 years instead of another 12.
Our monthly payments only went up by $20.
you could buy a lot of cool toys gold with that kind of money.
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You know the next step is to adjust the principal on home loans and student loans? Basically, index them against the value of hyperinflated dollars. We have to protect the banks (and screw you)
Can they do that?
I can see a lot of 'killdozer' episodes happening very frequently around the country if this came to pass.
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Can they do that?
I can see a lot of 'killdozer' episodes happening very frequently around the country if this came to pass.
Can they cancel bond obligations of a bankrupt corporation, and then hand assets over to Unions instead, in flagrant violation of all bankruptcy law and precedent prior?
Can they ban private ownership of precious metals?
Can they ban alcohol production and consumption and trade?
Sure. If you let them, and you play by their rules.
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I can't tell if the Fed and Obama are in cahoots here, or if the Bernanke is doing this on his own and Obama is just a useful idiot. But somebody is trying to destroy all the private wealth in this country, except maybe for the top small fraction who are both very rich and politically connected.
There is absolutely no doubt about this.
My hope is that enough middle class people wake up to this reality and prepare for it so they aren't taken off guard by it.
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Can they cancel bond obligations of a bankrupt corporation, and then hand assets over to Unions instead, in flagrant violation of all bankruptcy law and precedent prior?
Can they ban private ownership of precious metals?
Can they ban alcohol production and consumption and trade?
Good points, all of them.
Sure. If you let them, and you play by their rules.
I don't think we will have the choice- "he who holds the gold makes the rules" and all that...
OTOH, the powerful and connected aren't going to have much of an existance if a lot of formerly middle class serfs are headhunting.
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Hold your own gold and make your own rules.
Once I hit my goal for silver possession, I'm going to shift gears to gold. Start with 2.5gram and 5 gram bars (less than 1/10th and 1/6th of an ounce respectively) and work up from there. Or maybe start trading silver for gold when the ratio's in my favor and I can work a deal rather than buying with greenbacks. It's so stinking expensive!
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If you let them, and you play by their rules.
Since there is no tomorrow, I'm not going to play by their rules anymore ;)
:lol:
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Hold your own gold and make your own rules.
Once I hit my goal for silver possession, I'm going to shift gears to gold. Start with 2.5gram and 5 gram bars (less than 1/10th and 1/6th of an ounce respectively) and work up from there. Or maybe start trading silver for gold when the ratio's in my favor and I can work a deal rather than buying with greenbacks. It's so stinking expensive!
Coins vs. bars IMHO becaue the coins are more easily verified for trade without assay.
I'll likely stick to physical silver. As gold climbs more, silver will become more popular. Not sure I have a goal, just gonna keep aquiring it when I can.
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Coins vs. bars IMHO becaue the coins are more easily verified for trade without assay.
I'll likely stick to physical silver. As gold climbs more, silver will become more popular. Not sure I have a goal, just gonna keep aquiring it when I can.
The 2.5gram and 5 gram bars have assay stamps from reputable mints and are individually serial numbered. Not worried about that.
Once you hit a certain weight threshold and want to be able to transport that representation of wealth, it's easier to do with gold than silver.
My goal for that threshold right now is about 200 ounces, or 12-15 pounds of silver. Troy ounces aren't the same as conventional weight ounces, so not sure exactly. I think a troy ounce is heavier than a regular ounce.
200 ounces right now represents about $6500-$7000 in wealth. Not a lot, but enough to transplant a family somewhere else far away and put a roof over your head for a month or so while you get your bearings and try to find a new life.
If you want to transport the equivalent of $25,000 right now, gold is far easier on the back.
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Coins vs. bars IMHO becaue the coins are more easily verified for trade without assay.
I'll likely stick to physical silver. As gold climbs more, silver will become more popular. Not sure I have a goal, just gonna keep aquiring it when I can.
As someone else already said, I'm stockpiling lead and brass. I also have a couple of pounds of antique Sterling silver flatware (1890's) that I've been putting off getting appraised. I might just hang onto it.
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Awesome...not
I'd like to think, hey, I made a grand in like 5 minutes, when in fact, I didn't, just the dollar got that much weaker. Stupid fed.
This.
Why scrimp and save and play by the rules when they change the rules so often to hose those that played by the previous set of rules?
If this were a Republican administration, we'd hear all about how the elderly & retired were getting shafted by minuscule rates of return on their investments and inflation eating their principle.
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For purposes of estimating weight, a Troy oz is about 1.1x an avoirdupois ounce.
(a Troy oz is 480grains, an avoirdupois pound is 7000)
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Why scrimp and save and play by the rules when they change the rules so often to hose those that played by the previous set of rules?
^^YES^^
Its a game of suck and blow.
The game makers change X to make Y attractive to suck in 'investors', then sell off Y to grab as much wealth as possible. The lemmings follow the sell off, and the game makers buy it back at a lower price.
Right now X = money supply and Y = gold.
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I'll take my PM's and flat-out buy some land somewhere else.
Do you really think that land will even be obtainable (for a cost) in some sort of hyperinflation? Especially if you are thinking about self sufficiency on it.
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On the one hand my 401K took a serious jump.
On the other hand what I'll be able to buy with that money just went to crap.
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And the Fed is buying Mortgage Backed Securities.
Rentenmark (http://en.wikipedia.org/wiki/Rentenmark) anyone?
FYI = 1 Rentenmark = 1,000,000,000 Papiermark
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Spend it while it's worth something.
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Spend it while it's worth something.
I need a time machine then, heck I'd just got back to the late 1990's.
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(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fupload.wikimedia.org%2Fwikipedia%2Fcommons%2Fthumb%2F3%2F3c%2FZimbabwe_Hyperinflation_2008_notes.jpg%2F751px-Zimbabwe_Hyperinflation_2008_notes.jpg&hash=fa3e0474920576805ab809f495c28a4a245ab70b)
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Hold your own gold and make your own rules.
Once I hit my goal for silver possession, I'm going to shift gears to gold. Start with 2.5gram and 5 gram bars (less than 1/10th and 1/6th of an ounce respectively) and work up from there. Or maybe start trading silver for gold when the ratio's in my favor and I can work a deal rather than buying with greenbacks. It's so stinking expensive!
So what does a ounce of silver buy now? A case of beer and a steak? What will that case of beer and steak cost if hyperinfaltion occurs, I bet a lot more than a ounce of silver.
Wouldn't it make more sense to try and place your greenbacks into some sort of investment that pays better than the rate of inflation? I know it is hard to find something with that rate of return but it could be done.
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So what does a ounce of silver buy now? A case of beer and a steak? What will that case of beer and steak cost if hyperinfaltion occurs, I bet a lot more than a ounce of silver.
A case of beer and a steak should still cost the same ounce of silver (or $1,000 in its hyperinflated currency denomination ;)) ...unless there is a significant production disruption that makes booze and meat much harder to acquire than silver.
And if the US has a severe shortage of beer and red meat... screw return on investments it's Mad Max time =D
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A case of beer and a steak should still cost the same ounce of silver (or $1,000 in its hyperinflated currency denomination ;)) ...unless there is a significant production disruption that makes booze and meat much harder to acquire than silver.
And if the US has a severe shortage of beer and red meat... screw return on investments it's Mad Max time =D
Maybe I should add yeast, hops pellets (vacuum packed) and barley malt to my TEOTWAWKI stash...
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A case of beer and a steak should still cost the same ounce of silver (or $1,000 in its hyperinflated currency denomination ;)) ...unless there is a significant production disruption that makes booze and meat much harder to acquire than silver.
And if the US has a severe shortage of beer and red meat... screw return on investments it's Mad Max time =D
This.
In fact, I was bored one Saturday and analyzed housing and car prices since 1973-2009 compared to PM's. The median home (adjusted for housing supply and demand and square footage) cost the same amount then as it does now, same for your basic "car". Food has gotten cheaper relative to PM's due to improved supply, but in general, most things index pretty well to PM's. HOWEVER, PM's now are -technically- overvalued on a purchasing basis because monetary velocity is partially suppressed, which means price inflation hasn't occurred yet, while -true- inflation has (money supply to GDP). Price spikes WILL occur when velocity takes off, which will happen, ironically, if things get worse, stay the same, or even get better. That being said, PM prices relatie to true money supply are still well indexed, so as a store of value, they are still good.
Remember, PM's are a bad investment onto themselves, and are only an investment relative to currency, or if used as capital to create actual value-add business (store of value then used as capital if there is a demand for capital in a recovery). So in the long run, PM is a good investment, but only if a correction results in its utility as a reliable store of capital being useful (ie post correction recovery). Otherwise, it's an inflation proof hedge.
Right now though, the demand is extremely high, and will get higher, driving the pride above what it would be merely as a value store, so the investment value is decreasing, as is the true purchasing power, but it still is a good store of value, in my opinion, especially given QE-infinity, at least until prices get 20-30% higher, at which point consumer demand into those materials will cause ultra rapid price spikes, as no one wants to sell, but everyone opwants to buy. That is when you STOP buying and selling.
My logic is, buy until the "average" person starts buying, then stop.
Then, before the logic starts shifting from protecting value to protecting life (storage food demand is now the average persons interest, or people start selling PM's), exchange a fraction of PM's for excess of those (as at that point their price in dollars will be absurd), and then hold on to both.
Right now, all of my excess dollars (beyond 10-15% in PM's, and ensuring at least 3-6mo supply of consumables) go into mainly "tools"--tangible items with intrinsic value to perform functions or create value in a non-informational economy. Basically: food>gun>wrench>gold.
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http://www.youtube.com/watch?feature=player_embedded&v=LS879r7xeLc
Peter Schiff has a nice, sunny outlook on what QE3 means.
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Easing, easing, easing, easing, Bernanke's got a plan!
Soon the *expletive deleted*it's gonna hit the fan!
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Right now though, the demand is extremely high, and will get higher, driving the pride above what it would be merely as a value store, so the investment value is decreasing, as is the true purchasing power, but it still is a good store of value, in my opinion, especially given QE-infinity, at least until prices get 20-30% higher, at which point consumer demand into those materials will cause ultra rapid price spikes, as no one wants to sell, but everyone opwants to buy. That is when you STOP buying and selling.
My logic is, buy until the "average" person starts buying, then stop.
Those assumptions only hold up if the PM markets aren't being manipulated to start with.
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Spend it while it's worth something.
I've been dumping a good bit into my 401K, I'm thinking about cutting that back a little. Right now I'm set to pay off my mortgage in March. About the best I could shorten that by would be maybe a couple of months though.
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I'm not too sure this is a terrible move, or really even a relevant move.
The private sector (people and companies) have started a process of deleveraging and paying down debt (and failing those good options, going bankrupt).
Such macro behavior of the country is a strong deflationary effect on money. That behavior usually dwarfs that of the federal gov't, except when we run massive deficits. Even with this administration and congress's unprecedented deficits, it did not keep up with private debt reduction, which continues apace. From this point of view, the QE1-3 probably had a minimal affect on anything, which we have seen as pretty low inflation despite the huge increase in M0. The bigger effect may have been the bank bailouts. This can be seen by comparing M2 - M0.
Oh yeah, I think this plot is mislabeled "Years since 1990", I think it should be "2000"... M3 was stopped measuring in 2006, not 96, and QE was in 08, not 98.
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fcdn.debtdeflation.com%2Fblogs%2Fwp-content%2Fuploads%2F2010%2F06%2F061310_1206_Empiricalan113.png&hash=53a1f218ad15eb4256cd6343cb587669b99688fb)
I would suggest a more powerful move would be for the central bank to directly buy mortgage debt and forgive it. More bluntly, to pay off the debt of the private sector.
A bailout for the borrower, and not the banks. Which is a very biblical concept, a sort of Jubilee. But it would not be painless either, I think it would just speed up the pain and help get it over in the next 1-2 years rather than the next 10years this one has yet to go, at its current trajectory. Besides, I don't think our gov't can survive another 10yrs of this trajectory of spending. They will be another credit bubble unto themselves, and are nearly so now.
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I would suggest a more powerful move would be for the central bank to directly buy mortgage debt and forgive it. More bluntly, to pay off the debt of the private sector.
Can you even imagine the resentment this would spark? The biggest debtors getting the the most benefit? Clue up. Section 8 and thrifty Dave Ramseyan adherents get porked, over-extended yuppies and house flippers get bailed out, and the currency loses a sizable fraction of its value. When did THAT get to be a good idea? Don't mean to be harshin' on your mellow, but that sounds like empty-headedness. Am I missing something?
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Can you even imagine the resentment this would spark? The biggest debtors getting the the most benefit? Clue up. Section 8 and thrifty Dave Ramseyan adherents get porked, over-extended yuppies and house flippers get bailed out, and the currency loses a sizable fraction of its value. When did THAT get to be a good idea? Don't mean to be harshin' on your mellow, but that sounds like empty-headedness. Am I missing something?
Yes, you missed quite a bit. So get off the high horse and try again.
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fresearch.stlouisfed.org%2Ffredgraph.png%3Fg%3D5ob&hash=ed04ee13e7046b4b4bedbc927c9e7f1a4dc9cb4a)
Fed increased the money supply.
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fresearch.stlouisfed.org%2Ffredgraph.png%3Fg%3D5oc&hash=5f82361043877281e4793e77cefd4255396b5df0)
Banks soaked it up.
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fresearch.stlouisfed.org%2Ffredgraph.png%3Fg%3D7Xe&hash=fcc6123afa9bda8b104c3a96faf1e64b8cd182b9)
Money is not flowing.
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fupload.wikimedia.org%2Fwikipedia%2Fcommons%2Fthumb%2F3%2F34%2FUS_Consumer_Price_Index_Graph.svg%2F750px-US_Consumer_Price_Index_Graph.svg.png&hash=c085ee858103b149cdd9874365e498b05ec683e3)
Prices (in general) are not rising in step with the increase in money stock. The money stock is currently decoupled from price increase. As bad as 10,20, 30% inflation is, deflation can be a much more severe yoke on the economic incentives of a country. I think both Keynes and Austrian economists agree that far. They probably disagree on the mechanism.
My understanding is this...
Deflation effectively makes loans more difficult to repay and also drives layoffs due to sticky wages. And on the margin, difficult loans are lost in bankruptcy and write downs. This destroys money too, faster than paying down debt destroys money stock. Bankruptcy and debt reduction causes more deflationary force. This explanation probably goes hand in hand with Keynes' concept of a liquidity trap, since scary bankruptcy environment drives money hoarding with the extra benefit of increasing value of the time held in vault.
If this is an accurate deflationary mechanism, then debt to gdp is a major factor in understanding deflation/inflation.
Oh look at this...hmmm what is the weird spike in 1932? and 2008?
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fcdn.debtdeflation.com%2Fblogs%2Fwp-content%2Fuploads%2F2010%2F09%2F092010_0121_Deleveragin15.png&hash=52673af1715f5cb576c89898a2134aa3028cc7ab)
Quite the scary graph. We have a lot of debt to pay off and write down. This is going to be a long ride down, with a strong deflationary force, just like the 30s.
This graph is adjusted for CPI, the actual debt peak was 1928, but deflation made those old loans continue to increase in "price" over time even though the nominal debt had not changed in years.
Hence, my thought of finding some way to help eliminate debt and directly counteract the deflation.
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Interesting information but there is a rub. The current CPI "inflation" being low or even deflationary, as you state, is either a flaw in CPI calculation, or the result of low velocity (hesitancy to spend), money supply being as increased as it is.
So you solution is for the fed to buy loans ad forgive them?
Let's analyze the effect.
Fed purchases loans (or already has), which injects dollars into the economy.
Fed forgives the loans, meaning it never receives the dollars back with interest (which actually futher increases the NPV of the money it injected, because now the effective amount injected is the NPV of the note, not just the principal)
So the money supply stays the same or increases, but now those debts are gone, meaning a huge amount of capital is available, which increases the velocity, meaning what has been holding prices down (velocity making up for money supply increase) for many things (ie those that CPI actually measures) is instantly gone...so a huge inflationary spike occurs.
Normally, to compensate for that, the fed would do one of two things:
1. Increase interest rates...which they can't because of it would require increasing Rae's on treasuries to maintain even the small (compared to the fed) non-fed purchases of treasuries in the cycle. An interest rate rise sufficient to cool the velocity you just reacted would be a rise to probably "classical" 5-7% rates, meaning national debt interest would spike to close to a trillion a year...which the govt can't affor, and would have to deficit finance through treasuries, which the fed would have to purchase to maintain demand, which INCREASES money supply.
2. Sell fed balance sheet assets (taking in dollars which are then deleted)...which you just eliminated, or even if you didn't eliminate all of them, you likely created a situation where potential purchases wouldn't purchase that debt, because who know what the fed will make worthless again.
So the basically, you set the knobs to "self destruct" and then by "forgiving" the loans, you effectively break the knobs off to ensure it happens. As both of the above scenarios, would, when tried, also spike inflation, and you would basically turn your "forgive debt happy day" into the fastest hyperinflationary trigger ever.
What needs to happen is a pullback (sell the assets it does have) AND let people/businesses/etc default...which will remove dollars, and reprice assets to keep things moving.
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I really ought not be surprised any more when the credentialed classes' solution to a problem caused by ham-handed gov't intervention (run by the credentialed class) is...more gov't intervention.
We are in a hole and they need to have the shovel taken away from them and applied to their cranium with abrupt force.
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I really ought not be surprised any more when the credentialed classes' solution to a problem caused by ham-handed gov't intervention (run by the credentialed class) is...more gov't intervention.
We are in a hole and they need to have the shovel taken away from them and applied to their cranium with abrupt force.
If the fed buys up debts and forgives them, you will see a taxpayer revolt among those who lived frugally. and paid off their debts or never had any debts to begin with. Maybe there's not enough of us to matter =(
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I believe Drewtam's conclusion and analysis is incorrect, and the intervening posts fairly accurately reflect my sentiment and conclusions.
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Birdman, thanks for the analysis, this should be interesting discussion...
Let's analyze the effect.
Fed purchases loans (or already has), which injects dollars into the economy.
Fed forgives the loans, meaning it never receives the dollars back with interest (which actually futher increases the NPV of the money it injected, because now the effective amount injected is the NPV of the note, not just the principal)
So the money supply stays the same or increases, but now those debts are gone, meaning a huge amount of capital is available, which increases the velocity, meaning what has been holding prices down (velocity making up for money supply increase) for many things (ie those that CPI actually measures) is instantly gone...so a huge inflationary spike occurs.
I think I am with you up to the conclusion. I think the conclusion is wrong for several reasons...
1) I don't mean all debt. ;/ I hope y'all weren't assuming that. I don't even mean most debt.
2) Keep in mind that the total private mortgage debt of this country is approx ~$13.3T and falling fast. Compare that to the $2-4T already injected that have basically done nothing. And the 0% fed rates, which has basically done nothing.
If the fed buys up debts and forgives them, you will see a taxpayer revolt among those who lived frugally. and paid off their debts or never had any debts to begin with. Maybe there's not enough of us to matter =(
3) Yes, good point. A more equitable arrangement could probably be made so that those who are debt free end up with straight cash so that moral hazard is not reduced. Perhaps a per capita cash injection, but only those who are debt free get to keep it, the rest are required to pay down debt. In one sense, it will feel a lot like a conditional tax deduction.
4) A small program could be used to slowly feed in this debt forgiveness. As soon as deflationary forces begin receding, the program could be withdrawn, and normal fed rate tools can begin to work again. Remember we are below 0 lower bound and creating trillions of new cash, and it has done NOTHING. Its hard to say at this point how much leverage this program would have. On one hand it would inject cash directly into the consumers and lenders and stop deflation in its tracks; on the other hand it would destroy money supply as debt is forgiven much like a bankruptcy process. As I said, the program would need to start small and cautiously as it slowly drains the debt out of the system.
My reasonings depends on some unspoken axioms though:
DEBT is the major problem this country and most of the world faces. Currently we are unwinding that debt, whether by paying it down or writing it down (bankruptcy). Fortunately, despite the low interest rates, people in aggregate are not taking on new debt - and that is a good thing. We have a lot of debt to unwind first.
The velocity of money through the system is too low, and needs to be increased so that we are all productive in the right fields to help rebuild real wealth, not ponzi asset bubbles.
The reduction of debt load slows down this velocity and causes deflation. I tried to reason through in the previous post why this seems to be empirically true. This seems to be empirically true whether I have the exact system flow right or not.
Increase interest rates...which they can't because of it would require increasing Rate's on treasuries to maintain even the small (compared to the fed) non-fed purchases of treasuries in the cycle. An interest rate rise sufficient to cool the velocity you just reacted would be a rise to probably "classical" 5-7% rates, meaning national debt interest would spike to close to a trillion a year...which the govt can't affor, and would have to deficit finance through treasuries, which the fed would have to purchase to maintain demand, which INCREASES money supply.
I think I've already answered this above, but also add specifically that it is NOT the FedRes's job to keep the Federal gov't solvent. That is a whole 'nother ball of wax. It is the FEDRES job to keep inflation between 2-5% and unemployment at <4%. And when I consider that the national problem is debt, I fail to see why letting the federal gov't create another debt bubble is the right solution. Switching from a private debt bubble to public debt bubble doesn't solve the axiomatic issue: too much debt. [Modern Keynsians, like Bernanke and Paul Krugman, fail to see this because they don't think debt matters. I think debt does matter to the behavior of the economy.] If the federal gov't is in so much debt that it can't pay the interest in a regular inflationary environment, then the gov't needs to be cut back severely.
you likely created a situation where potential purchases wouldn't purchase that debt, because who know what the fed will make worthless again.
Can you clarify this sentence? I wanna make sure I got your meaning before responding specifically to it.
What needs to happen is a pullback (sell the assets it does have) AND let people/businesses/etc default...which will remove dollars, and reprice assets to keep things moving.
Welcome to the nightmare of the 1930s. I'll just reiterate, we need to drain the economy of debt and prevent deflation to help us correct the fundamental problem. And masochism is not a virtue.
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drewtam - What makes you think that Joe Average won't take that debt reduction from the .gov and go out and "re-leverage". The de-leveraging is wholly a result of the crappy ecomony and people paying off debt to make their life easier should they get laid off, or going BK beacuse they can no longer maintain that debt due to being laid off. Once the economy starts really going again most people will go right back to the behaviors that held sway until 2008-ish.
Those of us on this board that still have mortgages will react the way you would like the rest of the country to react. But remember that we're a tiny minority when it comes to fiscal intelligence.
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Debt reduction or not, those loans that joe average took out are never going to be repaid... and the properties that were listed as collateral will never be worth anything close to the amount owed because too few people have the money to go house shopping. The jobs aren't coming back from Asia.
In a system that is based on trading debt, what happens when everyone realizes that the debt will not be honored? It's a big Ponzi scheme and the latest suckers to join in were not worth as much as the people at the top figured they would be. Game over.
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drewtam - What makes you think that Joe Average won't take that debt reduction from the .gov and go out and "re-leverage". The de-leveraging is wholly a result of the crappy ecomony and people paying off debt to make their life easier should they get laid off, or going BK beacuse they can no longer maintain that debt due to being laid off. Once the economy starts really going again most people will go right back to the behaviors that held sway until 2008-ish.
Those of us on this board that still have mortgages will react the way you would like the rest of the country to react. But remember that we're a tiny minority when it comes to fiscal intelligence.
I don't disagree. I would even add that falling asset prices "encourage" people not to take out new loans, and by not taking out new loans, asset demand continues to drop and asset prices drop more. Its a positive feedback all the way down to rock bottom. Take a look how long the great unwinding lasted in the 30s. From '28 to '42. And our financial & housing sector is starting from a higher debt point. The only good news is that non-finance business is starting from a much lower comparative debt burden than '28.
But I think preventing the Great Financial Crisis from happening again is a different question than how to drain the poison now.
So how do we stop people and banks from creating another debt & asset bubble? Good question. Similarly, we could ask how to prevent people from taking so much debt, or banks creating it. I suppose we would need a revamping of the banking system or the fractional reserve rules. A systemic approach that makes it difficult to get to this level of debt/gdp again.
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So how do we stop people and banks from creating another debt & asset bubble? Good question. Similarly, we could ask how to prevent people from taking so much debt, or banks creating it. I suppose we would need a revamping of the banking system or the fractional reserve rules. A systemic approach that makes it difficult to get to this level of debt/gdp again.
1. The Fed has one, and ONLY one job. The stable value of the U.S. Dollar, period. They are not to engage in trying to be an accelerator or a brake on the economy. This creates feedback loops, unintended consequences, and too many "tiger by the tail" scenarios that are generally worse than whatever it was they were trying to solve. They do the best they can, at maintaining stable USD value by controlling the supply and interest rates.
2. Constitutional Convention for a balanced budget amendment with some teeth, maybe kicking out earmarks and non-topic bill amendments too. Tricky I know, but perhaps if we time it right with enough "red state" legislatures in power... No matter how well crafted, I'm sure Congress and the Exec branch will find loopholes, but I'd hope that even with the "cheating" we'd still be way better off.
3. No bailouts, nothing is "too big to fail". Market pressures, and no safety net will make financial institutions behave responsibly. And if they don't, good money will no longer be thrown after bad. FDIC is set at some lower inflation/COLA derived limit that keeps a family from getting thrown out of their home or being unable to buy food/pay bills if a bank fails.
4. Multiple currencies. We set something up in parallel with the FRN that makes the Libertarians and gold-bugs happy. It doesn't have to be something you can use at the store. It could just be for banking/investments, and larger transactions. Say mandate it's "Legal Tender" for only [checks watch] for transactions of $10k in 2012 dollars as of Sept 17th... so it would be for car/home sized purchases and on up that are usually check/bank transfer anyway. Maybe even more than two currencies. They act as a check on one another because of the "competition". People's, financial institution's, and investment/savings vehicles diversify across the currencies like they do today across stocks/securities in a mutual fund today. Hopefully (Just a WAG on my part, I fully admit) it would address the problems of fiat currency like inflation/deflation or lack of faith in T-Bills, and "hard" commodity currency which has issues with not always having sufficient value or liquidity to represent an entire economy, or fluctuations in said commodity prices. (Like a one cubic mile wide gold nugget is found in the sea floor crust or whatever... LOL.)
Maybe that's got "WRONG" written all over it. Just my seat of the pants ideas. There's obviously finer economic minds than mine in this thread already. [tinfoil]
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In essence the Fed has studied what Weimar Germany did after WWEins and said "We can do it better !!! We can make it work this time !!!!"
:facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm: :facepalm:
Morons....
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I have family members in the finacial business and I asked them if Bernake was off his rocker or is there some merit to QE3.
One replied this in email:
It may not have the same impact as prior versions of QE but due to language used, it may have a bigger psychological impact, in coordination with ECB for an open ended QE. There seems to be coordination among the major central bankers to add stimulus in different forms, ECB, Fed, China and Brazil.
Take as you will since it only an opinion, but apparently it is a global QE.
I personally wished that Bernanke just said, no QE3 because most of us are going to take it in the shorts with inflation and lack of wage compensation to match.
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That's the rub right there.
What is best for the United States is not best for the world, in the short term at least.
That is why the Dems and probably most Repubs will not do what is best for us.
I'm talking about lowering corporate taxes, exploiting our energy resources and a money policy designed to strengthen the dollar.
The above won't happen because of the worldwide consequences of an ascendent US economy/dollar.
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We need to do what's best for us, period.
And it's looking like China's an even worse house of cards than we thought with the empty ghost cities.
Even that gold they've been buying up may not be real. :rofl:
http://www.zerohedge.com/news/how-chinas-rehypothecated-ghost-steel-just-vaporized-and-what-means-world-economy
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That deserves a:
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Fimg.photobucket.com%2Falbums%2Fv635%2Fbrimic%2F664.gif&hash=a42981b8d822f60d134a6331ff65ed58c9611b27)
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We need to do what's best for us, period.
And it's looking like China's an even worse house of cards than we thought with the empty ghost cities.
Even that gold they've been buying up may not be real. :rofl:
http://www.zerohedge.com/news/how-chinas-rehypothecated-ghost-steel-just-vaporized-and-what-means-world-economy
How is what is described there anything but straight up fraud? When you think of it, the entire world economy is sitting on nothing but lies and the people that believe them. When the "hey, wait a minute.." moment reaches critical mass, I don't think I want to be around.
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Considering china is the second largest economy and one of our larger trading partners (not to mention holder of a bunch of our debt). Watching them go Kaa-Boom may just drag everyone else down as well. I'd hold off on the Nelson Ha-Ha for a while.....
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I have family members in the finacial business and I asked them if Bernake was off his rocker or is there some merit to QE3.
One replied this in email:
It may not have the same impact as prior versions of QE but due to language used, it may have a bigger psychological impact, in coordination with ECB for an open ended QE. There seems to be coordination among the major central bankers to add stimulus in different forms, ECB, Fed, China and Brazil.
Take as you will since it only an opinion, but apparently it is a global QE.
I personally wished that Bernanke just said, no QE3 because most of us are going to take it in the shorts with inflation and lack of wage compensation to match.
Whats scary is that we might see the inflation. And with QE3 being open ended, we might get crushed with the inflation or it just might work. Its all *expletive deleted*ing economic theory they are playing with.
The reading I've done says a lot depends on what is done with the QE. Once the banks have it, they could shore up their bottom lines which means little except more stability in the banking industry. They could ease loans again, hello second lending bubble anyone? Or they could flood the market with the cash....Argentina here we come!
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Considering china is the second largest economy and one of our larger trading partners (not to mention holder of a bunch of our debt). Watching them go Kaa-Boom may just drag everyone else down as well. I'd hold off on the Nelson Ha-Ha for a while.....
I have no problem seeing them going down.
1.We do massive trade with them, but that trade has always been one way.
2.Their trade and business practices are largely unethical. Currently the EU and the USA have filed suit with the WTO over China's dumping of automotive components on the market.
3. Things absolutely must go through a painful correction to make the world's finances straight again. Yes its going to hurt us, but its necessary. Its much better that it hurts a COMMUNIST country a lot more so that they don't come out on top.
4. As to point #3 above, people have been predicting China would emerge as theworld leader in the next few years. As bad as things are going in America, I'd never bet against America.
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That's what "The Bernak" is trying to do, re-inflate the housing bubble. But all he'll end up doing is creating Wiemar/Argentina style inflation as he continues to devalue the currency. What they are trying simply doesn't work. It sounds good in theory, but in reality.....well that's another story.