Are savers doomed?

[FlyerInHi]

CAr, deflation is Greece and Spain. The evidence is there, what else do you need? Absent monetary policy, the alternative is internal deflation to regain competitiveness.

[spdrun]

Deflation was also the post Civil War US to about 1890, where increased mechanization drove the price of goods down while creating growth.

[livinincali]

[quote=Leorocky]
The money the Fed has “printed” has mostly gone to shore up the balance sheets of large banks. Using your simple economy example if the new money supply was buried in my backyard or in some other inaccessible location (such as a banks deposit account at the Fed) it has no effect on the price of the goods.[/quote]

Why does the fed need to shore up the balance sheets of banks, unless that money has already been spent as credit and entered the economy?

Total money supply includes both credit and money (bank notes, savings, etc.). They spend the same whether I borrow $100K and spend it or take $100K out of my saving account and spend it. I’ve created the same demand for some set of goods.

If your point is just that hyper inflation hasn’t happened, massive inflation hasn’t happened and likely won’t happen then I agree with you. It hasn’t happened because that money was already spent and now it’s just being used to shore up the asset side of the banks balance sheet.

Now to say that Fed money printing has had nothing but positive effects on the economy and that there isn’t any consequences to their actions is naive. They have created a massive asset price bubble in certain asset classes. There’s a significant portion of that printed money that has ended up in asset price speculation. We’ll see the result in a few years but for now I don’t expect to find many to agree with me now. Nobody seems to be able to hold onto the lessons taught from the previous bubbles.

[FlyerInHi]

The Fed is exchanging cash for non-liquid assets the banks hold. That adds liquidity to the system.

[Anonymous]

[quote=spdrun]Deflation was also the post Civil War US to about 1890, where increased mechanization drove the price of goods down while creating growth.[/quote]

The golden years of deflation, when there was no wealth gap and times were great for the laboring masses.

[spdrun]

No different than today, except the factories are external to the US vs internal.

BTW – the US had inflation in pre-Civil War days and the economy was heavily based on exploitation of unpaid and poorly paid workers then. This was just the nature of the US economy in the 1800s, irrespective of inflation.

[CA renter]

[quote=Leorocky]Inflation is not defined as an increase in the money supply and we have not been experiencing “massive inflation” since the Great Recession.

Both of your statements are patently false.[/quote]

I would argue that we have had massive inflation relative to where prices would be if not for the Fed/govt manipulations of the past few years…depends on where and how you measure the starting point.

You’re also wrong about inflation not including asset prices.

Spdrun and livinincali have it right.

[Anonymous]

[quote=spdrun]No different than today, except the factories are external to the US vs internal.[/quote]

Yes, no difference except for the huge difference.

[CA renter]

[quote=harvey][quote=spdrun]No different than today, except the factories are external to the US vs internal.[/quote]

Yes, no difference except for the huge difference.[/quote]

What difference is that, pri? The exploitation of workers exists in either case.

[CA renter]

[quote=FlyerInHi]CAr, deflation is Greece and Spain. The evidence is there, what else do you need? Absent monetary policy, the alternative is internal deflation to regain competitiveness.[/quote]

I’m not opposed to the govt/fed intervening in productive ways, just that what they’ve been doing will end up causing more damage over the long run, yet again.

Back before the downturn, I was writing letters to a number of politicians and regulators warning about the downturn and what should be done in order to mitigate the effects: infrastructure investment, R&D in the energy and healthcare sectors, and (the smallest component) unemployment assistance for those who were most negatively affected by the downturn. I also advocated for pushing the foreclosures though as quickly as possible, with a focus on getting those homes into the hands of owner-occupiers. And NO bailouts for either the borrowers or lenders who had caused the bubble in the first place.

We could have bottomed by 2012 if these policies were enacted. As it stands, we won’t be bottoming out until the mid-2020s, IMO. We still have a couple of years where we can pretend some more, but I think that 2016-2017 will see hard times (this has always been my timeline based on what would happen if there were bailouts of all the wrong people).

Putting money into the hands of speculators and the wealthy does not improve the economy, and it does nothing to make the system more secure — quite the opposite.

[Anonymous]

If only we had some deflation … we could really stick it to those speculators!

[Myriad]

There’s really no evidence that deflation is going to help workers improve their lives. Spain is a good example. Not sure 50% unemployment for people under 30 is really that great. Nothing like a lost generation of youth to screw a few score of speculators.

Europe’s benefits looks ok at the moment, but wait another 10-20 years. Their issues with entitlements looks way worse than the US.

For the balance to shift back to workers, what’s needed is higher labor cost growth outside the US, increased employment, and more middle-tiered skills jobs in the US. At the end of the day, it’s supply and demand.

[quote=spdrun]Overly rapid industrialization of third-world pestholes, impacting the global environment.[/quote]

Why wouldn’t other countries try to get to the same quality of life as 1st world countries?

[Leorocky]

To be clear on the banks and balance sheets –I think the intent of QE was to get more money into the economy, not just to have the money sit on deposit with the Fed. I’m fairly certain the Fed wants banks to lend out every penny they have right now and then some. Then we might get some real inflation. For a variety of reasons and depending on who you believe (no demand for loans, demand for loans from unqualified borrowers, risk aversion etc) that hasn’t happened.

Can anybody show me evidence of “massive asset price bubbles” and show me how the Fed (I’m assuming via QE) caused it.

[livinincali]

[quote=Leorocky]Can anybody show me evidence of “massive asset price bubbles” and show me how the Fed (I’m assuming via QE) caused it.[/quote]

QE is a relatively new monetary policy it’s effects are yet to be seen. As for the Fed helping to create and encourage bubbles just look at internet bubble of 2000 or the housing bubble of 2004-2007.

In 1999-2000 the fed increased the money supply because of worries about y2K and bank runs. The banks took that money and invested it temporarily which helped fuel the tail end of the internet bubble. When the fed decided to pull that liquidity after the y2K scare was done we had the huge collapse.

In the housing bubble the fed keep interest rates low for way too long which helped fuel the housing bubble. They felt they could keep rates low because there wasn’t much inflation in the CPI but CPI didn’t measure the excessive speculation in housing prices. Just like CPI is low now but it doesn’t account for the excessive speculation in shale oil, junk bonds, and stocks. The fed can make money cheap to borrow but it can’t determine what that money is used for. If it’s used for financial engineering and speculation rather than productive investment when the rates go up all that speculation has to be unwound because it no longer is profitable.

If I borrow $100K at 2% and invest it in VZ stock to get a 3.5% dividend I’m making a small percentage but if my borrow rate goes up to 3 or 4% I’m immediately going to sell my stock because it’s no longer profitable to have that arbitrage play on.

[Leorocky]

[quote=livinincali][quote=Leorocky]Can anybody show me evidence of “massive asset price bubbles” and show me how the Fed (I’m assuming via QE) caused it.[/quote]

QE is a relatively new monetary policy it’s effects are yet to be seen. As for the Fed helping to create and encourage bubbles just look at internet bubble of 2000 or the housing bubble of 2004-2007. [/quote]

The dotcom bubble started a few years prior to 2000 and I don’t think the Fed had much to do with it

[/quote]In 1999-2000 the fed increased the money supply because of worries about y2K and bank runs. The banks took that money and invested it temporarily which helped fuel the tail end of the internet bubble. When the fed decided to pull that liquidity after the y2K scare was done we had the huge collapse. [/quote]

First I’ve heard of this theory. We had a minor recession in 2001. The market starting correcting big time in April 2000 IIRC. I’m not sure there was any huge collapse caused by the Fed.

[/quote] In the housing bubble the fed keep interest rates low for way too long which helped fuel the housing bubble. They felt they could keep rates low because there wasn’t much inflation in the CPI but CPI didn’t measure the excessive speculation in housing prices. Just like CPI is low now but it doesn’t account for the excessive speculation in shale oil, junk bonds, and stocks. The fed can make money cheap to borrow but it can’t determine what that money is used for. If it’s used for financial engineering and speculation rather than productive investment when the rates go up all that speculation has to be unwound because it no longer is profitable. [/quote]

I suggest you research what exactly is included in the CPI. Can you provide evidence that there has been some appreciable increase in “speculative” lending because of the Fed’s recent actions?

[/quote]If I borrow $100K at 2% and invest it in VZ stock to get a 3.5% dividend I’m making a small percentage but if my borrow rate goes up to 3 or 4% I’m immediately going to sell my stock because it’s no longer profitable to have that arbitrage play on.[/quote]

Do you really think lot’s of people do this?

[Author]

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