Inflation, interest rates, and the Fed

[Arraya]

The whole world wasn’t up to it’s eyeballs in debt either.

[Rich Toscano]

[quote=XBoxBoy]

If I read Hussman’s view correctly, he’s only saying that if the govt wants, it can always create inflation. (Which is pretty much Bernanke’s view as well) So, that begs the question, is it your view that the govt will print enough money to cause inflation?
[/quote]

Yes (eventually).

[quote=XBoxBoy]
1) While they are doing all they can to reinflate the various bubbles, they will stop (and put on brakes if necessary) as soon as the bubbles appear to be reinflated. (This is because although they don’t admit it, I bet they are scared of bubbles getting out of hand after the last couple of years)
[/quote]

That’s certainly not how they’ve done it in the past. You are probably right that they are more sensitive to bubbles, but they are also more scared of causing another downturn by tightening to early (which BB considers to be the big mistake made by Japan in the 90s and the US in the late 30s).

[quote=XBoxBoy]
2) To cause inflation they have to print enough money to compensate for all the lost money due to defaulting loans, and then some more.
[/quote]

Loan defaults do not directly cause money to be “lost”… this has been discussed at length on the site here: http://piggington.com/no_deflationary_spiral_forthcoming

In any case, it’s not like printing money is all that difficult or anything. (As a matter of fact, politically speaking, it’s difficult not to! And this will remain the case unless and until inflation becomes a problem.)

[quote=XBoxBoy]

3) Like most experts, the fed overestimates their abilities and powers. We see that today as they talk of how the recovery is progressing and there won’t be a double dip. Thus they are currently coming off the money printing throttle. If they are wrong, that’s all the more money they will have to print just to fight deflation.
[/quote]

…at which time they will press down on the printing throttle again, no?

I don’t want to go down the whole deflation vs inflation rathole as I already said my piece in the article I’ve linked to a couple paragraphs up. My point in responding was that I think there is too much emphasis on employment and capacity utilization as the sole inputs into inflation, to the extent that people simply dismiss inflation risk due to high unemployment. There are many examples of countries (including this one) that experienced inflation during times of high unemployment and slow economic growth.

[Rich Toscano]

[quote=XBoxBoy]

If I read Hussman’s view correctly, he’s only saying that if the govt wants, it can always create inflation. (Which is pretty much Bernanke’s view as well) So, that begs the question, is it your view that the govt will print enough money to cause inflation?
[/quote]

Yes (eventually).

[quote=XBoxBoy]
1) While they are doing all they can to reinflate the various bubbles, they will stop (and put on brakes if necessary) as soon as the bubbles appear to be reinflated. (This is because although they don’t admit it, I bet they are scared of bubbles getting out of hand after the last couple of years)
[/quote]

That’s certainly not how they’ve done it in the past. You are probably right that they are more sensitive to bubbles, but they are also more scared of causing another downturn by tightening to early (which BB considers to be the big mistake made by Japan in the 90s and the US in the late 30s).

[quote=XBoxBoy]
2) To cause inflation they have to print enough money to compensate for all the lost money due to defaulting loans, and then some more.
[/quote]

Loan defaults do not directly cause money to be “lost”… this has been discussed at length on the site here: http://piggington.com/no_deflationary_spiral_forthcoming

In any case, it’s not like printing money is all that difficult or anything. (As a matter of fact, politically speaking, it’s difficult not to! And this will remain the case unless and until inflation becomes a problem.)

[quote=XBoxBoy]

3) Like most experts, the fed overestimates their abilities and powers. We see that today as they talk of how the recovery is progressing and there won’t be a double dip. Thus they are currently coming off the money printing throttle. If they are wrong, that’s all the more money they will have to print just to fight deflation.
[/quote]

…at which time they will press down on the printing throttle again, no?

I don’t want to go down the whole deflation vs inflation rathole as I already said my piece in the article I’ve linked to a couple paragraphs up. My point in responding was that I think there is too much emphasis on employment and capacity utilization as the sole inputs into inflation, to the extent that people simply dismiss inflation risk due to high unemployment. There are many examples of countries (including this one) that experienced inflation during times of high unemployment and slow economic growth.

[Rich Toscano]

[quote=XBoxBoy]

If I read Hussman’s view correctly, he’s only saying that if the govt wants, it can always create inflation. (Which is pretty much Bernanke’s view as well) So, that begs the question, is it your view that the govt will print enough money to cause inflation?
[/quote]

Yes (eventually).

[quote=XBoxBoy]
1) While they are doing all they can to reinflate the various bubbles, they will stop (and put on brakes if necessary) as soon as the bubbles appear to be reinflated. (This is because although they don’t admit it, I bet they are scared of bubbles getting out of hand after the last couple of years)
[/quote]

That’s certainly not how they’ve done it in the past. You are probably right that they are more sensitive to bubbles, but they are also more scared of causing another downturn by tightening to early (which BB considers to be the big mistake made by Japan in the 90s and the US in the late 30s).

[quote=XBoxBoy]
2) To cause inflation they have to print enough money to compensate for all the lost money due to defaulting loans, and then some more.
[/quote]

Loan defaults do not directly cause money to be “lost”… this has been discussed at length on the site here: http://piggington.com/no_deflationary_spiral_forthcoming

In any case, it’s not like printing money is all that difficult or anything. (As a matter of fact, politically speaking, it’s difficult not to! And this will remain the case unless and until inflation becomes a problem.)

[quote=XBoxBoy]

3) Like most experts, the fed overestimates their abilities and powers. We see that today as they talk of how the recovery is progressing and there won’t be a double dip. Thus they are currently coming off the money printing throttle. If they are wrong, that’s all the more money they will have to print just to fight deflation.
[/quote]

…at which time they will press down on the printing throttle again, no?

I don’t want to go down the whole deflation vs inflation rathole as I already said my piece in the article I’ve linked to a couple paragraphs up. My point in responding was that I think there is too much emphasis on employment and capacity utilization as the sole inputs into inflation, to the extent that people simply dismiss inflation risk due to high unemployment. There are many examples of countries (including this one) that experienced inflation during times of high unemployment and slow economic growth.

[Rich Toscano]

[quote=XBoxBoy]

If I read Hussman’s view correctly, he’s only saying that if the govt wants, it can always create inflation. (Which is pretty much Bernanke’s view as well) So, that begs the question, is it your view that the govt will print enough money to cause inflation?
[/quote]

Yes (eventually).

[quote=XBoxBoy]
1) While they are doing all they can to reinflate the various bubbles, they will stop (and put on brakes if necessary) as soon as the bubbles appear to be reinflated. (This is because although they don’t admit it, I bet they are scared of bubbles getting out of hand after the last couple of years)
[/quote]

That’s certainly not how they’ve done it in the past. You are probably right that they are more sensitive to bubbles, but they are also more scared of causing another downturn by tightening to early (which BB considers to be the big mistake made by Japan in the 90s and the US in the late 30s).

[quote=XBoxBoy]
2) To cause inflation they have to print enough money to compensate for all the lost money due to defaulting loans, and then some more.
[/quote]

Loan defaults do not directly cause money to be “lost”… this has been discussed at length on the site here: http://piggington.com/no_deflationary_spiral_forthcoming

In any case, it’s not like printing money is all that difficult or anything. (As a matter of fact, politically speaking, it’s difficult not to! And this will remain the case unless and until inflation becomes a problem.)

[quote=XBoxBoy]

3) Like most experts, the fed overestimates their abilities and powers. We see that today as they talk of how the recovery is progressing and there won’t be a double dip. Thus they are currently coming off the money printing throttle. If they are wrong, that’s all the more money they will have to print just to fight deflation.
[/quote]

…at which time they will press down on the printing throttle again, no?

I don’t want to go down the whole deflation vs inflation rathole as I already said my piece in the article I’ve linked to a couple paragraphs up. My point in responding was that I think there is too much emphasis on employment and capacity utilization as the sole inputs into inflation, to the extent that people simply dismiss inflation risk due to high unemployment. There are many examples of countries (including this one) that experienced inflation during times of high unemployment and slow economic growth.

[Rich Toscano]

[quote=XBoxBoy]

If I read Hussman’s view correctly, he’s only saying that if the govt wants, it can always create inflation. (Which is pretty much Bernanke’s view as well) So, that begs the question, is it your view that the govt will print enough money to cause inflation?
[/quote]

Yes (eventually).

[quote=XBoxBoy]
1) While they are doing all they can to reinflate the various bubbles, they will stop (and put on brakes if necessary) as soon as the bubbles appear to be reinflated. (This is because although they don’t admit it, I bet they are scared of bubbles getting out of hand after the last couple of years)
[/quote]

That’s certainly not how they’ve done it in the past. You are probably right that they are more sensitive to bubbles, but they are also more scared of causing another downturn by tightening to early (which BB considers to be the big mistake made by Japan in the 90s and the US in the late 30s).

[quote=XBoxBoy]
2) To cause inflation they have to print enough money to compensate for all the lost money due to defaulting loans, and then some more.
[/quote]

Loan defaults do not directly cause money to be “lost”… this has been discussed at length on the site here: http://piggington.com/no_deflationary_spiral_forthcoming

In any case, it’s not like printing money is all that difficult or anything. (As a matter of fact, politically speaking, it’s difficult not to! And this will remain the case unless and until inflation becomes a problem.)

[quote=XBoxBoy]

3) Like most experts, the fed overestimates their abilities and powers. We see that today as they talk of how the recovery is progressing and there won’t be a double dip. Thus they are currently coming off the money printing throttle. If they are wrong, that’s all the more money they will have to print just to fight deflation.
[/quote]

…at which time they will press down on the printing throttle again, no?

I don’t want to go down the whole deflation vs inflation rathole as I already said my piece in the article I’ve linked to a couple paragraphs up. My point in responding was that I think there is too much emphasis on employment and capacity utilization as the sole inputs into inflation, to the extent that people simply dismiss inflation risk due to high unemployment. There are many examples of countries (including this one) that experienced inflation during times of high unemployment and slow economic growth.

[Rich Toscano]

[quote=davelj] But taking into account unempolyment + capacity utilization + asset deflation + a low savings rate (which will increase and cut into consumption) + a massive amount of debt that needs to get paid down… probably leads to low inflation for a while. What “a while” is is hard to know…[/quote]

Good list, although I would quibble with the massive amount of debt item… in theory that SHOULD lead to higher saving and lower inflation, but in practice, my strongly held opinion is that it will lead to higher inflation as the political pressure to inflate away the debt is overwhelming.

Anyway, I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).

[Rich Toscano]

[quote=davelj] But taking into account unempolyment + capacity utilization + asset deflation + a low savings rate (which will increase and cut into consumption) + a massive amount of debt that needs to get paid down… probably leads to low inflation for a while. What “a while” is is hard to know…[/quote]

Good list, although I would quibble with the massive amount of debt item… in theory that SHOULD lead to higher saving and lower inflation, but in practice, my strongly held opinion is that it will lead to higher inflation as the political pressure to inflate away the debt is overwhelming.

Anyway, I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).

[Rich Toscano]

[quote=davelj] But taking into account unempolyment + capacity utilization + asset deflation + a low savings rate (which will increase and cut into consumption) + a massive amount of debt that needs to get paid down… probably leads to low inflation for a while. What “a while” is is hard to know…[/quote]

Good list, although I would quibble with the massive amount of debt item… in theory that SHOULD lead to higher saving and lower inflation, but in practice, my strongly held opinion is that it will lead to higher inflation as the political pressure to inflate away the debt is overwhelming.

Anyway, I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).

[Rich Toscano]

[quote=davelj] But taking into account unempolyment + capacity utilization + asset deflation + a low savings rate (which will increase and cut into consumption) + a massive amount of debt that needs to get paid down… probably leads to low inflation for a while. What “a while” is is hard to know…[/quote]

Good list, although I would quibble with the massive amount of debt item… in theory that SHOULD lead to higher saving and lower inflation, but in practice, my strongly held opinion is that it will lead to higher inflation as the political pressure to inflate away the debt is overwhelming.

Anyway, I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).

[Rich Toscano]

[quote=davelj] But taking into account unempolyment + capacity utilization + asset deflation + a low savings rate (which will increase and cut into consumption) + a massive amount of debt that needs to get paid down… probably leads to low inflation for a while. What “a while” is is hard to know…[/quote]

Good list, although I would quibble with the massive amount of debt item… in theory that SHOULD lead to higher saving and lower inflation, but in practice, my strongly held opinion is that it will lead to higher inflation as the political pressure to inflate away the debt is overwhelming.

Anyway, I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).

[Diego Mamani]

[quote=Rich Toscano]I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).[/quote]

That’s my point precisely. And I fear that the Fed won’t be prescient enough to pinpoint the exact time when the monetary brakes need to be applied. In any case, due to political pressures, the tightening will come too late. If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?

Newsweek has had at least two articles recently where they state that inflation won’t be a problem. The fact that the biggest liquidity injection in US history could fan inflation is ignored, even laughed at. Newsweek’s argument? That inflation is low and getting lower today, so it won’t be a problem in the future.

Newsweek’s position is just like that of the drunk guy who jumped from a 50th floor window. Half way down he’d probably be thinking “geez, all those people who said I’d die if I jump were a bunch of idiots! I jumped, and so far I’m fine!”

[Diego Mamani]

[quote=Rich Toscano]I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).[/quote]

That’s my point precisely. And I fear that the Fed won’t be prescient enough to pinpoint the exact time when the monetary brakes need to be applied. In any case, due to political pressures, the tightening will come too late. If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?

Newsweek has had at least two articles recently where they state that inflation won’t be a problem. The fact that the biggest liquidity injection in US history could fan inflation is ignored, even laughed at. Newsweek’s argument? That inflation is low and getting lower today, so it won’t be a problem in the future.

Newsweek’s position is just like that of the drunk guy who jumped from a 50th floor window. Half way down he’d probably be thinking “geez, all those people who said I’d die if I jump were a bunch of idiots! I jumped, and so far I’m fine!”

[Diego Mamani]

[quote=Rich Toscano]I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).[/quote]

That’s my point precisely. And I fear that the Fed won’t be prescient enough to pinpoint the exact time when the monetary brakes need to be applied. In any case, due to political pressures, the tightening will come too late. If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?

Newsweek has had at least two articles recently where they state that inflation won’t be a problem. The fact that the biggest liquidity injection in US history could fan inflation is ignored, even laughed at. Newsweek’s argument? That inflation is low and getting lower today, so it won’t be a problem in the future.

Newsweek’s position is just like that of the drunk guy who jumped from a 50th floor window. Half way down he’d probably be thinking “geez, all those people who said I’d die if I jump were a bunch of idiots! I jumped, and so far I’m fine!”

[Diego Mamani]

[quote=Rich Toscano]I completely agree that there are factors in place that are holding inflation in check for now (but as you say, how long “now” lasts is a whole different question).[/quote]

That’s my point precisely. And I fear that the Fed won’t be prescient enough to pinpoint the exact time when the monetary brakes need to be applied. In any case, due to political pressures, the tightening will come too late. If inflation was so easy to fine tune using policy tools, why did it get so awfully out of control in the 1970s?

Newsweek has had at least two articles recently where they state that inflation won’t be a problem. The fact that the biggest liquidity injection in US history could fan inflation is ignored, even laughed at. Newsweek’s argument? That inflation is low and getting lower today, so it won’t be a problem in the future.

Newsweek’s position is just like that of the drunk guy who jumped from a 50th floor window. Half way down he’d probably be thinking “geez, all those people who said I’d die if I jump were a bunch of idiots! I jumped, and so far I’m fine!”

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