Not in any significant sense. There will be inflation. Why?
1) The Dollar is a bill of credit- a debt instrument. It is a note paying 0% interest, collateralized mostly by Treasuries. To the Fed, an FRN (a dollar) is a liability backed on the accounting ledger by Treasury "assets". Treasuries are going down. This is a certainty. It may be slowly over 5 years or it may be rapidly over 5 hours. I'm guessing sooner rather than later. As dollars are backed by Treasuries, as Treasuries go, so will go the dollar. It will start with Japan selling off.
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/...
2) Inflation is a function of M1 growth or Monetary Base (less reserves on deposit) growth. It has not grown recently, hence, no inflation. Freshly printed dollars have been deposited with the Fed (for now). They will leak out. The Fed will have to raise rates to keep those dollars out of the economy. A special "Fed Deposit Rate" higher than the market rate and only for Wall Street Banks may be tried. It will fail. It is politically untenable.
http://www.lewrockwell.com/north/north798.html
"Reverse Repos" are the new Fed scam...er....tool to remove excess liquidity. It goes like this: The Fed prints $1 Trillion, gives it to Citi for mortgages at $1 for $1 even thought the mortgages are worth $.67. Then Citi turns around and uses those dollars to buy Treasuries back from the Fed with a guarantee byt the Fed to buy them back at a higher rate (thus guaranteeing a higher interest rate). It's just a shell game and addresses corpulent money supply by obfuscating a rate hike.
3) The Fed is the banker's bank. They will not let all the big banks fail. They will print $50 Quadrillion dollars if necessary. If the Fed tries to tighten aka Volcker, they will bankrupt the US Government. A 21% interest rate = $2.4 Trillion interest expense ALONE for big Brother. There will be no Volcker 2.0 because a 21% interest rate = the government takes over the Central Bank and revs up the digital analogues (printing presses).
3.1) If the Fed raises rates any significant amount they will scuttle the recent "carry trade" stock market rally. Stocks are priced today as net future cash flows discounted to present value by (1+cost of capital)^n. Cost of capital ~ 0% for banks today making even the puniest of dividends valuable. Jack that cost of capital rate to 4% and the NPV sinks like a stone. The Fed cannot raise rates without scuttling the market. The S&P is priced at something like 75Xs trailing earnings. 80% of Goldman Sach's income comes from this 0% carry trade. Raising rates will destroy this income stream. The Banks own the Fed. They will not like this.
4) The US owes $75 Trillion. Will they tax it? Impossible. Will they borrow it? Impossible. There are only 2 solutions: 1) monetize it and 2) repudiate it. Repudiation is politically impossible but practically likely. Monetizing it is a disaster but politically practical.
Past Deflations:
But what about the 1930s you ask?
What about them? The US had a gold standard then. It took 5 years to double the monetary base. It took Bernanke 5 months! Ponzi-banks were allowed to collapse in the 1930s taking their fractionally multiplied Madoff dollars down to the never-after with them. That will not happen today. We have FDIC and Helicopter Ben with an infinite supply of dollars to ride in to save them.
But what about Japan in the 1990s?
There was no serious deflation in consumer prices in Japan. One must not confuse a collapse of a speculative bubble in real estate (or tech stocks, or South Sea Trading Companies or tulip bulbs) with skyrocketing consumer staples prices.
http://www.safehaven.com/article-15478.htm
We are going into mass-inflation. You can try to play technical trades, consult astrologers, and read goat entrails all you like. Time your "key reversals" and consult your trailing 100 day moving averages and your "Bollinger Bands" as well. Good luck. There may even be some merit in reading tarot cards...er...uh...technical charts. But I am prepping for the next decade, not the next week.
Finance yourself with fixed rate debt, wind down cash positions, invest in tangible things, stay away from bonds, liquidate (take a loan) on you 401k before Obama nationalizes it.
http://www.sharedprosperity.org/bp204/bp204.pdf
Hold on tight. It's gonna be a wild ride.
Showing posts with label Inflation. Show all posts
Showing posts with label Inflation. Show all posts
Tuesday, January 12, 2010
Monday, December 7, 2009
What is a Dollar Worth?
The dollar is a "note". In other words, it is a "debt" owed by the Fed. It pays 0.00% interest.
Accounting 101: From the perspective of the Federal Reserve (which issues these "Reserve Notes") the dollar is a liability (debts owed are liabilities). In order for the Fed's balance sheet ot balance, Assets less Equity Must = Liabilities.
The Fed's "Assets" are: US Treasuries (notes to be paid by the Treasury), bank reserves, some foreign currency, some commerical paper, and a small amount of gold.
Treasuries are debts owed by the government.
SO IN OTHER WORDS, THE DOLLAR IS A DEBT WHICH IS BACKED BY A DEBT.
When the Fed "prints money" they keystroke "Federal Reserve Notes" (dollars) which become liabilities on the Fed's balance sheet. They then use these "notes" to buy "assets" which are just the debts of the government (or GM and the banksters).
There is no "money" in any classical sense beyond the the hard assets the Fed holds. All that exists is the debt of the left hand backed by the debt of the right.
The purchasing power of Federal Reserve 'Notes' hinges on the value of the ASSETS that back them. That value is determined by the PERCEPTION of the government's ability to convert labor into dollars (via taxes) that can then be used to pay the interest on the debt they owe (Treasuries).
It is a system only CPAs, Ken Lay and Bernard Madhoff could be proud of.
Accounting 101: From the perspective of the Federal Reserve (which issues these "Reserve Notes") the dollar is a liability (debts owed are liabilities). In order for the Fed's balance sheet ot balance, Assets less Equity Must = Liabilities.
The Fed's "Assets" are: US Treasuries (notes to be paid by the Treasury), bank reserves, some foreign currency, some commerical paper, and a small amount of gold.
Treasuries are debts owed by the government.
SO IN OTHER WORDS, THE DOLLAR IS A DEBT WHICH IS BACKED BY A DEBT.
When the Fed "prints money" they keystroke "Federal Reserve Notes" (dollars) which become liabilities on the Fed's balance sheet. They then use these "notes" to buy "assets" which are just the debts of the government (or GM and the banksters).
There is no "money" in any classical sense beyond the the hard assets the Fed holds. All that exists is the debt of the left hand backed by the debt of the right.
The purchasing power of Federal Reserve 'Notes' hinges on the value of the ASSETS that back them. That value is determined by the PERCEPTION of the government's ability to convert labor into dollars (via taxes) that can then be used to pay the interest on the debt they owe (Treasuries).
It is a system only CPAs, Ken Lay and Bernard Madhoff could be proud of.
Tuesday, November 3, 2009
Deflation or Inflation
"Deflation" this time around will not result in falling consumer prices.
When the big deflation comes in US Treaasuries, which will be triggered by Japan selling off to fund their looming fiscal crunch, the Fed will monetize (inflate FRNs) to keep interest rates down. If they don't, the US government will go bankrupt as most of the US debt rolls over every 5 years and rapidly rising rates will devour the budget. If the Fed does not inflate FRNs to soak up crashing Treasuries, then Congress will take over the Fed and 2010 republicans will hyperinflate by decree.
There will be no deflation in consumer prices. Sorry. The mass-inflation is already here. The stock market/real estate market is being reflated by TARP/GSE cash infusions and Fed outright purchases. 2 of 3 automakers are utterly insolvent yet still have $Bs in market cap. Oil, gold, silver are on a rocket.
Mass inflation is here. We are in it. Next stop, $4.00 gas.
When the big deflation comes in US Treaasuries, which will be triggered by Japan selling off to fund their looming fiscal crunch, the Fed will monetize (inflate FRNs) to keep interest rates down. If they don't, the US government will go bankrupt as most of the US debt rolls over every 5 years and rapidly rising rates will devour the budget. If the Fed does not inflate FRNs to soak up crashing Treasuries, then Congress will take over the Fed and 2010 republicans will hyperinflate by decree.
There will be no deflation in consumer prices. Sorry. The mass-inflation is already here. The stock market/real estate market is being reflated by TARP/GSE cash infusions and Fed outright purchases. 2 of 3 automakers are utterly insolvent yet still have $Bs in market cap. Oil, gold, silver are on a rocket.
Mass inflation is here. We are in it. Next stop, $4.00 gas.
Wednesday, October 21, 2009
More Predictions
10/20...
This latest market runup is nothing more than a reflation fueled by 0.00% money, levered up twenty times by banksters like Government Sachs.
90% of the bankster earnings are from the "carry trade" so to speak. They swap their bad assets (MBS) for Federal Reserve Notes which are used to shore up their margin accounts.
The Fed has "bought" close to $300 Billion in MBS since July 1 (check their H3 and H4 reports).
The speculative bubble is only possible with 0%, short term loans. The dollar crumbles daily and the Fed will be soon forced to act. But hiking rates will reveal the scheme as unsustainable and collapse the equity markets.
This latest market runup is nothing more than a reflation fueled by 0.00% money, levered up twenty times by banksters like Government Sachs.
90% of the bankster earnings are from the "carry trade" so to speak. They swap their bad assets (MBS) for Federal Reserve Notes which are used to shore up their margin accounts.
The Fed has "bought" close to $300 Billion in MBS since July 1 (check their H3 and H4 reports).
The speculative bubble is only possible with 0%, short term loans. The dollar crumbles daily and the Fed will be soon forced to act. But hiking rates will reveal the scheme as unsustainable and collapse the equity markets.
Saturday, July 25, 2009
Thursday, July 23, 2009
Fed Method
The monetary base has been expanded by roughly $1Trillion (more than doubled) since last Spetember. When the inflation comes (and you are seeing it already) how will the Fed pull liquidity out of the system?
Well, in 2008 the Fed devised a scheme whereby they can pay interest on bank deposits held on deposit with them. So when the inflated monetary base starts working it's way into the economy, the Fed can suck it back out by merely increasing the interest rate they pay to bankers for keeping their cash on deposit with the Fed.
What are the implications of this?
1. Does it not still create money in the form of monetized interest payments (albeit at a slower pace)?
2. Will the Fed get in a viscous spiral whereby they chase the market interest rates up?
3. Will the Fed's lucrative rates be made available to slobs like you and me?
Well, in 2008 the Fed devised a scheme whereby they can pay interest on bank deposits held on deposit with them. So when the inflated monetary base starts working it's way into the economy, the Fed can suck it back out by merely increasing the interest rate they pay to bankers for keeping their cash on deposit with the Fed.
What are the implications of this?
1. Does it not still create money in the form of monetized interest payments (albeit at a slower pace)?
2. Will the Fed get in a viscous spiral whereby they chase the market interest rates up?
3. Will the Fed's lucrative rates be made available to slobs like you and me?
Friday, February 27, 2009
It's coming
I called for hyperinflation last summer. It didn't pan out. Just as commodity prices were rocketing through the stratosphere, the great deleveraging began. Holders of real estate and stocks sold off and held cash. This is deflationary. I am certain it is temporary.
When the deleveraging ends (DOW at 4500, median home price at 2.5 xs median income) and we are on our 5th or 6th round of bailouts and stimulus, things will begin to creep up.
I'm watching the 10 year Treasury yield. The Treasury is having some trouble selling it's $2.5 trillion shit sandwhich in $33 Billion dollar bites. This means they have to offer it at a discount. When the price of bonds fall, the difference between their purchase and par value increases. This translates into higher yield. When the yield gets above 3%, I am treating it as a signal to buy gold coins (on the downtick).
So what's so bad about high inflation?
Here's how it goes down:
1) Prices, probably commodity and agricultural goods end their see-saw and start reflecting a permanent upward trend.
2) Within6-12 months, commodities double.
3) In the mean time, the economy worsens due to the interventions of the Keynesians.
4) With staggering unemployment 12-15%, there will be HUGE political pressure to end the "price gouging".
5) Government will insitute price controls on gasoline and certain foods.
6) Price controls will eradicate the profits in these industries.
7) There will be shortages. Shortages will lead to civil unrest. Government will blame "hoarding".
8) Businesses will lobby congress to enact wage controls to keep their costs down. Some businesses will get what they want, others (who have no political clout) will be nationalized.
9) A black market will evolve, rendering the price control mechanism meaningless.
10) With its prestige at stake, government will launch an assault on the illegal underground market.
11) We will devolve into a surveillance state. Prison populations will swell. There will be more unrest. More arrests. More unrest. More arrests. etc, etc.
Get ready. It could be a WILD RIDE ahead.
When the deleveraging ends (DOW at 4500, median home price at 2.5 xs median income) and we are on our 5th or 6th round of bailouts and stimulus, things will begin to creep up.
I'm watching the 10 year Treasury yield. The Treasury is having some trouble selling it's $2.5 trillion shit sandwhich in $33 Billion dollar bites. This means they have to offer it at a discount. When the price of bonds fall, the difference between their purchase and par value increases. This translates into higher yield. When the yield gets above 3%, I am treating it as a signal to buy gold coins (on the downtick).
So what's so bad about high inflation?
Here's how it goes down:
1) Prices, probably commodity and agricultural goods end their see-saw and start reflecting a permanent upward trend.
2) Within6-12 months, commodities double.
3) In the mean time, the economy worsens due to the interventions of the Keynesians.
4) With staggering unemployment 12-15%, there will be HUGE political pressure to end the "price gouging".
5) Government will insitute price controls on gasoline and certain foods.
6) Price controls will eradicate the profits in these industries.
7) There will be shortages. Shortages will lead to civil unrest. Government will blame "hoarding".
8) Businesses will lobby congress to enact wage controls to keep their costs down. Some businesses will get what they want, others (who have no political clout) will be nationalized.
9) A black market will evolve, rendering the price control mechanism meaningless.
10) With its prestige at stake, government will launch an assault on the illegal underground market.
11) We will devolve into a surveillance state. Prison populations will swell. There will be more unrest. More arrests. More unrest. More arrests. etc, etc.
Get ready. It could be a WILD RIDE ahead.
Friday, June 27, 2008
The Beginning of the End
I think the time has come. Forget stagflation, now we're talking HYPERINFLATION. Hyperinflation is the situation like in the Weimar Republic and in present day Zimbabwe where it takes a wheelbarrow of money to buy a loaf of bread.
Stagflation is the process whereby pumping cash into the economy in an attempt to boost demand and thus push output (which creates jobs) fails because supply is inelastic. Instead of an increase in output, all you get is higher prices. Staglfation exhibited in the 1970s destroyed the theory of using monetary and fiscal policy to inflate our way out of recessions. Stagflation destroyed the theories of John Maynard Keynes and knocked the monetarists woosy but Keynesianism still reigns supreme in places like the Fed and the Wall Street Journal. Google "P*" or read any WSJ article and look for the explanation the "consumption drives the economy". It's complete bullshit.
The Fed has been keystroking credit, bailing out multi-billionaires on Wall Street, and swapping worthless mortgage debt for YOUR Treasuries in an attempt to juice output by boosting demand. Its measures have failed. The market is down to its lowest level in 21 months. Instead of putting factories back into production, all that counterfitted liquidity has been parked in OIL and COMMODOTIES driving up their price.
Stagflation is no longer a worry, it is a reality. We are living it. The Fed says that inflation is 4.3% and 2.3% not counting food and fuel- as if none of us buys food and fuel. Set yourself up an algebraic equation. Even if you went to a public school you should be able to do this.
Let's call Inflation "I", Fuel and Food inflation "F" and Core inflation "C". Now lets assume that 25% of your expenditures goes to food and fuel leaving 75% for core items.
This leaves the following inflation calculation:
I = .25 * F + .75 *C.
Let's plug in what we know:
I = 4.3 and C = 2.3.
The now equation looks like this:
4.3 = .25 * F + .75 * 2.3
4.3 = .25F + 1.725
4.3 - 1.725 = .25F
2.575 = .25F
10.3 = F
So therefore, based on the BLS cpi #, fuel and food has increased only 10.3% in the last year. This should make your bulshit detector go off! This number is an absolute lie. It doesn't stand up to simple mathematical scrutiny. THEY ARE LYING TO YOU! THEY ARE LYING! THEY ARE LYING!
If you plug in a more realistic food and fuel inflation of 40% the equation results in an 11.725% rate of inflation! That is double digits, people.
Think of your grandmother who is on fixed income. The cpi determines her cost of living increase as a means of keeping her purchasing power "whole". The BLS says she gets a 4.3% increase but here costs are going up 11.725%. That means that her social security check, in real terms WAS CUT 7.4%!
This is the mechanism by which we are being robbed by the bankers and the Fed to line the pockets of the criminals on Wall Street.
But wait, it can get worse.
All fiat currencies fall victim to inflation- that is to say, politicians, finding direct taxation politically untenable, resort to counterfitting in order to make budgetary ends meet. The hope is that productivity growth (deflationary pressure) can eventually overcome their seignorage.
But what if the productivity does not catch up? What if, instead of buying new factories and infrastructure in recent years, liquidity was pumped into asset bubbles like dot coms and real estate for, oh, 15 years or so and now those bubbles have collapsed? Then what?
You are now inflating your phony money while simultaneously contracting output. The inflation pushes into interest rates because people don't like to get a negative return when they loan money. Interest rates sky-rocket. Investment hurdles become impossible to attain. Investment stops. New factories and roads and machines stop getting built. Capital flees the country. The economy shrinks. Profits evaporate. There are massive layoffs. Tax returns shrink. Governments can't borrow because they would have to pay 15, 20, 30% rates of interest. They can't raise taxes, no one has jobs (see Michigan)
So what do they do? THEY PRINT MONEY AND THEY PRINT AND PRINT AND PRINT! The word gets out. The gig is up. People know that their future money will be worthless so they start spending everything they have as soon as possible. Prices take off. 15% inflation, 30% inflation, 100% inflation. Then prices start increasing DAILY, then HOURLY!
Think I'm making this up? Google the Weimar republic or Zimbabwe inflation. We almost had this once in the early 1980s but Paul Volcker stepped in and squashed it by jacking up interest rates to the onscene levels necessary to restore confidence in the dollar. The result were two very bad recessions in the early 1980s. It resulted in capital flight oversees. Our maufacuring base left the country. That sector never fully recovered.
Since WWII we have benefited from the world using our fiat money as a defacto international currency. We buy goodies from the world in exchange for dollars. Instead of sending those dollars back here, they held on to them or spent them with other foreign nations. That meant that we got something for nothing. Well, that game is up. Our dollar is rapidly losing value and no one wants our crap dollars anymore. They are making their way back here, thus increasing their supply and driving down their value.
We will end up spending $3.5 Trillion fighting two wars in the Middle East that will accomplish NOTHING! That money came not from taxes but from the Chinese who lent it to us. How much more will they lend us? Our dollar is depreciating at a far greater pace then our 4% Treasury yield pays out. How stupid are the Chinese? I bet they won't be stupid for much longer.
We have a welfare statist or a warfare statist who will take office. One will flush billions down the welfare rathole and the other will flush billions down the warfare rathole. One subsidizes sloth and dependancy the other subsidizes corporate bomb peddlers. Either way, you pay.
With no place left to borrow and tax receipts drying up, the only recourse will be to counterfit. When this genie gets out of the bottle it may very well unleash another Weimar Republic here in America. Don't forget what that economic calamity led to.
P.S. I'm predicting DOW 9,000 by October. If you stick it out in your 401k you are a sucker. Take a max loan against it and pay down your HELOC in order to protect your asset.
Stagflation is the process whereby pumping cash into the economy in an attempt to boost demand and thus push output (which creates jobs) fails because supply is inelastic. Instead of an increase in output, all you get is higher prices. Staglfation exhibited in the 1970s destroyed the theory of using monetary and fiscal policy to inflate our way out of recessions. Stagflation destroyed the theories of John Maynard Keynes and knocked the monetarists woosy but Keynesianism still reigns supreme in places like the Fed and the Wall Street Journal. Google "P*" or read any WSJ article and look for the explanation the "consumption drives the economy". It's complete bullshit.
The Fed has been keystroking credit, bailing out multi-billionaires on Wall Street, and swapping worthless mortgage debt for YOUR Treasuries in an attempt to juice output by boosting demand. Its measures have failed. The market is down to its lowest level in 21 months. Instead of putting factories back into production, all that counterfitted liquidity has been parked in OIL and COMMODOTIES driving up their price.
Stagflation is no longer a worry, it is a reality. We are living it. The Fed says that inflation is 4.3% and 2.3% not counting food and fuel- as if none of us buys food and fuel. Set yourself up an algebraic equation. Even if you went to a public school you should be able to do this.
Let's call Inflation "I", Fuel and Food inflation "F" and Core inflation "C". Now lets assume that 25% of your expenditures goes to food and fuel leaving 75% for core items.
This leaves the following inflation calculation:
I = .25 * F + .75 *C.
Let's plug in what we know:
I = 4.3 and C = 2.3.
The now equation looks like this:
4.3 = .25 * F + .75 * 2.3
4.3 = .25F + 1.725
4.3 - 1.725 = .25F
2.575 = .25F
10.3 = F
So therefore, based on the BLS cpi #, fuel and food has increased only 10.3% in the last year. This should make your bulshit detector go off! This number is an absolute lie. It doesn't stand up to simple mathematical scrutiny. THEY ARE LYING TO YOU! THEY ARE LYING! THEY ARE LYING!
If you plug in a more realistic food and fuel inflation of 40% the equation results in an 11.725% rate of inflation! That is double digits, people.
Think of your grandmother who is on fixed income. The cpi determines her cost of living increase as a means of keeping her purchasing power "whole". The BLS says she gets a 4.3% increase but here costs are going up 11.725%. That means that her social security check, in real terms WAS CUT 7.4%!
This is the mechanism by which we are being robbed by the bankers and the Fed to line the pockets of the criminals on Wall Street.
But wait, it can get worse.
All fiat currencies fall victim to inflation- that is to say, politicians, finding direct taxation politically untenable, resort to counterfitting in order to make budgetary ends meet. The hope is that productivity growth (deflationary pressure) can eventually overcome their seignorage.
But what if the productivity does not catch up? What if, instead of buying new factories and infrastructure in recent years, liquidity was pumped into asset bubbles like dot coms and real estate for, oh, 15 years or so and now those bubbles have collapsed? Then what?
You are now inflating your phony money while simultaneously contracting output. The inflation pushes into interest rates because people don't like to get a negative return when they loan money. Interest rates sky-rocket. Investment hurdles become impossible to attain. Investment stops. New factories and roads and machines stop getting built. Capital flees the country. The economy shrinks. Profits evaporate. There are massive layoffs. Tax returns shrink. Governments can't borrow because they would have to pay 15, 20, 30% rates of interest. They can't raise taxes, no one has jobs (see Michigan)
So what do they do? THEY PRINT MONEY AND THEY PRINT AND PRINT AND PRINT! The word gets out. The gig is up. People know that their future money will be worthless so they start spending everything they have as soon as possible. Prices take off. 15% inflation, 30% inflation, 100% inflation. Then prices start increasing DAILY, then HOURLY!
Think I'm making this up? Google the Weimar republic or Zimbabwe inflation. We almost had this once in the early 1980s but Paul Volcker stepped in and squashed it by jacking up interest rates to the onscene levels necessary to restore confidence in the dollar. The result were two very bad recessions in the early 1980s. It resulted in capital flight oversees. Our maufacuring base left the country. That sector never fully recovered.
Since WWII we have benefited from the world using our fiat money as a defacto international currency. We buy goodies from the world in exchange for dollars. Instead of sending those dollars back here, they held on to them or spent them with other foreign nations. That meant that we got something for nothing. Well, that game is up. Our dollar is rapidly losing value and no one wants our crap dollars anymore. They are making their way back here, thus increasing their supply and driving down their value.
We will end up spending $3.5 Trillion fighting two wars in the Middle East that will accomplish NOTHING! That money came not from taxes but from the Chinese who lent it to us. How much more will they lend us? Our dollar is depreciating at a far greater pace then our 4% Treasury yield pays out. How stupid are the Chinese? I bet they won't be stupid for much longer.
We have a welfare statist or a warfare statist who will take office. One will flush billions down the welfare rathole and the other will flush billions down the warfare rathole. One subsidizes sloth and dependancy the other subsidizes corporate bomb peddlers. Either way, you pay.
With no place left to borrow and tax receipts drying up, the only recourse will be to counterfit. When this genie gets out of the bottle it may very well unleash another Weimar Republic here in America. Don't forget what that economic calamity led to.
P.S. I'm predicting DOW 9,000 by October. If you stick it out in your 401k you are a sucker. Take a max loan against it and pay down your HELOC in order to protect your asset.
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