Posts Tagged ‘deflation’
Inflation: An Expansion of Counterfeit Credit
The Keynesians and Monetarists have fooled people with a clever sleight of hand. They have convinced people to look at prices (especially consumer prices) to understand what’s happening in the monetary system.
Anyone who has ever been at a magic act performance is familiar with how sleight of hand often works. With a huge flourish of the cape, often accompanied by a loud sound, the right hand attracts all eyes in the audience. The left hand of the illusionist then quickly and subtly takes a rabbit out of a hat, or a dove out of someone’s pocket.
Japan's Scary Budget
While all over Europe, governments are forced to face up to the fact that the markets have suddenly become alert to the dangers posed by the huge debt loads carried by modern-day welfare states, Japan's government just piles on more and more debt on its existing debtberg with seeming impunity.
In Italy, Mario Monti's 'honeymoon' is already over. He just passed a fairly strict 'austerity' budget (recently denounced by the Northern League as a 'recessionary budget' – and rightly so, as it leaves the bulk of spending untouched and mostly imposes new taxes), but Italian bond yields are already back on the rise. Note here as an aside that the current level of the yield on Italy's 10 year note is not directly comparable to the time when a similar level was first reached, as the benchmark bond used by data providers has in the meantime been changed to a higher-yielding one – alas, it is the direction in which yields are heading that is relevant. Monti's real fight meanwhile is still ahead – he will have to challenge powerful vested interests as he attempts to implement structural reform.
Central Bank Pumping Expectations
Not only is the ECB expected to deliver fresh easing measures when it meets on December 8, but we are now getting rather precise forecasts as to the expected size of the upcoming 'QE3' MBS monetization program by the Fed as well.
A Paucity of Imagination
We want to return to a theme we have recently discussed in these pages, namely the allegedly exhaustive hypotheses regarding the possible solutions to the euro area's problems that are regularly presented to us in the media.
Leading intellectuals and economists usually list a set of choices based on the views of the current economic orthodoxy, which choices they insist are all that is possible or even imaginable.
The main problem from our point of view is of course that no-one in the mainstream has as of yet really given voice to the so-called 'unthinkable', which in a way demonstrates what it really consists of (if it weren't 'unthinkable', they would have thought of it).
The FOMC Decision – Some Advance Kremlinology
We have tried to get an idea of what to expect from the FOMC on Wednesday, but must admit we couldn't really make up our mind. One line of argument goes 'Ben Bernanke will try to shock the markets by doing much more than most people currently expect'.
Both Rosenberg and Fleckenstein are quite capable analysts of the economy and financial markets, so it is certainly worth considering what they are saying. Here is what we like about their idea, aside from the reasons they have laid out themselves: First of all, it is notable for being a minority view at the moment. This is at least our opinion from observing anecdotal evidence and a recent Bloomberg survey confirms that the vast majority of economists expects 'only' a variation of 'Operation Twist' ('OT') to be announced, whereby the Fed will simply alter the term structure of its balance sheet by selling shorter term and buying longer term debt. The aim would be to lower long term interest rates (this is to say, the operation would tend to flatten the yield curve).
More Inflation Please!
The world is waiting with bated breath for the annual gathering of monetary cranks at Jackson Hole, as depicted here by William Banzai7. The most closely observed speech will be that of the bearded wonder, that 'expert on the Great Depression', Ben Bernanke, the world's foremost money helicopter pilot. The man who alternately is, or isn't printing money, depending on the year in which you ask him about it.
Will he or won't he shower us with more monetary heroin? Wounded stock market bulls would dearly like to know (mostly, they want to know when, see further below). Since Bernanke used last year's gathering at Jackson Hole to prepare the markets for the policy failure known as 'QE2', it is widely hoped that he will once again rise to the occasion and promise more inflation.
… but it stands on a weak foundation.
The expected rebound in stocks and commodities has continued on Monday, but there are a number of signs that this is not much more than a short covering rally that is unlikely to last. Although yields on euro area government bonds and CDS on them have continued to decline (we will update the euro area charts tomorrow), the fact remains that the economy is under pressure, so bounces in stocks have to be approached with great caution – they are more likely to represent selling opportunities than a reason to buy at this stage. Notably the recent rally has inter alia been triggered by a short selling ban in several European countries. Short selling bans have historically always been medium term bearish events – they can trigger a bounce lasting for a few days, but in the long run they are extremely counterproductive, as they lower liquidity and hinder the price discovery process. By taking away the opportunity to hedge, they ultimately create even more selling pressure than would have appeared otherwise. This latest short selling ban is thus likely destined to fail as well – one wonders why the authorities even bother.
Most read in the last 20 days:
- Gold and Gold Stocks – A Meaningful Reversal?
A Negated Breakdown There have been remarkable gyrations in the gold sector lately. The typical rebound out of a November/December low (typical in recent years after the end of the tax loss selling period) was initially cut short in January in the course of the global stock market decline. This was a bit surprising, because it was widely held that the recovery in the gold price was a result of said stock market decline. Photo via genius.com We suspect that in it was...
- Inflation-Spewing Dragon
Dovish Cooing from the Desolation of Draghi As Reuters informs us, on the heels of Mr. Draghi's somewhat “disappointing” attempt to assassinate the euro on occasion of the previous ECB meeting, the chief European printing press supervisor and certified monetary crank has decided to assure everyone of his ultra-dovish stance again on Thursday, by announcing that even more monetary insanity must be expected soon: “Fading growth and inflation prospects will force the European...
- The Walking Dead: Something is Rotten in the Banking System
A Curious Collapse Ever since the ECB has begun to implement its assorted money printing programs in recent years - lately culminating in an outright QE program involving government bonds, agency bonds, ABS and covered bonds - bank reserves and the euro area money supply have soared. Bank reserves deposited with the central bank can be seen as equivalent to the cash assets of banks. The greater the proportion of such reserves (plus vault cash) relative to their...
- The Bank of Japan – Ringing in the Endgame?
Let's Do More of What Doesn't Work It is the Keynesian mantra: the fact that the policies recommended by Keynesians and monetarists, i.e., deficit spending and money printing, routinely fail to bring about the desired results is not seen as proof that they simply don't work. It is regarded as evidence that there hasn't been enough spending and printing yet. BoJ governor Haruhiko “Fly” Kuroda: is that a windshield I'm seeing? Photo credit: Yuya Shino / Reuters At the...
- The FOMC Decision: The Boxed in Fed
An Imaginary Bogeyman What's a Keynesian monetary quack to do when the economy and markets fail to remain “on message” within a few weeks of grandiose declarations that this time, printing truckloads of money has somehow “worked”, in defiance of centuries of experience, and in blatant violation of sound theory? In the weeks since the largely meaningless December rate hike, numerous armchair central planners, many of whom seem to be pining for even more monetary insanity than the...
- Skyscraper Mania Goes Global
New Skyscrapers Wherever one Looks Readers may recall our recent discussion of the construction of the Jeddah Tower (see “Soaring to Bankruptcy” for details). This skyscraper is a typical symptom of an artificial boom that has moved past its due date, so to speak. The idea behind the skyscraper index is that in light of the immensity of projects that involve the construction of the tallest building in the world (or one of the tallest), they are only realized once the notion that boom...
- The End Is Nigh for the Fed’s “Bubble Epoch”
Market Mythology LONDON – Twice in the last 15 years, markets have tried to correct the mistakes and excesses of the Bubble Epoch. Each time, the Fed came back with even more mistakes and excesses. Trillions in new credit… lower lending rates… easier terms… ZIRP… QE… and the Twist! The gaggle of price-fixers the job of which is to regularly falsify one of the most important price signals in the economy. The idea that the economy can be “improved” by the...
- Softening up the Rubes – the War on Cash Continues
More Anti-Cash Propaganda by Bloomberg Former NYC mayor Bloomberg is probably one of the worst nannycrats who ever strode upon the US political scene. No-one has done more to take the fun out of New York than this man (we have chronicled the efforts of people of his ilk in “America's Killjoys”). It always amazes us to no end when successful businessmen - once they have made enough money to last them a thousand lifetimes – suddenly discover their penchant for socialism and State...
- China’s $6.6 Trillion Toxic Loan Problem
Rotting Vegetables “As long as you’re green, you’re growing. As soon as you’re ripe, you start to rot,” once remarked Ray Kroc, mastermind of the McDonald’s franchise empire. At the moment, no truer words can be spoken for China’s ripe economy. The Middle Kingdom’s 30-year economic boom is being overcome with the unpleasant odor that befalls rotting vegetables. What’s more, there’s no way to reverse it. Photo credit: fmh Economic...
- In Praise of Sarah Palin…
Up and Down MUMBAI, India – The Dow dropped 208 points on Monday – or about 1.3%. After last week’s pause, it will be interesting to see if the sell-off resumes. “Global equities in turmoil,” reads a CNBC headline. “A month after raising rates, Fed faces darker global economy,” suggests an AP newswire report. Neither of these is true. The world has not changed significantly in the last month. What has changed? The squiggly lines are going down instead...