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:
- The Baby Boomer Survival Guide (Part I)
The Yellow Machines Go Silent PARIS – What should you do if you are running out of time and money? This is the question we get from readers over 50… over 60… and sometimes over 70. We baby boomers were famously “na… na… na… live for today.” Now, it’s tomorrow. And many of us – often through no fault of our own – are having trouble making ends meet. At the Diary, we write about the world of money. About economic policy and how it affects you. But what if,...
- Faith in Central Banks Dwindles
Even Bloomberg Notices that Something is Amiss As anyone who hasn't been in a coma knows, assorted central bank interventions have failed to achieve their stated goals over the past several years. A recent article at Bloomberg focuses on their failure to reach their “inflation” targets. Of course, this particular failure is actually reason to celebrate, as it means that consumers have at least been spared an even sharper decline in their real incomes than has been underway in spite...
- EU Moloch in a Fresh Bid to Inflate
Brussels Alters Capital Requirements to “Spur Lending” Saints preserve us, the central planners in Brussels are giving birth to new inflationist ideas. Apparently the 2008 crisis wasn't enough of a wake-up call. It should be clear by now even to the densest observers that a fractionally reserved banking system that flagrantly over-trades its capital is prone to collapse when the tide is going out. 2008 was really nothing but a brief reminder of this fact. The political and...
- The Baby Boomer Survival Guide (Part II)
A Lehman Moment for Commodities? LONDON – Today, we continue our philosophical look at what you should do if you are running out of time and money. (You can catch up on Part I here.) Where do we begin? With how to add wealth? Or how to lose it? The way to lose it is simple. You buy something that is not worth the money you paid for it. You are instantly poorer, whether you know it or not. The pleasingly plump. Illustration by jdeer69 DJIA, daily...
- US Stock Market: A Retest or Worse?
Gray Swans and Black Swans By Monday's close, the S&P 500 Index was closing in on the low established in the August swoon – such a retest was essentially our minimum expectation, as V-shaped rebounds are very rare. The question is now whether it will only be a retest, or if something worse is in the offing. No-one knows for sure of course, but we'll briefly discuss what we are looking at in this context. Image via NYTimes It is interesting that as the market...
- Climate Fanatics Run Into Public Relations Snag
Scientists Turn into Stalinists Last week, we happened to stumble across a press report about a group of climate scientists so eager to shut up their critics that they want to employ the State's police, courts and jailers for the purpose. Specifically, a group of academic (and presumably tenured) climate alarmists supporting the “CAWG” theory (CAWG=”catastrophic anthropogenic global warming”) have written a letter to president Obama, attorney-general Lynch and OSTP director...
- Swiss Parliament Shoots Down Socialist Utopia
No “Unconditional Basic Income” Similar to the minimum wage initiative pursued by Geneva-based socialists (which was rejected in a referendum - see “The Swiss Remain Sane” for details), another Utopian socialist dream has just floundered in Switzerland. As the European press reports, this time parliament has shot down a radical proposal forwarded by Socialist Party representative Andreas Gross. Photo via anti-kapitalismus.org Gross wanted the State to pay...