Economics Questions

Re: Inflation might not be coming after all

Caley McKibbin — Fri, 30 Apr 2010 05:54:00 GMT

"Consumer confidence" is more or less a chimera.

Re: Inflation might not be coming after all

wolfman — Thu, 29 Apr 2010 13:59:04 GMT

@ bloomj31

Just because you know what's going to happen in general doesn't mean you know exactly when it's going to happen and how it's going to play out.

Timing is everything in investing.

True: But what do you think about the topic being discussed.??

Re: Inflation might not be coming after all

wolfman — Thu, 29 Apr 2010 13:56:19 GMT

@ Giant_Joe

Would banks make risky loans from their pools of excess reserves at 4%, or get paid by the government to hold on to those reserves?

The only way I see out of this is for the fed to actually increase the reserve requirements.

If they increase the reserve requirement they will effectively curve the excess reserve in the short run and they will at the same time make the banking industry safer in the long run.

Don't forget that the lower the reserve requirement the higher the damage on FRL and vice versa.

Re: Inflation might not be coming after all

wolfman — Thu, 29 Apr 2010 13:53:15 GMT

@ Clayton

@OP: You're forgetting quantitative easing (QE). Yes, the tidal wave of money sitting on deposit at the Federal Reserve will not become inflationary unless consumer confidence returns. If people forget about the economy's near death experience and resume their borrow-and-spend lifestyle, that money will burst through the "dam" you have described like a tidal wave and prices will begin rising rapidly. But if consumers do not buy Bernanke's "green shoots" bullshit and continue increasing their demand for cash balances, the Fed will simply expand its QE activities. QE is not "pushing on a string", it's outright money printing, pure and simple.

"Consumer confidence is irrelevant to the topic here"

My point is exactly that consumers & corporations can't return to their borrow/spending way of life. The key to the analysis is to know this.

Re: Inflation might not be coming after all

bloomj31 — Thu, 29 Apr 2010 06:10:10 GMT

Just because you know what's going to happen in general doesn't mean you know exactly when it's going to happen and how it's going to play out.

Timing is everything in investing.

Re: Inflation might not be coming after all

onebornfree — Thu, 29 Apr 2010 06:06:48 GMT

Smiling Dave:

What of those who have actually predicted things? Were they just lucky guesses?

The short answer is, yes, plain old luck.

It is also worth checking very closely as to what someone claims that they have predicted. Go back and check what they actually said originally.

For years I kept files on economists and investment advisors or anyone else who made predictions on a regular or semi-regular basis.

Whenever they made a claim about something they had successfully predicted, I'd check my files to see what they had actually said "back then".

Usually they had actually said something very different from what they later claimed.

Their original words were usually vague and entirely ambiguous and open to various interpretations , which they would then later tell you only meant one thing- which they now happened to see as being predictive .

Sometimes their new claims about predicting events were just plain , flat out lies.

Most counted on not being checked up on.

Every once in a while someone would get something right and there was clear evidence of that being the case.

This was an entirely random event apparently not dependent on economic philosophy or anything else , and what do you know, just as soon as I started using/ relying on the supposed predictive powers of any one individual, their predictive powers would magically evaporate.

The Hulbert Financial Digest is a monthly newsletter dedicated to tracking financial advisors predictive track records.

It is, or should be, somewhat sobering to see that the best performing newsletter changes virtually every year , and is, in itself, entirely unpredictable.

Regards, onebornfree.

Re: Inflation might not be coming after all

Giant_Joe — Thu, 29 Apr 2010 04:07:50 GMT

Would banks make risky loans from their pools of excess reserves at 4%, or get paid by the government to hold on to those reserves?

The only way I see out of this is for the fed to actually increase the reserve requirements.

Re: Inflation might not be coming after all

Smiling Dave — Thu, 29 Apr 2010 03:15:41 GMT

"It is impossible to know and reliably predict future economic scenarios with any degree of accuracy"

What of those who have actually predicted things? Were they just lucky guesses?

Re: Inflation might not be coming after all

onebornfree — Thu, 29 Apr 2010 00:29:41 GMT

"Inflation might not be coming after all"

In yours and my lifetimes, inflation, and the accompanying high interest rates might, or might not, become a serious concern for the majority in the US, as it was in the late 1970's and early 1980's.

It is impossible to know and reliably predict future economic scenarios with any degree of accuracy, and a thorough understanding of Austrian economic theory by an "Austrian economist" or an "Austrian financial advisor" [or of any other school of economic philosophy] will not alter this fact of life/reality.

Realistically, in yours and my lifetimes, anything is possible: disinflation, deflation, moderate inflation, hyper inflation, even a return to so-called "good times and prosperity", and none of these scenarios can be reliably foreseen, by anyone.

Any reasonable attempt at preserving [let alone increasing] the purchasing power of long term savings must therefor be able to simultaneously protect against all of the above, without the constant and self destructive need to try to second guess where markets are headed by the incessant buying and selling of various types of investment vehicles which make up an individuals savings program.

To learn a little more about my claims above, just click on my profile name "onebornfree" and review the link there in my profile : "Financial Safety Rule #1", then perhaps private message me if you would like to know a little more.

Regards, onebornfree.

Re: Inflation might not be coming after all

Clayton — Wed, 28 Apr 2010 22:16:20 GMT

"Govt spending does not add to inflation as bank lending does to the private sector."

Yes, it does. Because what does government spend its money on? Exactly, they pay the private sectors to do stuff for them or give it to their federal employees who will then spend it on products of the private sector. The U.S. "borrows" through the federal reserve, transfers it to the private sector for services that increase its influence/power (like war, health "care", etc) and that money enters thereby the market. And the faster the money loses value while interest rates do not go up, the more are people willing to spend/go into debt and the less they are willing to save/pay debt. Because if you have high inflation in the first place, debt matters less. (Thought experiment: Would it not be very smart to go into huge debt before a hyperinflation, buy lots of commodities and then when hyperinflation hits, you can easily pay off your debt by selling only a tiny amount of the commodities you acquired? With lower inflation the advantage gained will be lower, but it's like a vicious circle in that the more debt is created through this process, the more it is worth to take debt)

Brilliant response. Wish these boards had a reputation system.

Clayton -

Re: Inflation might not be coming after all

Clayton — Wed, 28 Apr 2010 22:13:58 GMT

Clayton -

Re: Inflation might not be coming after all

cret — Wed, 28 Apr 2010 19:12:18 GMT

are savings that you mention dollars that are not already in banks????

Re: Inflation might not be coming after all

LibertarianfromGermany — Wed, 28 Apr 2010 19:04:22 GMT

al gore the idiot:
Contrary to what people think, the bubble didn't start 10 years ago with the real estate boom, it started right after the Great Depression.

Exactly, the bubble started when the gold standard was abandoned; the "real" value of paper money is zero(of course you can't say that definitely since value is subjective, but you get the point). When the paper money bubble bursts, there will not be deflation, but almost infinitely high inflation as people realize that fiat money is not real money.

And as said before, even if consumers and businesses won't take any more debt, the government will. Because if consumers and businesses suddenly stopped spending, their great "consumption" numbers will go down which in their views will mean that a giant crises is happening. To "stimulate" spending, government will either dramatically increase its budget or just pay for large amounts of private debt - probably both.

Re: Inflation might not be coming after all

LvMIenthusiast — Wed, 28 Apr 2010 18:05:22 GMT

What about the sovereign debt of the US? I mean we can obviously default, but would the US govt ever do that?

Re: Inflation might not be coming after all

xahrx — Wed, 28 Apr 2010 17:54:54 GMT

"Is the US gov't running a deficit or not? It was a couple trillion per year last I checked. Where do you think that money is coming from? People's savings? More like banks." - bearing01

That was my point, that people/organizations will borrow money, the only questions being who, where, and why they decide to do so...