Obama + Bernanke = Inflation

[August1991]

Am I wrong?

[kuzadd]

yes, you are wrong, because your partisanship is showing. And also simplistic thinking.

the inflation that is coming had it seeds planted in the Bush regime, and the real estate bubble creating alot of "money" in the form of debt. Then the unrealistic spending ( money in the form of debt) that stemmed from the inflated house prices (more created money)

Look back at the decision to not publish the M3, for one.

One can also look at the Clinton presidency, near the end, for the beginning of the coming inflation.

[kuzadd]

or how about all the money that has been flowing from the central banks world wide?

don't you think that will cause inflation?

Was that Obama doing that?

One could even ask if that was George Bush doing that?

But certainly given your nonsensical assertation, Bush has been at the helm while this has all been going on.

http://www.guardian.co.uk/business/2008/se...nking.useconomy

The world's leading central banks tried again to ease the growing stress in the world's money markets yesterday with coordinated action to provide $180bn (£100bn) in extra liquidity.

Ya know the basics of inflation, to much money chasing to few goods.

Certainly the central banks have been printing money madly and no one is buying.

Isn`t that inflationary?

http://www.cbc.ca/money/story/2008/10/27/f...k-reserves.html

Grab a shovel

As panic took hold of Wall Street and almost every other equity market, central bankers started pumping new money into the financial systems of various countries as fast as possible.

The amounts involved grew so quickly that what were shocking figures at the beginning of the crisis became mundane as more companies ran into financial trouble.

On Sept. 18, for instance, the Bank of England added $52 billion Cdn in new liquidity for its banks.

Oct. 1 saw the British central bank push out another $39 billion in cash to give banks and other firms the monetary wherewithal to lend money.

Seven days later, the bank extended a whopping $81 billion in additional short-term credit for its financial institutions.

During this period, the U.S. Congress created a $700-billion US bailout package that would allow the government to invest in private-sector financial institutions and buy up toxic mortgage-backed commercial paper.

Printing money

Whether considering the U.S. Federal Reserve, the Bank of Canada or one of the other central banks, most of these methods of getting more liquidity into financial markets come down to one thing — printing money.

Rampant Printing of money = inflation

[peter_puck]

Am I wrong?

I think that remains to be seen. What Bush and Bernanke (the killer B's) will cause inflation. We have a record deficit and very low interest rates, both of which stimulate inflation. This will likely cause inflation to rise during the first part of his term.

The rest depends on what Obama does. Is he going to move to the centre like Clinton, or go left like Carter. If he would tell the truth to the American people "you can't run an economy on borrowed money" and balance the budget, he might be okay. I would have prefered McCain, but anything is an improvement on Bush (even picking the first name in the phone book for president).

[msj]

Yeah, that's right - the cause of all our economic problems are the result of a couple of years of Bernanke being at the helm of the Fed and a President elect for the past couple of weeks.

Just ignore all that has happened in the past few decades - deregulation, underfunding regulation, easy money thanks to easy Al Greenspan, etc...

Anyway, as for inflation, to the extent that Greenspan + Bush = deflation I suppose your equation in the title will be correct.

Make no mistake - we are in a deflationary environment right now and ZIRP (zero interest rate policy - google it) is likely to be the flavour of the day - welcome to Japan, 1990 everyone - and thanks for playing....

We will need inflation to keep the economy out of a spiral. Of course, if governments, banks, businesses and people didn't borrow so much and/or lend so recklessly in the first place, then we would not need inflation to "grow" our way out of this mess.

The bigger question is: are Obama and Bernanke capable of creating enough inflation and do they have the will to do it?

[Shady]

The rest depends on what Obama does

True, but Obama's insistance of another stimiulus package will only contribute to even higher inflation.

[GostHacked]

True, but Obama's insistance of another stimiulus package will only contribute to even higher inflation.

Well even the ones who proposed the last package are going back on their words. So how can Obama get blamed for this? Something is fundamentaly wrong and the finnancial core. So more stimulus packages won't work untill you understand the root cause. Fix that, and the rest falls into place.

[bush_cheney2004]

Well even the ones who proposed the last package are going back on their words. So how can Obama get blamed for this? Something is fundamentaly wrong and the finnancial core. So more stimulus packages won't work untill you understand the root cause. Fix that, and the rest falls into place.

Not sure what you mean by this....one could blame nobody or one could blame everybody, including Obama or Bush, who supported several "packages". As for the "core", we can expect better oversight and regulation (at least temporarily), but there will be no change to the fundamentals of credit/debt markets, fractional banking, or government budget deficits. Indeed, one school of thought is that governments are overreaching this time by bandaging a very needed bloodletting.

[Shady]

Indeed, one school of thought is that governments are overreaching this time by bandaging a very needed bloodletting.

Exactly. Short-term pain, for long-term gain.

[August1991]

Yeah, that's right - the cause of all our economic problems are the result of a couple of years of Bernanke being at the helm of the Fed and a President elect for the past couple of weeks.

Just ignore all that has happened in the past few decades - deregulation, underfunding regulation, easy money thanks to easy Al Greenspan, etc...

Anyway, as for inflation, to the extent that Greenspan + Bush = deflation I suppose your equation in the title will be correct.

Make no mistake - we are in a deflationary environment right now and ZIRP (zero interest rate policy - google it) is likely to be the flavour of the day - welcome to Japan, 1990 everyone - and thanks for playing....

We will need inflation to keep the economy out of a spiral. Of course, if governments, banks, businesses and people didn't borrow so much and/or lend so recklessly in the first place, then we would not need inflation to "grow" our way out of this mess.

The bigger question is: are Obama and Bernanke capable of creating enough inflation and do they have the will to do it?

Make no mistake, msj. I agree entirely that we are about to see a significant drop in most price indices. In the next few months, deflation will become a common word.

I'm thinking more about the medium to long term - that is, end of 2009 or even 2010. Obama's likely policies and Bernanke's bookish inclination (for lack of a better term) are bound to let the genie out of the bottle. By that, I mean that US base inflation may start to go to high single digits if not into double digits.

-----

Perhaps we should take a discussion about Greenspan to another thread. I know you don't like the guy and I must admit that I didn't particularly like him at first either. I felt that he was a little too willing to fiddle with and adjust the knobs (when in fact nobody really knows what knob does exactly what).

Nevertheless, he saw off an equity collapse and a tech collapse and herded over a sustained, impressive rise in real incomes. The world is a far better place now than it was in 1987 and Greenspan can take some credit for that.

One of the questions in the back of my mind is how Greenspan in his prime would have dealt with this housing bubble/mortgage mess.

[peter_puck]

True, but Obama's insistance of another stimiulus package will only contribute to even higher inflation.

No argument their. I never did understand the logic of a stimulus package. The US economy basic problem is that it runs on borrowed money. It consumes more than it produces and spends more than it brings in. You have record deficits and a rapidly aging population. You have an economy that is unready to face the future fuel crisis.

The solution ?

Borrow more money and give it to people who can go out and buy Ikea furniture to feel better.

What they should be doing is letting the market work it out.

Edited November 15, 2008 by peter_puck

[August1991]

No argument their. I never did understand the logic of a stimulus package. The US economy basic problem is that it runs on borrowed money. It consumes more than it produces and spends more than it brings in. You have record deficits and a rapidly aging population. You have an economy that is unready to face the future fuel crisis.

The solution ?

Borrow more money and give it to people who can go out and buy Ikea furniture to feel better.

That idea, while common, particularly on the anti-American Left, is essentially false.

The world is sending real things to the US and in return the world is receiving claims on American wealth. Rather than ask why Americans are doing this, you should ask why the world is doing this. In the US, the world finds the best returns possible with the lowest risk.

In very simple terms, if you owned a truck, where would it likely be put to best use and where would you likely still own the truck next year?

The US offers the traditions and institutions that put real wealth to good use and make defence of ownership likely.

----

As to your comment about a stimulus package, I think the US Fed and government had little choice this past autumn. The US financial system was facing a liquidity trap. Now, the economy faces a severe recession. The basic problem is one of confidence.

I fear that Bernanke and Obama combined will go overboard and we'll soon face a problem of inflation.

The role of the State in a market economy is still a work in progress.

[msj]

Make no mistake, msj. I agree entirely that we are about to see a significant drop in most price indices. In the next few months, deflation will become a common word.

I'm thinking more about the medium to long term - that is, end of 2009 or even 2010. Obama's likely policies and Bernanke's bookish inclination (for lack of a better term) are bound to let the genie out of the bottle. By that, I mean that US base inflation may start to go to high single digits if not into double digits.

The fact that you see 2009 and 2010 as "medium to long term" is quite telling.

Nevertheless, we agree on deflation right now.

I mean, come on - we see house prices dropping, commodity prices dropping, etc... it has already happened but our statistics are, once again, too slow and the methodology just plain dumb (it's really quite funny - house prices go up to bubble frothy levels and there is no inflation. House prices have been negative big time and there is no disinflation or deflation. It is yet another credibility gap in the methodology).

-----

Perhaps we should take a discussion about Greenspan to another thread. I know you don't like the guy and I must admit that I didn't particularly like him at first either. I felt that he was a little too willing to fiddle with and adjust the knobs (when in fact nobody really knows what knob does exactly what).

Nevertheless, he saw off an equity collapse and a tech collapse and herded over a sustained, impressive rise in real incomes. The world is a far better place now than it was in 1987 and Greenspan can take some credit for that.

One of the questions in the back of my mind is how Greenspan in his prime would have dealt with this housing bubble/mortgage mess.

Greenspan would have done what he has always done - lowered interest rates and blathered on about how the free market is self-correcting - i.e. fiddling while the mess got worse (hey, that's pretty much what Bernanke did! oh, but it helps when you are cheered on by recession deniers and poor information [poor statistical methodologies for example]).

Then Greenie would be forced to admit that he was "partially" wrong about his free market theory (wait, that did happen) and it's OK to spend trillions of dollars (printed or otherwise) for Americans to own an insurance company, so that AMEX can convert from a credit card company to a bank holding company so it can help itself to the handouts, so that 110 different banks can ask for $220 billion, so that GM and Ford can beg for some money too and so on.

Given that Greenspan is one of the causes of this mess he really doesn't have any credibility when it comes down to "what if" scenarios.

[August1991]

Greenspan would have done what he has always done - lowered interest rates and blathered on about how the free market is self-correcting - i.e. fiddling while the mess got worse (hey, that's pretty much what Bernanke did! oh, but it helps when you are cheered on by recession deniers and poor information [poor statistical methodologies for example]).

No, Bernanke didn't do that.

Our financial system - like our democracy, and our tax system - is based on trust. People like Greenspan inspire trust. Bernanke apparently doesn't.

Edited November 15, 2008 by August1991

[msj]

No, Bernanke didn't do that.

Our financial system - like our democracy, and our tax system - is based on trust. People like Greenspan inspire trust. Bernanke apparently doesn't.

There are people who prefer to look at fundamentals (which is why I harp on statistical methodologies, for example) and those who think it all comes down to some mysterious charisma.

I've picked my substance and you have picked your evanescence....

Not ironically, this is also a perfect commentary on Greenspan's reputation - substance (now that people are actually questioning the "Maestro's" policies and lack of policies) is leading to the disappearance of his once stellar reputation.

[August1991]

There are people who prefer to look at fundamentals (which is why I harp on statistical methodologies, for example) and those who think it all comes down to some mysterious charisma.

I've picked my substance and you have picked your evanescence....

Not ironically, this is also a perfect commentary on Greenspan's reputation - substance (now that people are actually questioning the "Maestro's" policies and lack of policies) is leading to the disappearance of his once stellar reputation.

Fair enough.

I'd be the first to say that in a free market, a competitor could imitate Greenspan's credibility. Well, we're not in a free market when it comes to a central bank. We're at teh heart of the State. I happen to think that Greenspan exercised the power of the State better than Bernanke.

IMV, Bernanke just doesn't get State power.

----

msj, you talk of "evanescence". Do you know what you are talking about? I happen to believe that individuals are rational. My first assumption is that groups are not rational.

[msj]

Yes, I know what evanescence means.

Hint: perhaps your fantastical dreams of the mighty Greenspan are fleeting?

Although, to be fair, it is a wee bit torturous use of the word....

Edited November 15, 2008 by msj

[stignasty]

Obama + Bernanke = Inflation

Am I wrong?

Inflation in itself isn't always a bad thing. In fact, it is an indicator of a growing economy. Hyperinflation is obviously undesirable. However, nothing provided in this thread points to that.

Perhaps it would be more productive to concentrate on the issues that are already before us instead of theorizing about what might happen in the future under an Obama administration. Right now it's like buying a wrecked car from the junkyard for your 15 year old to drive and worrying about what damage they might do to it when they get their driver's license.

[August1991]

Two graphs are circulating the blogosphere and they deserve consideration;

First graph

Second graph

In both cases, we're looking at the growth in the money supply in the US over the past 70 years or so using different measures. And also in both cases, look at the end of each graph. The money supply has increased remarkably in the past few months - whether in log terms or as a percentage of GDP.

In general, an increase in the money supply leads to inflation. OTOH, the US economy faced an exceptional credit crunch in the past few months, and something close to a liquidity trap. Bernanke applied everything he knows about economics.

To pick a terrible metaphor, our captain saw the iceberg, chose to turn hard to port and we are now (early 2009) in the awful, quiet waiting period to see if we will miss the iceberg (summer/fall 2009).

----

If we miss the iceberg, then what? There will be a whack of money in the system and an Administration with plans to spend it. Barack Obama has all the makings of a sophisticated American Bob Rae - media quick cool lines and all.

Rock and roll.

Edited January 27, 2009 by August1991

[msj]

August, you are forgetting about the velocity of money.

The graphs are meaningless unless this concept is understood - and neither graph consider this, ergo, it is not being understood.

Then there is the question of putting the cart before the horse.

[Sulaco]

August, you are forgetting about the velocity of money.

The graphs are meaningless unless this concept is understood - and neither graph consider this, ergo, it is not being understood.

Then there is the question of putting the cart before the horse.

Except that in the long term velocity is likely to increase again - at least once the banks clear up some of the issues that are causing them all to clam up right now.

And the Fed cannot control velocity. Once velocity increases, the increase in the money supply will become highly noticeable. These graphs are meaningless today, but they might be very meaningful a year or two from today.

[bush_cheney2004]

....And the Fed cannot control velocity. Once velocity increases, the increase in the money supply will become highly noticeable. These graphs are meaningless today, but they might be very meaningful a year or two from today.

You are right of course, as we get the same tired analysis, explanations, and solutions for a new set of problems and timelines. Unlike energy, wealth can be created and destroyed. We just invent new ways to do both.

[msj]

Except that in the long term velocity is likely to increase again - at least once the banks clear up some of the issues that are causing them all to clam up right now.

And the Fed cannot control velocity. Once velocity increases, the increase in the money supply will become highly noticeable. These graphs are meaningless today, but they might be very meaningful a year or two from today.

No, really?

Of course velocity is going to increase at some point.

Given that the Fed has just announced they are going to start buying long term treasuries hyperinflation will be upon us (unless they get lucky).

The question is how bad does one think the banking sector is?

If you think it is Roubini bad (i.e. over $3 trillion in mark downs/bad debt) then we have a ways to go before worrying about hyperinflation.

If the bank sector is not as insolvent as that then hyperinflation will be upon us by Q3/Q4 of 2009.

Make any investment decisions accordingly.

Edited January 28, 2009 by msj

[punked]

Isn't there the same problem as Japan had in the 1990's? Didn't they cut their interest rate to 0 too for like 10 years and the solution was hyperinflation caused by the government. Economics sometimes escapes everyone I think.

[GostHacked]

War on Terror

Financial Crisis

Failing manufacturing sector.

This leads to inflation.....