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sdholloway56
Senior Advisor

So what if they're just pushing on a string?

Powell says the Fed will keep buying bonds until inflation picks up. What if it doesn't?

I was wrong about the inflationary impact of surging commodity prices in the last boom- it turned out to be a one-off with little impact on inflation after a quarter or two. And that was not a macro (too much money, too few goods) thing. It was from a) a dedicated effort to drive the dollar lower and $Ts entering into short dollar, long anything carry trades. b) 30 years of underinvestment in energy exporation vs. rising demand from China and c)government policy that linked the ag sector to energy.

Which doesnt mean we won't get some money trying to replay that game here but I'm not buying it as a new secular trend.

There is currently plenty of slack in the labor market so forget about that for some time.

Financial assets are already plenty rich by any historical measure so the deflationary risks seem to exceed the inflationary ones.

 

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44 Replies
timetippingpt
Honored Advisor

Re: So what if they're just pushing on a string?

Sounds about right Dave. 

I had an interesting discussion with one of my favorite Purdue Econ Profs last week. I wanted to know why no one ever points out the fact that unlimited currency creation has some major risks and negatives:

1) The richer get richer at an ever increasing rate until their asset values collapse.

2) The poor get poorer at an ever increasing rate until they just put an end to it.

3) The entire system just gets more and more brittle until it finally just shatters.

He wisely pointed out that we have been worried about those things for 30 years and it never happens. Fair point.

Well, until it does happen.

Silverwheaton
Senior Contributor

Re: So what if they're just pushing on a string?

We havent been doing QE foer thirty years, taking int. rates to zero for thirty years, and running deficits in the trillions for thirty years! Way different now. JMHO, This won't last more than 5 years without default.  Two ways to default, actual default or inflation. If inflation, it will take more than 5 years to finish it off.

 

erikjohnson61y
Veteran Advisor

Re: So what if they're just pushing on a string?

I have been reading some compelling articles (but what do I know?) that warn that it is not so much a currency collapse that is the danger, but a credit collapse. We have a $20 trillion economy that has roughly $75 trillion in debt, at unnaturally low interest rates. Easy credit allows for monopolies that couldn't otherwise exist - Exxon borrowing $150 Billion to buy Mobil, for example. But it also tempts consumers to borrow more than they could otherwise afford to service.  If (when?) a credit squeeze occurs, the whole thing could collapse rather quickly. Imagine borderline credit card customers start seeing "transaction denied" and they have to come up with real money (that they don't have). Then it will hit home that there aren't $75 trillion dollars out there - there is about $400 billion in actual currency and a whole lot of numbers on computer screens. Try going to the bank and getting a $50K loan to buy a tractor, and ask for it in cash that you can take to the dealer...

sdholloway56
Senior Advisor

Re: So what if they're just pushing on a string?

Do I get a sense that everyone responding believes this, but also believes it has not accelerated wildly under MAGA?

But as Hannah Arendt observed about Weimar Germany, hey "things were so terrible what were we to do?"

sdholloway56
Senior Advisor

Re: So what if they're just pushing on a string?

The fiscal insanity is mild in comparison to the financial insanity.

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sdholloway56
Senior Advisor

Re: So what if they're just pushing on a string?

Thus I imagine I actually have a lot of points of agreement with most, but no possibility of reconciliation on account of political identity.

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sdholloway56
Senior Advisor

Re: So what if they're just pushing on a string?

Really just about the limits of monetary policy and the fact that faith in it has become religious orthodoxy.

Not that political, at least in the way people are these days.

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sdholloway56
Senior Advisor

Re: So what if they're just pushing on a string?

There are actually a multitude of paths forward.

But they each require a consensus.

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sdholloway56
Senior Advisor

Re: So what if they're just pushing on a string?

this is about people claiming "it's not my fault".

Yes it is, yours and mine.

And clinging to that probably doesn't save you from the consequences in the least.

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