The Road to Stagflation

Discussion in 'Economy' started by boedicca, Aug 23, 2010.

  1. boedicca
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    boedicca Uppity Water Nymph Supporting Member

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    This is one of the better analyses I've read lately on our current economic woes, and where they are leading. Given the dismal monetary mess the Fed has gotten us into, the likely outcome is 70s style stagflation.

    Recommended reading.

    ...What can the Fed do? They can’t lower the federal funds rate because it's already as low as it can go. And this hasn’t worked anyway.

    This is what the big change in Fed policy was all about.

    There was a huge internal fight at the Fed between the anti-deflationists and the anti-inflationists, and the anti-deflationists won. The Fed decided they'd fight deflation through quantitative easing (QE).

    With QE -- another tool the Fed has to increase money supply -- the Fed buys Treasury debt (bills, notes, and bonds) from its primary dealers and prints money to pay for it. This puts money directly into the economy.

    It’s not as if this is something new. From last year through April of this year, the Fed bought $1.25 trillion of debt issued by Fannie Mae and Freddie Mac. They also bought about $700 million of Treasury debt. This put $2 trillion of new money into the economy. This apparently wasn’t enough.

    The second important thing they announced is that they'll replace their Fannie/Freddie paper with Treasury debt. This seems harmless at first because the Fed isn't increasing its total debt holdings -- yet.

    They announced this with a seemingly innocuous statement: that they'd keep their current level of debt at about $2 trillion. In Fed-speak this means they're clearly worried about the sinking economy, and that they'll print as much fiat money as they think is necessary to increase the money supply to induce inflation.

    In economic terms, buying Treasury debt is called “monetizing” debt. In plain English it means that the government prints money to pay for its debts. This policy has been the downfall of many governments who destroy their currency through hyperinflation.

    As soon as unemployment starts to go up again, and I believe it will, the politicians will be all over the Fed to “do something.” That "something" will be massive QE. I'm quite sure that the Fed hasn't figured out how much QE they'll need, and that they're unsure of its impact on the economy.

    I have a pretty good idea of where it will all end up. Since they're not dealing with the underlying problems, this papering over of the problems will lead to inflation and economic stagnation, a phenomenon we saw in the 1970s called “stagflation."


    The Road to Stagflation: Fed Thinks Money Printing Will Fight Deflation, Unemployment | Markets | Minyanville.com
     
  2. Neubarth
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    Neubarth At the Ballpark July 30th

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    Almost everything posted above is a lie. I can not believe that people make up all of this crazy shit. Nobody in his right mind would ever believe it.
     
  3. Paulie
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    Paulie Platinum Member

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    Do you need to be reminded ONCE-A-FUCKING-GAIN that when the phrase "print money" is used that it isn't literally meant to mean that the Fed itself is printing money?

    The Fed has the lone authority to create new money. Whether they enter money electronically onto their balance sheet out of thin air, or they have the BEP print it up, they are still creating new money.

    Just shut the fuck up, because everyone here who knows dick about economics knows that you're a fucking dumbass when it comes to the Fed.

    Seriously...SHUT THE FUCK UP.
     
    Last edited: Aug 23, 2010
  4. 8537
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    8537 Senior Member

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  5. Paulie
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    Paulie Platinum Member

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    This isn't what's being argued though. Neubarth loves to be contentious in these arguments about the Fed. He argues semantics over the issue of where new money comes from.

    I know Fed policy very well. It's Neubarth here who needs the education.
     
  6. 8537
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    8537 Senior Member

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    Then what, exactly, are you attempting to argue? It's hard to envision stagflation while the Fed is still paying on deposits.
     
  7. Paulie
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    Paulie Platinum Member

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    I never even opened up discussion about the affects of monetary policy.

    I merely said that the Fed has the lone authority to create new money. Neubarth doesn't seem to think so, simply because people use a generic phrase like "print money" and it isn't specifically the Fed itself that does the printing.

    The BEP prints at the behest of the Fed. And the Fed can create any new amount of money it wants electronically and use it for purchasing debt instruments, securities, etc.
     
  8. Paulie
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    Paulie Platinum Member

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    He'll come in here and tell you I'm lying, even though there's a plethora of documentation on this board that proves otherwise.

    When he's caught looking like an idiot, everyone's a liar. That's his thing.
     
  9. 8537
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    8537 Senior Member

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    The article you presented in the OP is a few hundred words about monetary policy, yes? Perhaps I'm confusing the intent of the OP.

    OOPS! Now I see...You didn't post the first story. My apologies - I was working under the assumption you posted the article.
     
  10. Paulie
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    Paulie Platinum Member

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    I do however, think it's a bit naive to assume the Fed will have a quick and efficient exit strategy.

    History proves otherwise.
     

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