Our biggest problem is deflation - not inflation

[DarthTrader]

Right now the US is suffering inflation. But the US has been chronically plagued with the threat of deflation. Particularly because of its endless deficit spending which is acting as deflationary.

There's not enough risk free return (good yielding US Treasuries) and so bank balance sheets are constantly pushed into more risky ventures which requires better capitalization and therefore less money deployed or loaned out.

This is immediately visible by how fast the dollar has moved just with a the 10year yield rising by 200 basis points. The dollar hasn't sustained this high a value against other currencies since 2000-2003 when interest rates were 1%-3.5% higher, and the 1980 - 1986 period when interest rates were 10% - 14% higher.

So just this tiny move from ~1% to ~3% on the 10y has sent the dollar skyrocketing.

That shows how few dollars there are for the demand there is. Supply and demand. Too few dollars = deflationary. The FED is afraid they'll quickly go from inflation to deflation which is worse.

I think that deflation is unavoidable. Because deflation is the natural result of "deleveraging" and we must deleverage. Right now the US FED is something like 850x levered (equity vs. outstanding liabilities and assets).

The world is more leveraged than ever before.

Japan is a great example, it hit max leverage 20 years ago and their economy has been deflating ever since because they refuse or are unable to allow their currency to deflate which would destroy their trade surplus they rely upon so much.

So in short, the whole world is about to be forced to deleverage. Which means the advantage is to Russia and China.

 

[Darkwind]

It's actually, depression. We are right on the edge of it.

That is a real concern.

 

[pknopp]

When you do stupid things, bad things happen. All the same, Japan is fine.

 

[DarthTrader]

When you do stupid things, bad things happen. All the same, Japan is fine.

Japan has a lost generation, not sure how that's "fine".

 

[pknopp]

Japan has a lost generation, not sure how that's "fine".

They haven't lost squat.

 

[Toddsterpatriot]

Right now the US is suffering inflation. But the US has been chronically plagued with the threat of deflation. Particularly because of its endless deficit spending which is acting as deflationary.

There's not enough risk free return (good yielding US Treasuries) and so bank balance sheets are constantly pushed into more risky ventures which requires better capitalization and therefore less money deployed or loaned out.

This is immediately visible by how fast the dollar has moved just with a the 10year yield rising by 200 basis points. The dollar hasn't sustained this high a value against other currencies since 2000-2003 when interest rates were 1%-3.5% higher, and the 1980 - 1986 period when interest rates were 10% - 14% higher.

So just this tiny move from ~1% to ~3% on the 10y has sent the dollar skyrocketing.

That shows how few dollars there are for the demand there is. Supply and demand. Too few dollars = deflationary. The FED is afraid they'll quickly go from inflation to deflation which is worse.

I think that deflation is unavoidable. Because deflation is the natural result of "deleveraging" and we must deleverage. Right now the US FED is something like 850x levered (equity vs. outstanding liabilities and assets).

The world is more leveraged than ever before.

Japan is a great example, it hit max leverage 20 years ago and their economy has been deflating ever since because they refuse or are unable to allow their currency to deflate which would destroy their trade surplus they rely upon so much.

So in short, the whole world is about to be forced to deleverage. Which means the advantage is to Russia and China.

Particularly because of its endless deficit spending which is acting as deflationary.

Why is deficit spending deflationary?

Right now the US FED is something like 850x levered (equity vs. outstanding liabilities and assets).

Scary!!!
What is their current equity? Current outstanding liabilities? Current assets?
Why does it matter?

 

[excalibur]

They haven't lost squat.

You are clueless.

 

[Moonglow]

Right now the US is suffering inflation. But the US has been chronically plagued with the threat of deflation. Particularly because of its endless deficit spending which is acting as deflationary.

There's not enough risk free return (good yielding US Treasuries) and so bank balance sheets are constantly pushed into more risky ventures which requires better capitalization and therefore less money deployed or loaned out.

This is immediately visible by how fast the dollar has moved just with a the 10year yield rising by 200 basis points. The dollar hasn't sustained this high a value against other currencies since 2000-2003 when interest rates were 1%-3.5% higher, and the 1980 - 1986 period when interest rates were 10% - 14% higher.

So just this tiny move from ~1% to ~3% on the 10y has sent the dollar skyrocketing.

That shows how few dollars there are for the demand there is. Supply and demand. Too few dollars = deflationary. The FED is afraid they'll quickly go from inflation to deflation which is worse.

I think that deflation is unavoidable. Because deflation is the natural result of "deleveraging" and we must deleverage. Right now the US FED is something like 850x levered (equity vs. outstanding liabilities and assets).

The world is more leveraged than ever before.

Japan is a great example, it hit max leverage 20 years ago and their economy has been deflating ever since because they refuse or are unable to allow their currency to deflate which would destroy their trade surplus they rely upon so much.

So in short, the whole world is about to be forced to deleverage. Which means the advantage is to Russia and China.

You left out QT.

 

[pknopp]

You are clueless.

You didn't actually even say anything. Some dumb. meaningless blurb.

 

[DarthTrader]

Particularly because of its endless deficit spending which is acting as deflationary.

Why is deficit spending deflationary?

Depends on the theory, but I trust the 1987 GAO theory more than the modern day one. 1987 was written by badasses who fixed the economy. Today is written by Yale puff-pastries who can't CEO a company out of a paper bag.

Basically - on its own - Deficit spending is "creating money". But in the market system, it's changing things that end up being more deflationary. It's putting pressure on the dollar to go up, not down, as interest rates are king. The people in the 80s were battling inflation like a dragon, so I trust their views.

Right now the US FED is something like 850x levered (equity vs. outstanding liabilities and assets).

Scary!!!
1. What is their current equity? 2. Current outstanding liabilities? 3. Current assets?
4. Why does it matter?

1. Because I'm fiscally conservative and don't buy into the Federal Reserve "accounting shenanigans" I only count the FED's tangible assets as equity. (Gold, property, etc.)
2. Federal Reserve Board - Recent balance sheet trends
3. Federal Reserve Board - Recent balance sheet trends
4. Whenever the equity is far exceeded by the liabilities (which I include QE Treasuries and MBSs as that side of the balance sheet), there has been a repricing of Gold. Right now - if the FED wants to offset its liabilities fully, gold will reprice to ~$8,000 an ounce.

I don't believe Gold will make it to $8,000. The FED doesn't have to unwind completely, they could just unwind a little: gold repriced to $2,500 or $3,000. But even that is a pretty massive deflationary event. And the US government hates to let it happen because China and Russia are sitting on mountains of gold and have options to "inflate" if needed.

If you argue that the FED QE treasuries/MBSs are also assets, then the balance sheet of the FED looks healthier. But those assets are bought with "printed money" - so eventually you have to reprice gold to balance the equity and the FED operates that way. It never fails.

Gold was repriced in the late 1970s when the FEDs started inflating its liabilities. And gold repriced again when the FED further increased its liabilities in 2000-2008. Then repriced AGAIN when the FED introduced QE which is the outlier. Again why I argue that QE isn't an "asset". It isn't exactly a liability either unless it becomes monetized which is a risk. So if anything QE represents counterparty risk which raises interest rates in the near term and is therefore nearterm deflationary:

To help justify my views on QE:


Still looking for one of the videos I like that explains the FED equity side.

 

[DarthTrader]

You left out QT.

Eh - I get bored writing complex stuff as it turns out.

But what about QT specifically?

I think QT will not find buyers. They want to "roll off" but with MBS specifically I don't think they will have enough securities to let roll off. They will have to sell to open market. And there won't be a bid so the MBSs will sell at a massive loss and push the mortgage rates up higher. I don't think the FED anticipates this landmine.

 

[Moonglow]

Eh - I get bored writing complex stuff as it turns out.

But what about QT specifically?

I think QT will not find buyers. They want to "roll off" but with MBS specifically I don't think they will have enough securities to let roll off. They will have to sell to open market. And there won't be a bid so the MBSs will sell at a massive loss and push the mortgage rates up higher. I don't think the FED anticipates this landmine.

I am ready to see the fat cats die on the vine.

 

[DarthTrader]

I am ready to see the fat cats die on the vine.

They won't, poor people will bear the brunt and the drone force (look at a map of drone bases around the country) will make sure the rich aren't damaged.

 

[DarthTrader]

Particularly because of its endless deficit spending which is acting as deflationary.

Why is deficit spending deflationary?

Right now the US FED is something like 850x levered (equity vs. outstanding liabilities and assets).

Scary!!!
What is their current equity? Current outstanding liabilities? Current assets?
Why does it matter?

This video explains gold in the Federal Reserve pretty well. It wasn't the one I was thinking of so I am vetting it now.

 

[DarthTrader]

Oh and if you do watch that video, he already does the "deleveraging" for you. The 850x leverage is basically if you account for all liabilities discounting the fake assets (treasuries) at the gold price of $44.2222/oz.

It's why I'd argue that the US is no where close to as broke as people think. It's just the problem of "recapitalization" is deflationary and the world is deathly afraid of it.

 

[jwoodie]

Why all the jargon? If an economic collapse is coming, please describe when it will arrive and how it will look.

 

[Toddsterpatriot]

Depends on the theory, but I trust the 1987 GAO theory more than the modern day one. 1987 was written by badasses who fixed the economy.

You haven't posted anything that says "deficit spending is deflationary". Try again?

Because I'm fiscally conservative and don't buy into the Federal Reserve "accounting shenanigans" I only count the FED's tangible assets as equity.

Their Treasury bonds aren't tangible enough? Counting them is shenanigans? That's funny.

Whenever the equity is far exceeded by the liabilities (which I include QE Treasuries and MBSs as that side of the balance sheet),

You're counting their Treasury and MBS assets as liabilities? Why?


Right now - if the FED wants to offset its liabilities fully, gold will reprice to ~$8,000 an ounce.


What are their liabilities? Why do they need to "offset" them?

The FED doesn't have to unwind completely, they could just unwind a little: gold repriced to $2,500 or $3,000.

If they unwind, pull money out of the system, why would that make gold increase?
Pulling money out of the system is deflationary, not inflationary.

If you argue that the FED QE treasuries/MBSs are also assets,

Argue? Assets are assets, why would you argue otherwise?

But those assets are bought with "printed money" -

And they'll be sold for "printed money".

so eventually you have to reprice gold to balance the equity and the FED operates that way.

The equity isn't unbalanced, no need to balance it.

Again why I argue that QE isn't an "asset".

QE is an action, exchanging a liability, dollars, for an asset, bonds. QE was never an asset.

 

[Toddsterpatriot]

This video explains gold in the Federal Reserve pretty well. It wasn't the one I was thinking of so I am vetting it now.

Explaining gold doesn't help your claim about deficit spending being deflationary.
It doesn't excuse your (really weird) decision to ignore nearly $5.8 trillion in Treasuries and then claim the Fed is overleveraged. Leverage is typically when you borrow money to invest.

How much did the Fed borrow? What did they invest it in?

 

[DarthTrader]

Explaining gold doesn't help your claim about deficit spending being deflationary.
It doesn't excuse your (really weird) decision to ignore nearly $5.8 trillion in Treasuries and then claim the Fed is overleveraged. Leverage is typically when you borrow money to invest.

How much did the Fed borrow? What did they invest it in?

I literally showed you in a PREVIOUS thread that the GAO claims that deficit spending is deflationary.

https://www.gao.gov/assets/nsiad-87-135.pdf

 

[DarthTrader]

Explaining gold doesn't help your claim about deficit spending being deflationary.
It doesn't excuse your (really weird) decision to ignore nearly $5.8 trillion in Treasuries and then claim the Fed is overleveraged. Leverage is typically when you borrow money to invest.

How much did the Fed borrow? What did they invest it in?

Also - how do you count treasuries as collateral to Federal Reserve Notes when Federal Reserve Notes are printed to buy treasuries? LOLOL.

That's literally "monetizing the debt". So yeah - go ahead - count treasuries as assets if you want to have hyperinflation.

The FED counts treasuries as an asset because in banking parlance that's what they are. But the FED isn't a normal bank. They don't earn dollars and then buy treasuries with them. They are given dollars by the treasury from a printing press.