US: Severe Inflation Risk?

[eagleseven]

Economic View - Will the Fed Use Its Whole Arsenal Against Inflation? - NYTimes.com

By N. GREGORY MANKIW

Is galloping inflation around the corner? Without doubt, the United States is exhibiting some of the classic precursors to out-of-control inflation. But a deeper look suggests that the story is not so simple.

Let’s start with first principles. One basic lesson of economics is that prices rise when the government creates an excessive amount of money. In other words, inflation occurs when too much money is chasing too few goods.

A second lesson is that governments resort to rapid monetary growth because they face fiscal problems. When government spending exceeds tax collection, policy makers sometimes turn to their central banks, which essentially print money to cover the budget shortfall.

Those two lessons go a long way toward explaining history’s hyperinflations, like those experienced by Germany in the 1920s or by Zimbabwe recently. Is the United States about to go down this route?

To be sure, we have large budget deficits and ample money growth. The federal government’s budget deficit was $390 billion in the first quarter of fiscal 2010, or about 11 percent of gross domestic product. Such a large deficit was unimaginable just a few years ago.

The Federal Reserve has also been rapidly creating money. The monetary base — meaning currency plus bank reserves — is the money-supply measure that the Fed controls most directly. That figure has more than doubled over the last two years.

It would appear that the NYT has now recognized the threat. Our collective future is in the hands of one man: Ben Bernanke.


P.S. Also of note, the author, Harvard economist Dr. Mankiw, was Mitt Romney's chief economic advisor in the 2008 campaign.

 

[Mr.Fitnah]

Is America's financial collapse inevitable?
Pat Buchanan

© 2010
We were blindsided. We never saw it coming.

So said Goldman Sachs CEO Lloyd Blankfein of the financial crisis of 2008. He likened its probability to four hurricanes hitting the East Coast in a single season.

Blankfein was reminded by the chairman of the Financial Crisis Inquiry Committee, Phil Angelides, that hurricanes are "acts of God." Financial crises are manmade. Yet Blankfein was backed up by Jamie Dimon of JPMorgan, who said, "Somehow, we just missed ... that home prices don't go up forever."

The Wall Street titans thus conceded they did not foresee the housing bubble ever bursting and they did not consider the possibility of a collapse in value of the sub-prime mortgage securities piled up on their books.

Backing up Blankfein's plea of ignorance and incomprehension is this: The crisis killed Lehman Brothers and would have killed every one of them had not the Treasury and Fed, neither of which saw it coming, either, intervened with hundreds of billions in bailout cash.

 

[kyzr]

Actually the fiscal time-bomb is the $31-trillion or so that the people paid into Social Security and Medicare for their retirement, and the government can't pay. I thought Obama was going to run an honest government? His methods are not any different than his predecessors. He thinks the people are "rubes".

 

[Chris]

What a bunch of whinny pussies.

We aren't going to collapse.

All we need to do is raise the tax rate on the rich to what it was when Clinton was president and use some of the cost cutting measures that every other industrialized country uses to rein in healthcare costs.

 

[Avatar4321]

You mean death panels? I thought you guys were claiming we wouldnt do that. Not too surprised you're turning your back on that one so quickly.

Oh, and it's pretty darn obvious we are looking to a collapse. Thankfully, we have a government in the states so that if the federal government does collapse, it's not total anarchy in the nation.

 

[eagleseven]

What a bunch of whinny pussies.

We aren't going to collapse.

All we need to do is raise the tax rate on the rich to what it was when Clinton was president and use some of the cost cutting measures that every other industrialized country uses to rein in healthcare costs.

Chris to Dr. Mankiw, "You are a whining pussy."

 

[PatekPhilippe]

There is NO QUSTION that there is a danger of rampant inflation...at the same time the Fed has too much money on the street right now. Look for Bernanke to RAISE interest rates this year to get excess money out of the system. As interest rates rise, the dollars value will increase and thus commodities prices will drop.

When you see "Get into gold" ads it means the time to make money in commodities has already passed.

 

[Neubarth]

You mean death panels? I thought you guys were claiming we wouldnt do that. Not too surprised you're turning your back on that one so quickly.

Oh, and it's pretty darn obvious we are looking to a collapse. Thankfully, we have a government in the states so that if the federal government does collapse, it's not total anarchy in the nation.

Most of the states are sucking at the Federal Teat. Most state programs would be non functional if they did not have Federal money to spend.

 

[william the wie]

Money destruction waves that are already on the books will make this prediction quite different from reality:

Happening now is the UE and shrunken savings wave. People with what were sensible loans now living on UE bennies and savings have been losing their houses at increasing rates since last summer. When those foreclosures get written down the money supply shrinks since write offs are taken from bank capital accounts and earnings.

The CRE wave. Most Commercial Real Estate is funded by 5-10 year balloon mortgages plus they are much more subject to strategic default than residential mortgages. This wave potentially involves 10s of trillions in writedowns as solvent companies walk away from properties and wait for tax sales to get them back in at extremely low prices.

This September will see massive defaults in option ARM resets. These crappy loans are about midway in quality between subprime and Alt-A loans. The fear is that this wave may cascade into a wave of residential strategic defaults by solvent but upside down homeowners.

The cumulative total of these waves could theoretically be as high as 50T. The likely real number is unknown to me but some deflation in terms of M3 and M6 have been reported in "The Economist" this month due to banks setting aside reserves for expected losses. Whatever that expected loss rate it has got to be huge because as the meltdown demonstrated bankers tend to underestimate risk and the Fed is pumping a lot of money into the system.

 

[☭proletarian☭]

Are we a still following that retard, Keynes?


Then yeah, we're still fucked.

 

[Chris]

Funny how none of this "rampant inflation" has shown up yet.

The real problem was a deflationary cycle. Hopefully that has been prevented.

 

[eagleseven]

Funny how none of this "rampant inflation" has shown up yet.

The real problem was a deflationary cycle. Hopefully that has been prevented.

If you actually read the article, Dr. Mankiw explains it in concrete terms. Our Monetary Base (Currency plus Reserves) is now larger than the M1 Aggregate...a ticking inflation bomb. The only reason why we haven't seen hyperinflation is because American banks are very close to bankrupcy...as soon as they recover, the bomb will explode.

It will go off, but we can mitigate the damage, if the Fed takes appropriate action now.

 

[Chris]

Funny how none of this "rampant inflation" has shown up yet.

The real problem was a deflationary cycle. Hopefully that has been prevented.

If you actually read the article, Dr. Mankiw explains it in concrete terms. Our Monetary Base (Currency plus Reserves) is now larger than the M1 Aggregate...a ticking inflation bomb. The only reason why we haven't seen hyperinflation is because American banks are very close to bankrupcy...as soon as they recover, the bomb will explode.

It will go off, but we can mitigate the damage, if the Fed takes appropriate action now.

Funny, I'm not worried.

I think inflation is what we need.

 

[uscitizen]

The only way out of this recession is thru inflation. Unless the recovery take 5 years or so.

 

[Chris]

The only way out of this recession is thru inflation. Unless the recovery take 5 years or so.

I'm glad somebody gets it.

 

[Neubarth]

Funny how none of this "rampant inflation" has shown up yet.

The real problem was a deflationary cycle. Hopefully that has been prevented.

As the economy continues to collapse we will see some deflation. I expect that it will last six to nine more months.

 

[eagleseven]

Funny, I'm not worried.

I think inflation is what we need.

This guy thought so too, back in 1930. You're in good company!

 

[Chris]

Funny, I'm not worried.

I think inflation is what we need.

This guy thought so too, back in 1930. You're in good company!

Not comparable in the slightest.

Our debt now is the same as when this man was in office...

 

[eagleseven]

Funny, I'm not worried.

I think inflation is what we need.

This guy thought so too, back in 1930. You're in good company!

Not comparable in the slightest.

Our debt now is the same as when this man was in office...

[truman]

We're not talking about the National Debt, but the Monetary Base. You're getting your terms confused.

 

[Chris]

This guy thought so too, back in 1930. You're in good company!

Not comparable in the slightest.

Our debt now is the same as when this man was in office...

[truman]

We're not talking about the National Debt, but the Monetary Base. You're getting your terms confused.

And you are getting your eras confused.

This is not the 1930's.

It almost was, but Congress bailed us out of it.