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Thread: Why the modest inflation?

  1. #1

    Default Why the modest inflation?

    Why inflation is so modest with zero interest rates and after Q1 and Q2?

    My own explanation (which might be bogus) is that government bonds are interchangeable with money, and when Bernanke printed money to buy bonds, he didn't in fact change the money supply, because bonds are part of the money supply. So banks now have one type of money (cash) instead of another type of money (bonds). So theoretically this shouldn't change much.

    What do you think?



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  3. #2

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    Because the official inflation numbers are a blatant lie with the primary purpose of keeping COLA and other inflation-indexed expenses from blowing up the government, and secondary purpose of masking the true state of the economy from rubes who might otherwise protest it.
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  4. #3

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    I'm not talking about CPI, but about the real inflation, which I think is quite modest, especially when compared with the huge amount of money printed.

    What do you think about my explanation for this?

  5. #4

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    Quote Originally Posted by eugenekop View Post

    What do you think about my explanation for this?
    It's called "Cooking the Books".
    a continuation of siphoning off the wealth in to a very few hands,

    inflation is not "modest", It is ongoing.
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  6. #5
    Master Skeptic Brian4Liberty's Avatar
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    Is 100% inflation over the course of five years "modest"?

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  7. #6

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    I'll rephrase.

    Why does it matter whether banks hoard government bonds or money? In both cases they can use this instruments to bid for stuff on the market and to raise prices. Now the banks are hoarding huge amount of money. But before that they hoarded huge amount of government bonds. So what's the difference?

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    Master Skeptic Brian4Liberty's Avatar
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    Quote Originally Posted by pcosmar View Post
    inflation is not "modest", It is ongoing.
    And "compounded daily".

    "Foreign aid is taking money from the poor people of a rich country, and giving it to the rich people of a poor country." - Ron Paul
    "Beware the Military-Industrial-Financial-Corporate-Media-Government Complex." - B4L update of General Dwight D. Eisenhower
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  9. #8

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    Quote Originally Posted by Brian4Liberty View Post
    Is 100% inflation over the course of five years "modest"?
    I'd say not. First time I've seen it this bad since the 1970s.

    Of course, if you think the World's Dying Reserve Currency can turn into Zimbabwe money overnight, it might seem like modest inflation to you. But for those on Social Security, which no longer recognizes changes in food prices as 'inflation', this is plenty bad enough.
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  10. #9

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    I didn't know inflation was modest given where stocks prices are relative to the economy and given the all time record high prices of US gov bonds we had just 1 month ago or so. Just because you don't see it in the grocery story doesn't mean it isn't there. But it will get there, just wait till the bond bubble pops.
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  11. #10

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    Quote Originally Posted by eugenekop View Post
    I'll rephrase.

    Why does it matter whether banks hoard government bonds or money?
    Why do bubbles matter?
    My personality type: INTJ - please forgive my weaknesses (Not naturally in tune with others feelings; may be insensitive at times, tend to respond to conflict with logic and reason, tend to believe I'm always right, tend to be unwilling or unable to accept blame )

  12. #11

  13. #12

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    Quote Originally Posted by eugenekop View Post
    Why inflation is so modest with zero interest rates and after Q1 and Q2?

    My own explanation (which might be bogus) is that government bonds are interchangeable with money, and when Bernanke printed money to buy bonds, he didn't in fact change the money supply, because bonds are part of the money supply. So banks now have one type of money (cash) instead of another type of money (bonds). So theoretically this shouldn't change much.

    What do you think?
    IOR (Interest on Reserves) ... the new way to implement Fed monetary policy. A substantial portion of the bank reserves created by the Fed asset purchase programs, since unsterilized purchases commenced in September of 2008, have not made their way into the economy (money supply). You can gauge the rate of entry by looking at the movement in Required Reserves (RR).

    Meanwhile, the IOR policy still helps recapitalize the banks ... stealthily.

    There has also been plenty of debt repayment as well, which is deflationary. I know several folks that paid off their mortgages and bought new homes with cash (myself included). But the above (IOR) is directly responsible for sequestering a substantial amount of reserves created by the Fed (thus keeping those sequestered dollars from moving into narrow money supply).

    Brian
    Last edited by gonegolfin; 09-15-2012 at 03:19 PM.

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    I think it's simply that Joe Consumer has no money to spend. QE3 is being pumped into mortgages, which goes straight back to the banks, and maybe keeps Joe's house from being foreclosed upon.

  15. #14

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    As I understand it the banks are just hoarding the cash, so it is not hitting the "REAL" economy. Eventually when the economy is doing better and the banks feel that lending is less risky/more profitable, we may see this money loaned out and this is when you would see inflation. The fed is bassically betting that they will be able to time the markets and remove the liquidity at the exact moment that this happens. Do you have faith in the fed?
    "Government is the great fiction through which everybody endeavors to live at the expense of everybody else"

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  16. #15

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    Since the dollar is the reserve standard the United States also has the added benefit of outsourcing a lot of inflationary money into the world market, the petrodollar seemingly is the only think keeping the illusion of value to the dollar. Imagine the chaos if the dollar were completely dumped for tangible assets like gold.

  17. #16

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    If all this money-printing had occurred while the economy was already doing well, it would have caused a lot more inflation, maybe hyperinflation. But the deflationary forces are so powerful that there's a tug-of-war between inflation and deflation. Inflation is winning, however, and will definitely win in the end now that we have open-ended QE.

    That's way overly-simplistic, but I think it's about right.

  18. #17

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    When a product I paid $1 for three years ago costs $1.79 now (on average) - that is not modest inflation, that is rampant inflation.
    “If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen.”

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    A lot of the newly created money is being diked by Bernanke. He's holding the reserves from being lent out by paying a secure "safe" interest rate to the banks to hold the massive reserves with the Fed. Once these reserves get unleashed you will see stagflation.

    QE bond buying: printing new money and handing it to the government to pay paychecks, welfare and warfare will indeed be noticible with "QE forever".

  20. #19

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    Quote Originally Posted by sevin View Post
    If all this money-printing had occurred while the economy was already doing well, it would have caused a lot more inflation, maybe hyperinflation. But the deflationary forces are so powerful that there's a tug-of-war between inflation and deflation. Inflation is winning, however, and will definitely win in the end now that we have open-ended QE.

    That's way overly-simplistic, but I think it's about right.
    The latest round of QE is especially inflationary since they are preventing the natural destruction of bad debt and the resulting deflation that comes from debt destruction. They are buying mortgage backed securities - the worst garbage produced by the bubble. With many of those securities there are serious title issues - the burying of which is likely a major motivator in this panicked move by the banking cartel).
    “If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen.”

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    Quote Originally Posted by eugenekop View Post
    I'll rephrase.

    Why does it matter whether banks hoard government bonds or money? In both cases they can use this instruments to bid for stuff on the market and to raise prices. Now the banks are hoarding huge amount of money. But before that they hoarded huge amount of government bonds. So what's the difference?
    Actually you are answering your original question here. The key is that the money the Fed used to purchase all of those assets is not out circulating- getting spent and competing with other dollars for goods and serivices. Besides what they have in their own vaults, banks have something like $1.6 trillion in "excess reserves" sitting at the Federal Reserve. It is still potential money- but as long as it is not "getting out" it is not going to cause inflation. Money under your mattress is not competing with money everybody else is spending on things- the Fed is a giant mattress with lots of money stashed under it. The Fed is paying a quarter of one percent to encourage the banks to keep the money there (not a huge incentive but it is actually higher than US Treasury notes as long as two years (the two year notes are currently paying 0.24%).
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  22. #21

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    Monetary destruction is happening behind the scenes at an extraordinary rate. There is still an incredible amount of bad debt being slowly defaulted on.

    The massive amount of printing has still not caught up with the giant sucking deflationationary hole.
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  23. #22

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    Opps! Double post.
    Last edited by Carson; 09-16-2012 at 03:57 AM.

  24. #23

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    Quote Originally Posted by eugenekop View Post
    Why inflation is so modest with zero interest rates and after Q1 and Q2?

    My own explanation (which might be bogus) is that government bonds are interchangeable with money, and when Bernanke printed money to buy bonds, he didn't in fact change the money supply, because bonds are part of the money supply. So banks now have one type of money (cash) instead of another type of money (bonds). So theoretically this shouldn't change much.

    What do you think?

    One thing that can offset the counterfeiting is defaulting on debt.

    Still it is hard to see inflation up close for me. I'm guessing its been over 8% a year most of my life. I think once some time passes and we look back at the last few years we will be able to see it was alive and well. Actually I have been thinking the last year we had a nice break and had some counterfeiting easing.

    Anyway if you look long term it looks heavy duty. Not like the figures they dish out anyway.


  25. #24

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    Home equity, which consumers had been using like cash, has dropped substantially. Stock equity (measured in terms of gold or an undiluted currency) has gone down substantially as well. It seems to me that the evaporation of equity has had a significant countervailing effect on these QE maneuvers wrt expanding the money supply.

  26. #25

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    I don't know about all the broader arguments, but a personal example:

    Around two or three years ago, we used to buy a 20 pound bag of cat food for around twenty bucks. Now, the exact same food comes in a 16.5 pound bag and costs about $35.

    I'd say that's inflationary.

  27. #26
    Master Skeptic Brian4Liberty's Avatar
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    Quote Originally Posted by thomas-in-ky View Post
    Home equity, which consumers had been using like cash, has dropped substantially. Stock equity (measured in terms of gold or an undiluted currency) has gone down substantially as well. It seems to me that the evaporation of equity has had a significant countervailing effect on these QE maneuvers wrt expanding the money supply.
    Exactly. And don't forget deflation in wages and underemployment. Deflation offset by monetary inflation. And the net result is one of the greatest transfers of wealth in the history of mankind.

    "Foreign aid is taking money from the poor people of a rich country, and giving it to the rich people of a poor country." - Ron Paul
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    "Debt is the drug, Wall St. Banksters are the dealers, and politicians are the addicts." - B4L
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  28. #27

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    "Home equity, which consumers had been using like cash"

    Can you explain this sentence please? What is the mechanism behind that?

  29. #28

  30. #29

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    Quote Originally Posted by eugenekop View Post
    "Home equity, which consumers had been using like cash"

    Can you explain this sentence please? What is the mechanism behind that?
    It's commonly called 'a second mortgage'.

    Quote Originally Posted by Brian4Liberty View Post
    Exactly. And don't forget deflation in wages and underemployment. Deflation offset by monetary inflation. And the net result is one of the greatest transfers of wealth in the history of mankind.
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    Quote Originally Posted by Brian4Liberty View Post
    Exactly. And don't forget deflation in wages and underemployment. Deflation offset by monetary inflation. And the net result is one of the greatest transfers of wealth in the history of mankind.
    And most people just continue to blindly support their chosen Blue Team Leader, or Red Team Leader, and cheer them on towards our own destruction.

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