Milton Friedman: Explosion of monetary base NOT inflationary.

[icm63]

Ok, inflationists are screaming what, thats rubbish...

From Paul Kasriel Oct 16 posting..

I continue to hear that the Fed has sown the seeds of inflation by inflating its balance sheet. The monetary base – currency held by the public (banks and nonbanks) and reserve balances held by depository institutions at the Fed – accounts for the largest portion of liabilities on the Fed’s balance sheet. Chart 1 shows that the monetary base mushroomed from $936 billion in September 2008, the month in which Lehman Brothers failed, to $1.8 trillion in September 2009. On a year-over-year basis, this represented an unprecedented 94% increase in the monetary base (see Chart 2). Is this what Milton Friedman was talking about when he referred to inflation being a monetary phenomenon?

No. Friedman’s inflation monetary phenomenon was related to the growth in the money supply held by the nonbank public, not the monetary base.

Milton Friedman did not judge the growth in the monetary base in the early 1930s to be inflationary and it is doubtful that he would judge the recent explosion in the monetary base to be inflationary either given the lack of response in the broad money supply.

So if the money does not get into the hands of the consumer, then the velocity of money is not incresing, therefore the inflation 'process' has not even left the station.

The GOLD is trade is mostly an inverse dollar trade, its very early to call it an inflation trade. So gold moving in straight line up is very unlikely.

[santafe2]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

So if the money does not get into the hands of the consumer, then the velocity of money is not incresing, therefore the inflation 'process' has not even left the station.

The GOLD is trade is mostly an inverse dollar trade, its very early to call it an inflation trade. So gold moving in straight line up is very unlikely.

I agree with this. You can stack currency on the street corner as we do with revolving debt but if there are no takers, product price does not move up until there is a recovery and/or the value of the underlying currency moves down sufficiently that prices must move up.

As for gold or silver as an inverse dollar trade, I've read this here many times but find it only partly true. The US$ is down less than 40% from the peak but gold and silver have moved up about 4X from that time. The majority of that move is unrelated to US$ value.

There certainly are periods where gold moves as a US$ surrogate. 1991-2001, prior to this bull market is a good example. Everyone was bored with gold and it's value roughly moved down the same amount as the US$ moved up. But that is not the case today. Love them or hate them, no one is bored with metals today and it's reflected in the price.

That said, I've been selling metals for about 6 weeks. They've been trading more like equities than US$ inverse trades for some time now. I don't like the stock market here so I can't like metals short term and I'm easing out and taking some profits.

[icm63]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

YES...

Previous chat here..
http://www.itulip.com/forums/showpos...71&postcount=1

Itulip talk about inflation as a process, but there is little debate or analysis of the 'timing of the process', all you get is the statement that .."inflation is a process not an event"...(As far a I can search on this site).

After all timing entry and exit with ones money is important to me, just a bit !

Ref: http://www.itulip.com/forums/showpos...9&postcount=20

This is why I FEEL GOLD below $800 is not off the table...

[metalman]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

[quote=icm63;134249So gold moving in straight line up is very unlikely.[/quote]

that's right... not a straight line. but since the time i visited itulip in 2001 and read http://www.itulip.com/gold.htm... an upward sloping line...



are you saying it will stop soon? why?

what did you think in 2001?

in 2002?

in 2003?

in 2004?

in 2005?

in 2006?

in 2007?

same thing?

[icm63]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

Well, if the large funds work out they are too early for the inflation trade as the ' inflation process is not out of station yet', then a pullback like 1975 is on the cards, if a 50% pull back is on the menu, thats GOLD to (say) $690...

Na that will never happen, I am just a stirrer..lets check history, as it can repeat...

Gold.gif

Of course then thats a GREAT BUY !!
www.chartsrus.com

[Raz]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

YES...

Previous chat here..
http://www.itulip.com/forums/showpos...71&postcount=1

Itulip talk about inflation as a process, but there is little debate or analysis of the 'timing of the process', all you get is the statement that .."inflation is a process not an event"...(As far a I can search on this site).

After all timing entry and exit with ones money is important to me, just a bit !

Ref: http://www.itulip.com/forums/showpos...9&postcount=20

This is why I FEEL GOLD below $800 is not off the table...

If gold trades below $800/oz. within the next 200 days then the Bull Market in gold is O-V-E-R.

I don't believe it will happen until the Fed completely loses control of interest rates, and I'm not sure it will even then.

[metalman]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

Well, if the large funds work out they are too early for the inflation trade as the ' inflation process is not out of station yet', then a pullback like 1975 is on the cards, if a 50% pull back is on the menu, thats GOLD to (say) $550...

Na that will never happen, I am just a stirrer..lets check history, as it can repeat...

[ATTACH]2466[/ATTACH]

Of course then thats a GREAT BUY !!
www.chartsrus.com

again, how's your track record? better than itulip's? no?

next.

[icm63]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

itulip fred also said : http://www.itulip.com/forums/showpos...2&postcount=29

YES itulip BUY and HOLD is great, if you entered under $750..

And any swing from current levels is just a hick up along the way.

New entries and adding to positions, just a little tricky.

All I say is that GOLD is ripe for a major pull back, due to the pure fact the inflation trian has yet to leave the station. Where is the inflation???

Gold inverse dollar trade is the current play.

[santafe2]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

This is why I FEEL GOLD below $800 is not off the table...

And $12-15 silver. One cannot think the stock markets will fall and not consider the implication for metals which are a speculative market today. I could add fuel to this fire and say I think the US$ is more likely to move up from here than down. It's only my opinion but I'll be surprised if the US$ finds a new low for a long time.

[santafe2]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

again, how's your track record? better than itulip's? no?

next.

Metal, I've no interest in debating this issue or proving that I'm right and iTulip is wrong, but my track record is well documented and my results over the last eight years are much better than iTulip's buy and hold strategy. That's not to say that I'm not going to get my butt kicked on this 3rd round of selling but I'm well ahead of buy and hold.

I appreciate EJ's point of view and his observation that one has to consider the time it takes to trade a market instead of riding it. But iTulip should acknowledge that a smart trader will be well rewarded.

[santafe2]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

If gold trades below $800/oz. within the next 200 days then the Bull Market in gold is O-V-E-R.

The gold market is now speculative like the stock market. If the stock market moves down I expect the metals market to follow. The bull market is far from over and we can't draw lines in the sand, only take new positions if/as it moves down.

[goodrich4bk]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

Yes, it all depends on where you start. I like to start at $140 gold in 1974 as a "fair price" given the previous "fix" at $35 for over 40 years of generally moderate inflation. That would also work out to about a 4% annual rate of inflation, a pretty safe bet.

Using CPI, which arguably understates inflation by at least 1%, and the "inflation calculator" at www.westegg.com/inflation/infl.cgi, I come up with a fair price today of a little less than $600 an oz. If inflation was really a little greater, as many suggest (see shadowstats.com), you can easily get to $800 to $1,000 an oz.

In short, gold appears fully valued here, plus or minus 10%-15%. But you don't value your home insurance policy by the premiums you pay. You value it for the protection it provides against financial collapse. That is what gold provides and, therefore, it is not at all a mystery why buyers seeking such insurance during an unprecedented financial crisis will pay a higher premium, just as people in New Orleans pay a higher insurance premium for flood insurance today.

In short, gold is measuring the fear, not the certainty, of future inflation and/or financial collapse.

[metalman]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

Metal, I've no interest in debating this issue or proving that I'm right and iTulip is wrong, but my track record is well documented and my results over the last eight years are much better than iTulip's buy and hold strategy.

prove it.... this i gotta see.

That's not to say that I'm not going to get my butt kicked on this 3rd round of selling but I'm well ahead of buy and hold.

how? did you perfectly time every top and bottom over the past 8 yrs?

are you counting transaction costs... taxes... spreads?

I appreciate EJ's point of view and his observation that one has to consider the time it takes to trade a market instead of riding it. But iTulip should acknowledge that a smart trader will be well rewarded.

even the genius trader who traded perfectly only once per yr since 2001... net transaction costs... lost to buy & hold gold since 2001.

[unlucky]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

Itulip talk about inflation as a process, but there is little debate or analysis of the 'timing of the process', all you get is the statement that .."inflation is a process not an event"...(As far a I can search on this site).

After all timing entry and exit with ones money is important to me, just a bit !

To be fair to itulip, I believe Eric is on record forecasting the return of rising inflation by the end of 2009 or Q1 2010 at the latest. Not sure whether that means high inflation or just an exit from deflation/disinflation. Eric also outlined several mechanisms that he believes will induce inflation even in the absence of declining unemployment (rising import prices for example). If I find the post I will link it.

The official stats show that inflation in the "printing" economies and some others has returned to normal since a few months back:

Canada Inflation Rises for First Time in Five Months

Consumer Prices in U.S. Increased 0.3%

U.K. Inflation Rate Increases

While the major economies that are not doing enough printing are still seeing declining prices:

Euro Area Inflation Falls

It looks like the deflationary (disinflationary?) epsiode has already ended, there is a return to more normal conditions but no sign of high inflation yet.

Edit: here is the link to the relevant post from Eric Janszen:
http://www.itulip.com/forums/showthr...5399#post95399

[jiimbergin]

Re: Milton Friedman: Explosion of monetary base NOT inflationary.

even the genius trader who traded perfectly only once per yr since 2001... net transaction costs... lost to buy & hold gold since 2001.

MM, many traders who bought and sold individual companies during this time beat the buy and hold gold and treasuries but that is not easy for most investors to do. I know I did reasonably well myself, and I bet Bart did also. BUT I am fully in EJ's camp now except for a small amount of oil, Agriculture and other commodities. I still believe some traders can beat the buy and hold gold, but I don't want to try any longer. I am not that brave