Deflation: Making Sure "It" Doesn't Happen Here

[hellstan]

Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002 Deflation: Making Sure "It" Doesn't Happen Here

http://www.federalreserve.gov/BOARDD...21/default.htm

[RebbePete]

Re: Deflation: Making Sure "It" Doesn't Happen Here

So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities.⁹ There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

It's interesting that Bernanke has followed this "playbook" pretty closely, overall. I'm interested in the section I quoted. Isn't this notion of "unlimited purchases" inflationary? Can the Fed really successfully stave off massive selling of treasuries by foreigners?

[skidder]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Anyone else beginning to think this speach was intentional misdirection on the part of Bernanke? I don't want to give the guy too much credit for setting up this majestic commodity take-down but man, you couldn't have written a better script for destroying speculative capital.


Giving banks money to pay off their gambling debts doesn't strike me as particularly effective using what little economic theory remains intact in my brain after witnessing the past several months of mayhem.

My only other observation would be how truly f*cked the world is when the biggest debtor nation, one whose debt and forward obligations are so enormous that a 6th grader with a 16 digit calculator and basic math skills could figure out would be defaulted on, is the supposed "safe haven" for the worlds savers when the sledding gets tough. Just wow.

[phirang]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Anyone else beginning to think this speach was intentional misdirection on the part of Bernanke? I don't want to give the guy too much credit for setting up this majestic commodity take-down but man, you couldn't have written a better script for destroying speculative capital.


Giving banks money to pay off their gambling debts doesn't strike me as particularly effective using what little economic theory remains intact in my brain after witnessing the past several months of mayhem.

My only other observation would be how truly f*cked the world is when the biggest debtor nation, one whose debt and forward obligations are so enormous that a 6th grader with a 16 digit calculator and basic math skills could figure out would be defaulted on, is the supposed "safe haven" for the worlds savers when the sledding gets tough. Just wow.

Bernanke has just ended the careers of thousands of amateur analysts. EJ also fell for Bernanke's "helicopter" statement. Would Bernanke be that stupid as to actually annihilate the dollar? Why hasn't he done it already? What's the event horizon?

The Fed ONLY focuses on manipulating sentiment and expectations: OMO are only one means!

[skidder]

Re: Deflation: Making Sure "It" Doesn't Happen Here

You may well be correct. I'll tell you what Bernanke/Paulsen, Et Al., has convinced me of, that wall street is so corrupt and the nature of currency is so tenuous that I refuse to continue to play this game of "investing".

I'm checking out of this bullshit as soon as I can arrange my personal finances. I'm going totally into gold bullion coins (some silver I bought years ago). I'm doing so not because I think gold is going to the moon, in fact I fully suspect it'll decline now that deflation has it's tentacles into the world economy. I'll live with whatever purchasing power it settles at.
It's more of a personal protest against this idea that the gov't gets to intervene in any market place at their descretion and then have the audacity to tax what meager gains they allow after wall street is done taking their vig from the action.
I'm setting up contacts with PM dealers so that I'll have a conduit for purchases and sales, fully cognizant that at some point I'll be breaking a law put in place to strangle this economic freedom. In between the time I implement this strategy and the day I'm carted off to jail for having the balls to fight the gov'ts confiscation of my productivity, I intend to relax and enjoy life without continually trying to outguess the gov'ts flavor of the month earnings confiscation gambit and hopefully starve some moneychangers along the way.

[phirang]

Re: Deflation: Making Sure "It" Doesn't Happen Here

You may well be correct. I'll tell you what Bernanke/Paulsen, Et Al., has convinced me of, that wall street is so corrupt and the nature of currency is so tenuous that I refuse to continue to play this game of "investing".

I'm checking out of this bullshit as soon as I can arrange my personal finances. I'm going totally into gold bullion coins (some silver I bought years ago). I'm doing so not because I think gold is going to the moon, in fact I fully suspect it'll decline now that deflation has it's tentacles into the world economy. I'll live with whatever purchasing power it settles at.
It's more of a personal protest against this idea that the gov't gets to intervene in any market place at their descretion and then have the audacity to tax what meager gains they allow after wall street is done taking their vig from the action.
I'm setting up contacts with PM dealers so that I'll have a conduit for purchases and sales, fully cognizant that at some point I'll be breaking a law put in place to strangle this economic freedom. In between the time I implement this strategy and the day I'm carted off to jail for having the balls to fight the gov'ts confiscation of my productivity, I intend to relax and enjoy life without continually trying to outguess the gov'ts flavor of the month earnings confiscation gambit and hopefully starve some moneychangers along the way.

You don't think they don't anticipate this, either?

That's when companies with billions in earnings will trade on millions of dollars in stock.

That's when the coup can be completed.

The capitulation is near, and when it happens, they will have the cash to exploit it. Why is Blackstone raising so much cash, hmm?

Don't pout: get tough and get smart. Read Stigum's MOney markets, learn the banking system, and enjoy the ride.

[hellstan]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Jesse.jpghttp://jessescrossroadscafe.blogspot.com/2008/11/is-money-supply-contracting.html

"The bottom line is that although growth is slowing in MZM which is our preferred broad liquidity indicator, there is no indication that money supply growth is cntracting (e.g.negative).

Theories abound. We like to look at the data.

There are various interpretations and we look into almost all of them.

But we like to keep an eye on the data, and skip arguments that are long on rhetorical flourishes and short of hard analysis.

A monetary deflation is possible. A price deflation in response to slack aggregate demand is not only possible it is happening. We are in a recession. Demand is decreasing. And money supply growth should be decreasing in sympathy with that.

We could even tell you how to cause a monetary deflation, and are confident we could do it. Raising short term interest rates to 20 percent would probably do the trick pretty handily. Right now they are a negative number, however.

There are also theories that the banks are hoarding cash and the money supply figures are no longer valid. The money is flowing to Europe and not into the US economy.

Well, we can look into this, but it does not seem to be borne out by anything we have looked at in more than one dimension yet. We have an open mind.

But we're short on economic creationism and long on hard data and analysis in our book."
Book Me.jpg

[phirang]

Re: Deflation: Making Sure "It" Doesn't Happen Here

[ATTACH]818[/ATTACH]http://jessescrossroadscafe.blogspot.com/2008/11/is-money-supply-contracting.html

"The bottom line is that although growth is slowing in MZM which is our preferred broad liquidity indicator, there is no indication that money supply growth is cntracting (e.g.negative).

Theories abound. We like to look at the data.

There are various interpretations and we look into almost all of them.

But we like to keep an eye on the data, and skip arguments that are long on rhetorical flourishes and short of hard analysis.

A monetary deflation is possible. A price deflation in response to slack aggregate demand is not only possible it is happening. We are in a recession. Demand is decreasing. And money supply growth should be decreasing in sympathy with that.

We could even tell you how to cause a monetary deflation, and are confident we could do it. Raising short term interest rates to 20 percent would probably do the trick pretty handily. Right now they are a negative number, however.

There are also theories that the banks are hoarding cash and the money supply figures are no longer valid. The money is flowing to Europe and not into the US economy.

Well, we can look into this, but it does not seem to be borne out by anything we have looked at in more than one dimension yet. We have an open mind.

But we're short on economic creationism and long on hard data and analysis in our book."
[ATTACH]819[/ATTACH]

How is money created?

No, not "printed by the Fed": i mean how is money that you and i use to pay for itulip and buy gold created so we can enrich our betters?

answer that question properly first, and then you'll get it.

[lurker]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Skidder, I echo your sentiments, and I shall be raising my kids to eschew debt and minimize their interactions with the financial services sectors, just as my parents did for me.

There was in interview with the director of Citibank's mortgage division on NPR yesterday in which he was promising to restructure mortgage loans to help people stay in their houses. It was really a puff piece designed to make the sheep think what nice caring folk Citibank are. It made me feel sick. The parasites have killed their hosts, are now realising their mistake, and are putting them back on life support just so that they can continue their parasitic ways.

There was a quote on the prudent bear board from a Vietnam vet yesterday in which he said

"We have a real problem with enemy identification in this country".

Never a truer word spoken.

[phirang]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Skidder, I echo your sentiments, and I shall be raising my kids to eschew debt and minimize their interactions with the financial services sectors, just as my parents did for me.

There was in interview with the director of Citibank's mortgage division on NPR yesterday in which he was promising to restructure mortgage loans to help people stay in their houses. It was really a puff piece designed to make the sheep think what nice caring folk Citibank are. It made me feel sick. The parasites have killed their hosts, are now realising their mistake, and are putting them back on life support just so that they can continue their parasitic ways.

There was a quote on the prudent bear board from a Vietnam vet yesterday in which he said

"We have a real problem with enemy identification in this country".

Never a truer word spoken.

Don't worry: the government will provide with a new enemy shortly.

Any hear about al qaida recently...

[c1ue]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Phirang,

You're still at it: Repeat a statement without evidence, or even an elucidated theory, endlessly. People will eventually think it means something.

Galbraith called this 'encantation'.

From my own experience, the political players also use this: repeat a vague statement to make it seem like you have some idea on what is happening.

Vagueness is important because god forbid you say something that can be proven.

I had a former boss where every single meeting I had with him with others around, he'd say something where the guy next to me - be it VP or engineer - would ask me: what the hell did he just say? I don't get it.

But the funny part was you could write an Eliza program to do what this fellow was doing:

1) Take a half dozen famous lines from 2 dozen famous management books - 7 habits of highly effective people, etc etc
2) Split statements into halves or thirds
3) Mix and match, then throw in one word or phrase in some way related to the subject matter

Given this - everything he said was eminently traceable, if still complete bulls**t.

EJ might well be wrong, as well as I and any number of other iTulipers.

But unlike you, we have all laid out our evidence and train of thinking on how we individually believe events will unfold.

And as events do unfold, we discuss and - if need be - modify said train of thinking to accommodate.

You, on the other hand, keep saying completely ridiculous things like 'Bernanke is brilliant', based on a 2 month trend.

This is exactly the type of 'brilliant trend analysis' which manipulators and con men treasure.

From my view - for each supposed brilliant Bernanke moment, I see only a slight variation on what was done before.

For each 'New World Order' action, I see a clear 'beggar thy neighbor' reaction.

For each Mish-esque post, I see some dude shilling a la populist for an investment company.

So until you've got something real to contribute to this community, in my book you're just trying to ride on EJ's coat-tails by amateurishly trying to break down what he's done.

[phirang]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Phirang,

You're still at it: Repeat a statement without evidence, or even an elucidated theory, endlessly. People will eventually think it means something.

Galbraith called this 'encantation'.

From my own experience, the political players also use this: repeat a vague statement to make it seem like you have some idea on what is happening.

Vagueness is important because god forbid you say something that can be proven.

EJ might well be wrong, as well as I and any number of other iTulipers.

But unlike you, we have all laid out our evidence and train of thinking on how we individually believe events will unfold. And as events do unfold, we discuss and - if need be - modify said train of thinking to accommodate.

You, on the other hand, keep saying completely ridiculous things like 'Bernanke is brilliant', based on a 2 month trend. This is exactly the type of 'trend following' which manipulators and con men treasure.

From my view - for each supposed brilliant Bernanke moment, I see only a slight variation on what was done before.

For each 'New World Order' action, I see a clear 'beggar thy neighbor' reaction.

For each Mish-esque populist post, I see some dude shilling for an investment company.

So until you've got something real to contribute to this community, in my book you're just trying to ride on EJ's coat-tails by amateurishly trying to break down what he's done.

Maybe I should start advocating decoupling, then, to reassure you of your returns in Russia. Let's hope the Ruble doesn't turn to rubble before then, eh? What does Pyccna's BoP look like with oil at $40? Let's throw in another skirmish in the caucauses, and we have the New North Korea.

As for me attacking EJ's theories I do so for two reason:

1) the chorus adulating him is just obnoxious after a while
2) there are some key omissions

Namely, the money-markets I think are not properly understood here. Specifically, the catalyst for demand: everyone focuses on supply, but there's a demand component, too!

It's fashionable to say inflation has to happen because defaulted debt is being "swept under the rug", but if you lose 100T of wealth and swap in 10T to keep the game running, is that still inflationary?

Does it matter, especially when every inflation-event hedge fund is GONE now?

[hellstan]

Re: Deflation: Making Sure "It" Doesn't Happen Here

http://globaleconomicanalysis.blogsp...y-support.html

"Thus the data are crystal clear. We are not in a period of inflation, we are not in a period of stagflation, we are not in a period of disinflation.

If you exclude all the options proven to be impossible, the remaining option no matter how unlikely it may seem at first glance, must be the correct answer. That answer is deflation. We are in it, and have been for some time."
Mike "Mish" Shedlock

http://globaleconomicanalysis.blogsp...-care-and.html

[c1ue]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Yes, your typical behavior.

When criticised, start attacking someone in some other area to distract from the discussion.

My returns in Russia are doing just fine. Given that my investment horizon extends beyond the next quarter - I'm rolling the ruble investments over into the ever increasing interest rate deposits. What was once 4% interest rate, went to 10% and is now at 11.5%. Sure there is risk, but that's not a bad rate for 3 months.

As for your supply/demand quote - no doubt there would be more respect for your opinions if you would point out exactly what is missing.

Demand vs. Supply - yakety yak.

As for your inflation hedge fund example - completely stupid and worthless. There are equally tons of deflation hedge funds wiped out. But that isn't because one theory or the other is right - it is because there has been massive instability in the market.

Currency swings of plus/minus 10% in a day or week have been occurring. Markets going up and down by 10% in a day or a week. Commodity prices changing by plus/minus multiples in mere months.

I'd be more surprised if there WEREN'T hedgies getting smacked down by this environment - after all - they all use leverage in order to jack up returns and the flip side is jacking down.

Once again, show that you're more than some pimply faced dude in his mommy's basement.

Sure, EJ isn't perfect. I for one do not ascribe to all of his views - I am on record for saying things are going to be much worse than what iTulip predicts. EJ was also NOT right on several items: basement price for gold, 10% CPI by end of 2008, and a few other items.

But I'm not here to get trading tips. I'm here to share and learn.

Your contributions neither illuminate nor elucidate.

[phirang]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Yes, your typical behavior.

When criticised, start attacking someone in some other area to distract from the discussion.

My returns in Russia are doing just fine. Given that my investment horizon extends beyond the next quarter - I'm rolling the ruble investments over into the ever increasing interest rate deposits. What was once 4% interest rate, went to 10% and is now at 11.5%. Sure there is risk, but that's not a bad rate for 3 months.

As for your supply/demand quote - no doubt there would be more respect for your opinions if you would point out exactly what is missing.

Demand vs. Supply - yakety yak.

As for your inflation hedge fund example - completely stupid and worthless. There are equally tons of deflation hedge funds wiped out. But that isn't because one theory or the other is right - it is because there has been massive instability in the market.

Currency swings of plus/minus 10% in a day or week have been occurring. Markets going up and down by 10% in a day or a week. Commodity prices changing by plus/minus multiples in mere months.

I'd be more surprised if there WEREN'T hedgies getting smacked down by this environment - after all - they all use leverage in order to jack up returns and the flip side is jacking down.

Once again, show that you're more than some pimply faced dude in his mommy's basement.

Sure, EJ isn't perfect. I for one do not ascribe to all of his views - I am on record for saying things are going to be much worse than what iTulip predicts. EJ was also NOT right on several items: basement price for gold, 10% CPI by end of 2008, and a few other items.

But I'm not here to get trading tips. I'm here to share and learn.

Your contributions neither illuminate nor elucidate.

1) There's a difference?

2) fine: ignore me.