Folks i NEED your help (Please)

[Mega]

This sounds like a VERY bad idea:-
http://www.bloomberg.com/apps/news?p...uCI&refer=home

Yoour thoughts please!
Mike

[ASH]

Re: Folks i NEED your help (Please)

This sounds like a VERY bad idea:-
http://www.bloomberg.com/apps/news?p...uCI&refer=home

Yoour thoughts please!
Mike

What's not to like? The government guarantees loans to private individuals and businesses, who then default. The government is then on the hook for the defaulted loans, and unable to pay the bill by borrowing or out of tax revenue, so it monetizes the deficit instead. The people get their loan, the banks get paid, and everybody gets a devalued currency.

I suppose a stickler might object that one reason banks aren't lending is because credit derivatives are going south, which is something that eliminating the credit risk on new loans won't address. But, that too can be fixed by monetization.

What possible pitfalls do you foresee?

[grapejelly]

Re: Folks i NEED your help (Please)

I have some bills for water, electric, guitar lessons, my vacation...and maybe the gubmint can pay those...why not?

[Starving Steve]

Re: Folks i NEED your help (Please)

This whole thing about "nuclear options" and "extra-ordinary powers" started with Bernankee at the Federal Reserve Bank in the U.S. Bernankee's whole approach has been wrong from the start, and he has all of the other central bank heads buffaloed.

This Bernankee reminds me of a loser gambler. In other words, "Just give me one more big bet." --- or the line from the old song: "Just give me one more crack at the old race track."

Resignations are in order, not just at the Fed, but at the Bank of England, and all of the world's central banks.

Supply-side economics, Keynsian economics, the Phillips Curve, all of it is just so much rubbish. Interest rates on short-term U.S. Treasury debt are in negative numbers to-day in the U.S. and in nominal terms, no less. What more proof is there that Bernankee's approach is a failure? People are running scared.

[unlucky]

Re: Folks i NEED your help (Please)

The trick that the CBs have to pull off is to inflate without letting on that they are doing so, a la "We were just trying to grow the economy!".

Giving money to the plebs is too overt. Once every Tom, Dick or Harry can get a bail-out, the cat will be out of the bag. ;)

I can understand why you might want to fire Benanke, but IMHO if at this stage he can inflate without hyper-inflating, he should be given a medal!

[*T*]

Re: Folks i NEED your help (Please)

They have no choice. Or rather the choice is monetisation or a depression / deflationary spiral.

[marvenger]

Re: Folks i NEED your help (Please)

shit i'm glad someone else sees it like that, every time I say it there is no bloody response

[ASH]

Re: Folks i NEED your help (Please)

The trick that the CBs have to pull off is to inflate without letting on that they are doing so, a la "We were just trying to grow the economy!".

Giving money to the plebs is too overt. Once every Tom, Dick or Harry can get a bail-out, the cat will be out of the bag. ;)

I can understand why you might want to fire Benanke, but IMHO if at this stage he can inflate without hyper-inflating, he should be given a medal!

One thing I have been pondering recently is this. I think Bernanke basically knows what he is doing, but that every policy choice is fraught with risk, so he is reduced to choosing what he thinks is the "least bad" option from the standpoint of societal and systemic risk. That isn't to say that Bernanke's risk assessment is correct -- just that he's smart, that he has a lot of knowledge, and that he is a professional banker. He is probably going for a controlled inflation, trying to avoid a deflationary spiral, and is intending to put the genie back in the bottle so as to avoid hyperinflation. But... what if under the "least bad" plan, things get bad enough and stay bad long enough to discredit Bernanke and his ilk? What if we get a wave of populist agitation that changes our political leadership and our laws, and replaces our bureacratic banksters with bumpkins? In short, what if once Bernanke lets the monetization genie out of the bottle (with the intention of corking it back up when the systemic emergency is over), he is replaced by someone who won't put it back, and doesn't appreciate the danger? In this context, I'm thinking about the history of the policy conflict between the sound money and loose money types from earlier in our nation's history. Suppose the officials who understand the danger of hyperinflation -- and who plan to cut things finely so as to avoid it -- are replaced by populists who promise to give free money to everybody? Could that happen?

[ASH]

Re: Folks i NEED your help (Please)

shit i'm glad someone else sees it like that, every time I say it there is no bloody response

Actually, I agree. Just because something is a bad idea doesn't mean there is a better idea.

Well, actually, those who propose we nullify the CDS contracts or declare a debt jubilee rather than printing money think that those are both better ideas. I don't know how I feel about that -- I think those ideas are sufficiently system-changing that they are outside the universe of possibilities being considered by the policymakers. Otherwise, complaining about inflationary policies -- and how they are going to backfire -- is really just sport.

Maybe the reason you hear crickets whenever you say "what other choice do they have" is because that's kind of already a part of ka-POOM theory -- or at least the way I remember it being presented. Wasn't the story that if things were allowed to run their course, we'd get a deflationary spiral, but policy-makers know this -- and in the West have a bias to avoid a deflationary spiral at all costs -- and so they are going to inflate?

So, for what it's worth, I see your interpretation as the baseline iTulip position. They don't really have any other choice. FRED can correct me if I'm wrong.

[marvenger]

Re: Folks i NEED your help (Please)

Ash, I see it the way Hudson and Keen see it, or their view seems most true to me. Being able to inflate out of trouble by issuing more debt backed currency can work as long as it is spent on productive investment. The US has inflated its way out of trouble and spent its debt backed currency on consumer goods and further outsourcing its economy in the name of short term gains for decades. The economy is massively sick and it is creating more debt back money in ever record amounts and spending it on ever record unproductive means. This means more debt and less real economic base and worsening of the debt problem and hence deflation.

The US has dug such a massive hole and is so determined to maintain the status quo that productive investment paid for by debt backed currency may be too late to save it from the debt overhang.

If it is too late then their only options are monetisation or let the debt deflation continue and hope to reach a bottom.

Most theory seems to suggest a debt deflation bottom can't be found by itself.

So reckon if they let the debt deflation continue the US econonomy might become so shattered that it loses its dollar reserve status and you get EJ's POOM, but US will have to default or have capital controls or something because this would be completely devastating.

If they can't inflate through normal means and spending wisely then they'll have to monetise to inflate. This will probably be shattering to interet rates as you'll have a same effect as the dollar losing its reseve status and if the powers that be want to prevent the whole economy from collapsing they'll have to be spending the monetised money in very unconventional means, like letting the poor plebs have first access to the money, and this will be devastating to the establishment and therefore unlikely to happen.

So I think they'll finally try to spend on productive means while they still can and the US has reserve status, but if this fails, likely, the deflation will continue and the US will have to default and lose its reserve status. Their only option is a some EJ style bretton woods 2 to disguise default but I'm not sure how likely this is, the WSJ may report it, but I don't think China is mentioning it as a good idea.

[unlucky]

Re: Folks i NEED your help (Please)

Suppose the officials who understand the danger of hyperinflation -- and who plan to cut things finely so as to avoid it -- are replaced by populists who promise to give free money to everybody? Could that happen?

I guess that's possible, although there don't seem to be many politicians on the horizon who are pushing that angle (yet - apart from the British pols in the OP of course). The route to hyper-inflation that most people favour is a loss of confidence by foreign investors in US govt debt, due to large scale nationalization of crappy assets. The crappy assets are certainly building up, but appetite for govt debt has never been better -- however the market looks decidedly freaky.

It could also go the other way - from the outside there seems to be a lot of political resistance in the US to the idea that the govt should intervene to prevent deflation. One last stand for laissez faire capitalism?

[trex]

Re: Folks i NEED your help (Please)

Mega,

this should put a smile on your face.

http://www.youtube.com/watch?v=V2oOH7DkLqg

[marvenger]

Re: Folks i NEED your help (Please)

Wasn't the story that if things were allowed to run their course, we'd get a deflationary spiral, but policy-makers know this -- and in the West have a bias to avoid a deflationary spiral at all costs -- and so they are going to inflate?

Yes but I'm frustrated by the lack of discussion about how that infaltion happens. Itulip's position is that the money is already overseas; but US has to give something in return to get those dollars back to US something they don't have or are unwilling to give up, the Asians can't spent it themselves in the US it seems.

[trex]

Re: Folks i NEED your help (Please)

IMHO we have 3 core issues both here and in the UK.
1. Cratering consumer confidence for multiple reasons.
2. Cratering investor confidence for multiple reasons.
3. Banks needing recapitalization (again)
All three need to be addressed to slow rate of decline. All three objectives can be accomplished by paying off consumer debts - especially delinquent ones as in mortgages, credit cards, autos. For example, if the gov't were to pay $2000 against every credit card in America, it would spur consumer confidence since they'd have less debt. Small business would also get a boost since many of them run on credit cards.

Investor confidence would increase since the default rate on credit card securities would drop to almost 0% for a period of time. This also would reduce the default rate on other consumer loans.

And finally, the major credit card issuers would get a whole bag of money i.e. Citibank, Bank of America, JP Morgan Chase, etc.

3 birds with one stone. You can change the numbers or the debts to whatever you like. The key is that we have to free the debt serfs or we have one messy Ka before the Poom.

And yes, it would cause at least inflation and as pointed out in the thread might cause hyper-inflation. It would be really good for your gold holdings.

Cheers.

[Master Shake]

Re: Folks i NEED your help (Please)

One thing I have been pondering recently is this. I think Bernanke basically knows what he is doing, but that every policy choice is fraught with risk, so he is reduced to choosing what he thinks is the "least bad" option from the standpoint of societal and systemic risk. That isn't to say that Bernanke's risk assessment is correct -- just that he's smart, that he has a lot of knowledge, and that he is a professional banker. He is probably going for a controlled inflation, trying to avoid a deflationary spiral, and is intending to put the genie back in the bottle so as to avoid hyperinflation. But... what if under the "least bad" plan, things get bad enough and stay bad long enough to discredit Bernanke and his ilk? What if we get a wave of populist agitation that changes our political leadership and our laws, and replaces our bureacratic banksters with bumpkins? In short, what if once Bernanke lets the monetization genie out of the bottle (with the intention of corking it back up when the systemic emergency is over), he is replaced by someone who won't put it back, and doesn't appreciate the danger? In this context, I'm thinking about the history of the policy conflict between the sound money and loose money types from earlier in our nation's history. Suppose the officials who understand the danger of hyperinflation -- and who plan to cut things finely so as to avoid it -- are replaced by populists who promise to give free money to everybody? Could that happen?

ASH,

FWIW, you get my vote for most level-headed poster of the year. It seems to me that the choices out there are not between right and wrong, or good, better, best, but bad, worse, and worst. I gotta believe that Bernanke and his co-horts know how fucked up everything is and are doing their best to make things as least painful as possible.

However, tough times are a breeding ground for demagogues (recall the Great Depression and what that spawned), so when things get worse in 2009, we might start seeing calls for "real" change that might make things worse.