Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

[Slimprofits]

Feb. 4 (Bloomberg) -- White House economics director Lawrence Summers urged swift passage of a stimulus bill and pledged further taxpayer funds for major banks, warning that the economy is in danger of sustained declines in consumer prices.

“Deflation is a real risk facing the economy,” Summers, the director of the National Economic Council, said today on a conference call with reporters. “We do not have time to wait” to approve the fiscal-stimulus package the Obama administration is pushing in Congress, he said.

A prolonged slide in prices would worsen the recession by making debts harder to pay off and banks even less likely to make new loans. Summers’s remarks come as the administration seeks congressional approval of the stimulus by the end of next week.

“This bill is imperative for our economic security,” Summers said. “I’ve got great confidence that in our country we do the right thing. So I expect a bill to be signed into law.”

[..]

The stimulus package alone won’t be enough, said Summers, a former Harvard University professor and Treasury secretary in the Clinton administration. Policy makers are readying an overhaul of the Treasury’s financial-bailout program, which may come early next week, and a strategy to stem record mortgage foreclosures.

The focus of the financial recovery plan “will be on maintaining the overall flow of credit” in the economy, Summers said. It will include “government support for the credit markets” and “capital infusions into major financial institutions.”

[FRED]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

economic security[/U],” Summers said. “I’ve got great confidence that in our country we do the right thing. So I expect a bill to be signed into law.”

Language alert: "Economic security"

Who can be against economic security?

All manner of terrible economic policy can fit under that umbrella.

[BadJuju]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Greatest robbery ever perpetrated.

[bill]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

next
http://www.time.com/time/magazine/ar...4853-2,00.html

Thursday, Jan. 29, 2009
And then, perhaps as early as March, they'll launch their biggest lift with the beginnings of a plan to reform Social Security and Medicare, the two entitlement programs that, even before the economy collapsed, were threatening the Treasury with bankruptcy. By any standard, it is a massive three-month agenda fraught with political risk. The key to getting it all done, Summers says, is entering into a "compact" with the country "that this isn't just government as usual throwing money at things." When Obama unveils his annual budget in late February or March, Summers promises that the President "is going to describe the kinds of approaches he wants to take to the entitlement problems that have been ignored for a long time." Some options might include delaying retirement, stretching benefits and lifting the cap on taxable earnings. Could one of these prevail? "Remains to be seen," Summers says.

[charliebrown]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

When does the gvt credit line run out?
How much money can they borrow at 3%?
I'm out of long treasuries, no yield any more.
If i wanted to lend money go GM (i dont), I would have bought their bonds. If they turn around I make a killing.
The treasury loaning them money makes me mad! Now we as a people have the risk, but we have no reward. Yeah GM will pay back, but at 5% or whatever the deal was, we're not getting compensated for our risk. When do the other t-bond buyers go home too for the same reasons?
I'm holding t-bills for security reasons, but they have zero return.
I don't know what to do with these. take counter party risk, or zero return? I dont think commodities have put in a bottom yet, but maybe this is where to park my money. Gold would have been great at 500, but at 900?? not such a sure thing.
How much more can they tax us to support this treasury mountain?
Including all of my direct taxes I think I have a 40% tax rate on my income, and I'm joe computer programmer not joe movie star. My state, Illinois is in trouble so I expect an 1% increase in income taxes is coming soon. We just got hit with .5% sales tax increase. Gas tax increases are on the table too.
Its getting hard to breathe down here.

[santafe2]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

When does the gvt credit line run out?
How much money can they borrow at 3%?

Here's how it will work: The Treasury issues bonds, the Fed buys bonds. Then say it again and again and again.

How low do long term rates need to be? That's where they'll be. The credit will never run out only the value of the currency.

[metalman]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Here's how it will work: The Treasury issues bonds, the Fed buys bonds. Then say it again and again and again.

How low do long term rates need to be? That's where they'll be. The credit will never run out only the value of the currency.

the value of the currency is a factor of the credit... no?

[GRG55]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Language alert: "Economic security"

Who can be against economic security?

All manner of terrible economic policy can fit under that umbrella.

Including "...government support for the credit markets” and “capital infusions into major financial institutions...”? :rolleyes:

[Starving Steve]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Why do we have to fear a general deflation, especially when debtors are paying very low interest rates and savers are getting zero?

Wouldn't a general deflation be LOVELY? If not, why not? Spell it out.

Of course, an orderly and slow deflation is exactly what the doctor ordered, and everyone outside of the economics classes has always known this. Maybe even the world's central bankers have known this too, and if they haven't known this too, why not? (How dumb could they be?)

The bottomline is that the pending stimulus bill in the U.S. Congress should be killed. Endless bail-outs should be killed. Let the deflation continue, everywhere in the world.

[Starving Steve]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Can you imagine how we would suffer if we went to the store and prices were lower than we had planned for? In a deflation, we would have to make an extra trip to the bank to re-deposit our savings. (The idea of calling that "hard times" is patently absurd, but that is what they teach in the economics classes.:rolleyes

[Slimprofits]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Can you imagine how we would suffer if we went to the store and prices were lower than we had planned for? In a deflation, we would have to make an extra trip to the bank to re-deposit our savings. (The idea of calling that "hard times" is patently absurd, but that is what they teach in the economics classes.:rolleyes

What about the person that owns the store? What about the people that work at the store? Do their paychecks dwindle? When does it stop?

It doesn't like a good alternative either.

[Starving Steve]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

When I was in business, when the price of an item dropped, the price fell, and the item was sold. For example, when a gold wafer dropped in price, the wafer was sold for the NEW market price of gold plus the coining fee for the wafer, plus postage to the shop, plus my percent or two profit. And that was that.

Many-a-day I operated at a loss, but I made in the end so long as I held the gold or the right to buy the gold at a certain price. Every other consideration was irrelevent.

In the gas business, the gas dealer sells for the NEW market price of gas plus the refining fee from his refiner, plus the trucking to the shop, plus his percent or two profit.

The same is in the grocery business. The same is in the hardware business. The same is in all businesses.

So why do we need inflation? To keep the unprofitable businesses profitable? And that is the rubbish that they would have you believe in the economics classes?

The U.S. government, the world's leading debtor, might have you believe this rubbish because they want the workers and savers to pay for the bail-outs of the bankers and lobbiests on Wall Street. So, Starving Steve is to pay for the losses and thefts of Bernie Madeoff through an inflation tax and maybe also a devaluation tax, plus all other applicable taxes, all engineered with the help of the Federal Reserve Bank.

This is why we have central banking: to transfer purchasing power from the poor to the rich, or from the poor to the state.

Tell the professors at your universities that Starving Steve is going to help bail-out the banking system that Bernie Madeoff stole from, and the Federal Reserve Bank will see to it through an engineered currency devaluation, plus through an engineered inflation, and along with the application of all possible income taxes to enrich government coffers. This is how the system really works.

[c1ue]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Steve,

Deflation sounds great if you are a saver.

But Deflation doesn't just stop at your door at your convenience.

Deflation affects everyone, and the ones who owe lots of money are not going to like it.

Since there are more of these than savers, and because the government itself is a spender, ultimately the economic burden imposed by debt service on huge existing debts mean government will - either for its own purposes or forced on it by the majority spenders - devalue the currency in order to make debt service feasible.

Thus deflation ultimately is self defeating unless there is some extraneous reason for this process to be short circuited.

Japan is actually a good example. I have argued many times before that Japan chose policies which enshrined a mild deflation both because it could afford to do so as a net creditor nation and because Japanese government does have a paternal concern over its citizens.

The US, in contrast, is now a net debtor nation and has a government which has shown zero paternal concern for its citizens.

[GRG55]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Can you imagine how we would suffer if we went to the store and prices were lower than we had planned for? In a deflation, we would have to make an extra trip to the bank to re-deposit our savings. (The idea of calling that "hard times" is patently absurd, but that is what they teach in the economics classes.:rolleyes

If it wasn't for the sarcasm smiley at the end, I might have thought you actually believed what you wrote Steve...

[grapejelly]

Re: Summers Warns Deflation Is ‘Real Risk’, promises capital infusions for Wall $treet

Deflation is FANTASTIC.

If we really had deflation, it would mean that the value of savings would RISE. Precisely the conditions throughout most of the 19th century in the US and UK that led to unprecedented growth.

Commodity prices fell gradually. The buying power of money kept rising. Investment was rewarded including long term investment. So private companies raised money for building things like railroads and canals.

Of course, it was exploited by the Powers That Be to reward their cronies, but nothing is perfect. Government is always manipulated this way, but at least government was a small share of GDP throughout *most* of the century.

Deflation is IMPOSSIBLE now. It is a bogeyman used by the powers that be, the banksters, to scare people.

They are all dependent upon the following game:

1. Borrow unlimited fiat through central banking scam

2. Buy assets like equities, real estate, financial things

3. Inflation makes those assets rise in value

4. Pay back the money in depreciated currency

They get everyone playing it, including Joe Homeowner. Saving is no fun. Nobody likes to save. And they know that the gubmint, the biggest debtor of all, will inevitably, always depreciate the currency. So it is foolhardy to save and nobody does it except through pension schemes and insurance and other forms of mandated capital pools.

This cycle is going to repeat because there is unlimited ability to print money and there is widespread public participation in the game. That is the essence of democracy. In Weimar it was the industrialists and up-in-comers who played this game. The Weimar hyperinflation was purposefully created and the blame was affixed wrongly onto the peace treaties and reparations.

This time around, the blame is affixed on greed. Demogoguery would be greater but the public is more sophisticated now and notices that those greedy banksters are in power. During FDR's time they read the mainstream papers and didn't pick up on this, stupidly.

People have been long hooked on the above game. In the end, Joe Homeowner doesn't come out ahead because he doesn't exit in time. But he wants to try again. Because his credit card debts are oh so high and he is losing his job and has no savings to worry about.

There MUST be another inflation of some kind because Americans won't tolerate things without it. And the gubmint already has committed to it.

Deflation has never happened in a fiat regime. Technically you might have a month or two, but it is complete BS.

What does happen is that assets lose value, but the loans against those assets remain. The future ability of the banking system to inflate, to create more money, diminishes.

But if you notice, the reserves are there now and the banks can lend like crazy if they want to. There is unlimited ability for banks to lend more money into existence. And the ultimate borrower, the US gubmint, will either borrow directly from the banks, thus creating this money, or else, the gubmint will guarantee private sector loans.

I think EJ has complicated this a bit talking about other methods of creating currency depreciation. The fundamental way is the simplest and it is going on right now.

This is not deflationary because no real money is disappearing. In the early 1930s, money disappeared because banks went under.

I have said before that defaults do NOT create deflation. The money that was borrowed is already in the economy, little amoebas spreading around, to use EJ's analogy. But the one default that creates deflation is a default of a bank because that does in fact destroy money and is deflationary.

But banks are no longer allowed to default. The only defaults are by borrowers, and these are not deflationary, only (temporarily) dis-inflationary.

So Summers is either completely stupid, brainwashed, or is just propagandizing. Probably all three. He is a bright man with a terrible agenda.