Bonds:John Williams

[DRumsfeld2000]

http://usawatchdog.com/were-going-to...john-williams/

In this video Williams states that the FED's policies will lead to hyperinflation. The reason is that normally bonds are issued and the general public et al buy them. There is therefore no increase in the money supply.

Williams states that now the FED issues and buys bonds and the money goes to the banks. So there is an increase in the money supply as it is not the general public buying the bonds and therefore taking money out of the system. Williams states that the banks are not lending this new money and yet the money supply is increasing and this will lead to hyperinflation. I have also read from other sources that since the banks are not lending this money there is no increase in the money supply. In fact, all this money does is back up the capital of the banks and once the balance sheets of the banks improve then all the FED does is simply cancel the bond issuance and voila, there is no increase in the money supply.

Can someone explian to me what is correct please. Thanks

[don]

Re: Bonds:John Williams

Sorry DR, missed your post. (John Williams - Just the facts, Ma'am, is embedded.)

[charliebrown]

Re: Bonds:John Williams

The bonds are the liability of the treasury not the FED. I suppose the treasury could "cancel" i.e. default. This would mean that there would be no assets backing
the currency. In the old world with a gold standard, this would lead to a run on the bank (no gold to backup bank notes). My mind goes foggy when paper backs up paper (treasuries are redeemed for dollars, and dollars are backed by treasuries). Another way to "cancel" the bonds would for the fed to never shrink its balance sheet. They would just replace the bonds that are maturing with new issue.

Will the banks ever start lending again? Even with their balance sheet repaired? To whom J6P is tapped out and afraid of losing his job, Isn't capital expenditures down/tepid? States and munis are shedding debt, Lend to the f gvt? That seems to be some kind of house of mirrors. fgvt borrows (creates treasurys), banks buy them (lend), central bank buys them via balance sheet expansion (print money), banks get more money (reserves), reserves offset bad loans. (rinse, repeat)
How long can the malevolent cycle go on? Once the debt rollover party is over is that when the music stops?

[don]

Re: Bonds:John Williams

I suppose the treasury could "cancel" i.e. default. This would mean that there would be no assets backing
the currency.

I assumed Williams was referring to Treasuries melting away through high inflation, instigating a bond crisis.

The major flaw in the hyper-inflationary scenario in our all-fiat currency world is that the "common sense" overprinting consequences do not necessarily apply. All fiat currencies are relative to each other. That's where the Reserve Currency dollar status is crucial, backed by the US military. (That's one of the chief reasons the Saddam mixed currency basket for oil sales and the Gaddafi Pan-African gold-backed currency do not exist.)

The Fed/Treasury insane money printing does not mean the US dollar will weaken relative to all other currencies. More likely they will continue to weaken together, hence - Gloom & Doom.

[BadJuju]

Re: Bonds:John Williams

Not to mention all of the other crazy monetary schemes occurring throughout the world. The USA isn't alone in its insanity.

[don]

Re: Bonds:John Williams

Not to mention all of the other crazy monetary schemes occurring throughout the world. The USA isn't alone in its insanity.

It's the USA I'm concerned with.

[BadJuju]

Re: Bonds:John Williams

It's the USA I'm concerned with.

As am I; however, I was just saying that the whole world is in a race to the bottom currency wise. The USA may be leading the pack, but it is also the world's foremost military power by many magnitudes and with tremendous resources to back it up. I just don't see a scenario where the USA is going to come out the worst for wear when it holds so many cards.

[aaron]

Re: Bonds:John Williams

He has been calling for hyperinflation every year for at least 5 years, probably much longer. While his logic may be sound, he has been wrong for a long time. Eventually, he MAY be right, but EJ does not agree with him. I do not see how we get hyperinflation when nobody has any money to spend, oil is relatively stable, and banks do not lend. 1 trillion dollar deficits are really quite small compared to the amount of money created during the credit bubble of 5 years ago. I do not see animal spirits in my corner of the country.

[jpetr48]

Re: Bonds:John Williams

He has been calling for hyperinflation every year for at least 5 years, probably much longer. While his logic may be sound, he has been wrong for a long time. Eventually, he MAY be right, but EJ does not agree with him. I do not see how we get hyperinflation when nobody has any money to spend, oil is relatively stable, and banks do not lend. 1 trillion dollar deficits are really quite small compared to the amount of money created during the credit bubble of 5 years ago. I do not see animal spirits in my corner of the country.

I rechecked Willams 2010 archive and his most recent statements on hyperinflation. What he has said going back to 2010 is that hyperinflation could happen anytime but it probably can't be contained beyond 2014. Yes Eric does not believe the Fed will let this get to a hyperinflation state.

[aaron]

Re: Bonds:John Williams

Here is just one quote, from 2006

The U.S. dollar faces severe selling pressure in the near future, although political flight-to-safety effects are providing the greenback with temporary, albeit short-lived, support. The timing of the dollar's demise ultimately will determine the timing of the fate of the other markets.

http://web.archive.org/web/200608072...adowstats.com/

And in 2008

Special Issue - Hyperinflation April 8th, 2008
• Banking Solvency Crisis Has Opened First Phase of Monetary Inflation • Hyperinflationary Depression Remains Likely As Early As 2010

http://web.archive.org/web/200804220...adowstats.com/

I would rather not dig for more. I will leave that up to others who care. He was wrong, has been wrong, has outlandishly high inflation stats that nobody agrees with, and will likely continue to be wrong.

Although, he has been right about other things. Had I known of his site in 2006, and believed it, I would have saved a ton of money. He called the recession.

[metalman]

Re: Bonds:John Williams

Here is just one quote, from 2006

http://web.archive.org/web/200608072...adowstats.com/

And in 2008


http://web.archive.org/web/200804220...adowstats.com/

I would rather not dig for more. I will leave that up to others who care. He was wrong, has been wrong, has outlandishly high inflation stats that nobody agrees with, and will likely continue to be wrong.

Although, he has been right about other things. Had I known of his site in 2006, and believed it, I would have saved a ton of money. He called the recession.

ej is the only one to call the recession on the button... a gold sovereign awaits the brain among us who can find a more accurate call...

i've tried!

williams... meh... the bullhorn's hyperinflation bookend to prechter the hyper deflation man...


deflation clown


inflation clown

ignore the man behind the curtain...

[aaron]

Re: Bonds:John Williams

If EJ marketed his site better, then perhaps I would have found it and saved a shit ton of money, yes. MM, please consider that a lot of us have not been saved by EJ (yet). He is your ultimate hero, I know. But, he has also made bad calls. God I wish I found this site 10 years ago!

Chances are there are others who saw the recession as well. They were equally drowned out by the media. You really want to bet a gold sovereign? the way back when machine has a lot of data.

[don]

Re: Bonds:John Williams

I recall it went something like this:

Calling a recession when the dot-com bubble burst wasn't hard. What was unforeseen was the radical response of the Fed with cheap money, which provided the ammo for FIRE to go ape shit with housing, MBS, derivatives, etc. I believe EJ missed that call, along with everybody else. One of his very few omissions.

MM, our in-house historian, can correct and document the above remembrance.

[raja]

Re: Bonds:John Williams

http://usawatchdog.com/were-going-to...john-williams/

In this video Williams states that the FED's policies will lead to hyperinflation. The reason is that normally bonds are issued and the general public et al buy them. There is therefore no increase in the money supply.

Williams states that now the FED issues and buys bonds and the money goes to the banks. So there is an increase in the money supply as it is not the general public buying the bonds and therefore taking money out of the system. Williams states that the banks are not lending this new money and yet the money supply is increasing and this will lead to hyperinflation. I have also read from other sources that since the banks are not lending this money there is no increase in the money supply. In fact, all this money does is back up the capital of the banks and once the balance sheets of the banks improve then all the FED does is simply cancel the bond issuance and voila, there is no increase in the money supply.

Can someone explian to me what is correct please. Thanks

Which one is correct depends on what happens in the future . . . .

If a government just created paper money and spent it they would not need to borrow it from a central bank. This is simple fiat money. But this is clearly inflationary and so not very popular.
A central bank is supposed to only loan out money, so it can theoretically get all the money back and not cause any permanent inflation.
.
.
.


Where this central bank system breaks down is when the central bank loans new paper money out to banks, companies, governments that go bankrupt and don't pay back. These dollars are then out in the wild and inflationary. Buying toxic assets that can not be sold for the price paid is a similar thing. The biggest breakdown is that the government is not really going to ever pay the loans back. (see link below)

The best info on Hyperinflation, IMO, is here: http://pair.offshore.ai/38yearcycle/#hyperinflation
The article is the size of a small book . . . I copied it to my kindle so I could read it leisurely. Took about 3 hours, and I was fascinated by every word. Filled in some crucial gaps in my knowledge.

If you want something briefer by the same author: FAQ for Hyperinflation Skeptics

I won't engage in the War of the Pundits discussion . . . but I will say that this guy is on the top of my list now, replacing Jim Rickards. EJ's writing is valuable, be he suffers from over-optimism, which he readily admits. And whether he is right or wrong on hyperinflation, what he presents publicly on the topic is superficial in comparison to the material above. Personally, I like to have lots of details so I can draw my own conclusions . . . .

[raja]

Re: Bonds:John Williams

The bonds are the liability of the treasury not the FED. I suppose the treasury could "cancel" i.e. default. This would mean that there would be no assets backing
the currency. In the old world with a gold standard, this would lead to a run on the bank (no gold to backup bank notes). My mind goes foggy when paper backs up paper (treasuries are redeemed for dollars, and dollars are backed by treasuries). Another way to "cancel" the bonds would for the fed to never shrink its balance sheet. They would just replace the bonds that are maturing with new issue.

Will the banks ever start lending again? Even with their balance sheet repaired? To whom J6P is tapped out and afraid of losing his job, Isn't capital expenditures down/tepid? States and munis are shedding debt, Lend to the f gvt? That seems to be some kind of house of mirrors. fgvt borrows (creates treasurys), banks buy them (lend), central bank buys them via balance sheet expansion (print money), banks get more money (reserves), reserves offset bad loans. (rinse, repeat)
How long can the malevolent cycle go on? Once the debt rollover party is over is that when the music stops?

The rule is that when the number of units of the currency (dollars) increase , the value of the currency decreases.
The Fed creates money, and that money needs to be withdrawn (sterilized) or it will cause dollar value loss sooner or later -- leading to price inflation. Default = inflation, because the money created is not destroyed. If the bank does not shrink its balance sheet, the the new money stays out there causing inflation.

Even if the banks are not doing anything with the money now, I doubt that they will throw it "in the trash" in the future. I also doubt that they will pay it back. Why give back free money?
Also, if the banks do not lend the money, they are still earning interest from the Fed . . . and that interest is newly created money, which causes inflation.
The bank reserves offset bad loans, but if the bad loans never get paid back, the Fed never gets paid back, so the new money is not sterilized.

The problem is not just the situation with the banks.
The Fed is creating money to give to the government to cover the massive fiscal deficit. Thus, the national debt grows every year. The government will never pay back that newly created money, so the money stays out there causing inflation.

As the economy worsens, the fiscal burden of the government increases -- costs of unemployment payments, food stamps, bogus education to "fix" the problem. Factor in lower tax revenues as the GDP shrinks.
This is the self-reinforcing spiral leading to hyperinflation.
The government will never stop printing, because to stop printing means it shrinks and loses power.
Additionally, if it shrinks you've got all those unemployed government workers on welfare.