so even the IMF is in “profit-taking” mode

http://globaleconomicanalysis.blogspot.com/2009/09/is-pent-up-inflation-from-fed-printing.html

Inquiring minds are wondering about the possibility of “pent-up” inflation from the massive expansion money supply by the Fed. Our search for the truth starts with the question “Which Comes First: The Printing or The Lending?”

This is a critical question given the massive expansion of base money by the Fed as shown in the following chart.

Imagine a chart that is ballistic - straight up!

Since the beginning of the recession, the Fed has expanded base money supply from $800 billion to $1.7 trillion. Conventional wisdom suggests this money is going to come soaring into the economy at any second causing hyperinflation on the notion banks will lend out 10 times the amount of reserves.

So is this pent-up inflation just waiting to break out?

Hardly.

A funny thing happened to the inflation theory: Banks aren’t lending and proof can be found in excess reserves at member banks.

Imagine another chart that is ballistic - straight up!

Banks are Insolvent, Consumers Tapped Out

Because of rising credit card defaults, commercial real estate defaults, foreclosures, walk-aways, and other bad debts, banks need those reserves to cover future losses.

In practice, banks are insolvent, unable or unwilling to lend. Moreover, tapped out consumers are unable or unwilling to borrow. As a result, Spending Collapses In All Generation Groups.

Not inflationary!

no_vaseline - 21 September 2009 05:13 PM

http://globaleconomicanalysis.blogspot.com/2009/09/is-pent-up-inflation-from-fed-printing.html

Inquiring minds are wondering about the possibility of “pent-up” inflation from the massive expansion money supply by the Fed. Our search for the truth starts with the question “Which Comes First: The Printing or The Lending?”

This is a critical question given the massive expansion of base money by the Fed as shown in the following chart.

Imagine a chart that is ballistic - straight up!

Since the beginning of the recession, the Fed has expanded base money supply from $800 billion to $1.7 trillion. Conventional wisdom suggests this money is going to come soaring into the economy at any second causing hyperinflation on the notion banks will lend out 10 times the amount of reserves.

So is this pent-up inflation just waiting to break out?

Hardly.

A funny thing happened to the inflation theory: Banks aren’t lending and proof can be found in excess reserves at member banks.

Imagine another chart that is ballistic - straight up!

Banks are Insolvent, Consumers Tapped Out

Because of rising credit card defaults, commercial real estate defaults, foreclosures, walk-aways, and other bad debts, banks need those reserves to cover future losses.

In practice, banks are insolvent, unable or unwilling to lend. Moreover, tapped out consumers are unable or unwilling to borrow. As a result, Spending Collapses In All Generation Groups.

Not inflationary!

Not inflationary?  Not yet!  To say those dollars will never get out is ludicrous.  Also, this is not the only issue weakening our currency.

The crowd is saying “eventual inflation concerns”.  It’s reminiscient of the “modest cooling in the housing market” we’ve had the last couple years.  The crowd gets squashed.

matt138 - 22 September 2009 01:01 AM

no_vaseline - 21 September 2009 05:13 PM

http://globaleconomicanalysis.blogspot.com/2009/09/is-pent-up-inflation-from-fed-printing.html

Inquiring minds are wondering about the possibility of “pent-up” inflation from the massive expansion money supply by the Fed. Our search for the truth starts with the question “Which Comes First: The Printing or The Lending?”

This is a critical question given the massive expansion of base money by the Fed as shown in the following chart.

Imagine a chart that is ballistic - straight up!

Since the beginning of the recession, the Fed has expanded base money supply from $800 billion to $1.7 trillion. Conventional wisdom suggests this money is going to come soaring into the economy at any second causing hyperinflation on the notion banks will lend out 10 times the amount of reserves.

So is this pent-up inflation just waiting to break out?

Hardly.

A funny thing happened to the inflation theory: Banks aren’t lending and proof can be found in excess reserves at member banks.

Imagine another chart that is ballistic - straight up!

Banks are Insolvent, Consumers Tapped Out

Because of rising credit card defaults, commercial real estate defaults, foreclosures, walk-aways, and other bad debts, banks need those reserves to cover future losses.

In practice, banks are insolvent, unable or unwilling to lend. Moreover, tapped out consumers are unable or unwilling to borrow. As a result, Spending Collapses In All Generation Groups.

Not inflationary!

Not inflationary?  Not yet!  To say those dollars will never get out is ludicrous.  Also, this is not the only issue weakening our currency.

The crowd is saying “eventual inflation concerns”.  It’s reminiscient of the “modest cooling in the housing market” we’ve had the last couple years.  The crowd gets squashed.

Where are they going to get out?  Show me some data showing banks on a lending spree!

In that case, the crowd is expecting massive inflation.  It’s me and Mish and about four other people banging the deflation gong.  Everybody else is screaming like it’s 1980.

I saw in another thread you were promoting raising the Fed funds rate to fight “inflation” that DOESN’T EXIST so we can cause another particularly nasty recession.

Did I get that right?

no_vaseline - 22 September 2009 01:33 AM

matt138 - 22 September 2009 01:01 AM

no_vaseline - 21 September 2009 05:13 PM

http://globaleconomicanalysis.blogspot.com/2009/09/is-pent-up-inflation-from-fed-printing.html

Inquiring minds are wondering about the possibility of “pent-up” inflation from the massive expansion money supply by the Fed. Our search for the truth starts with the question “Which Comes First: The Printing or The Lending?”

This is a critical question given the massive expansion of base money by the Fed as shown in the following chart.

Imagine a chart that is ballistic - straight up!

Since the beginning of the recession, the Fed has expanded base money supply from $800 billion to $1.7 trillion. Conventional wisdom suggests this money is going to come soaring into the economy at any second causing hyperinflation on the notion banks will lend out 10 times the amount of reserves.

So is this pent-up inflation just waiting to break out?

Hardly.

A funny thing happened to the inflation theory: Banks aren’t lending and proof can be found in excess reserves at member banks.

Imagine another chart that is ballistic - straight up!

Banks are Insolvent, Consumers Tapped Out

Because of rising credit card defaults, commercial real estate defaults, foreclosures, walk-aways, and other bad debts, banks need those reserves to cover future losses.

In practice, banks are insolvent, unable or unwilling to lend. Moreover, tapped out consumers are unable or unwilling to borrow. As a result, Spending Collapses In All Generation Groups.

Not inflationary!

Not inflationary?  Not yet!  To say those dollars will never get out is ludicrous.  Also, this is not the only issue weakening our currency.

The crowd is saying “eventual inflation concerns”.  It’s reminiscient of the “modest cooling in the housing market” we’ve had the last couple years.  The crowd gets squashed.

Where are they going to get out?  Show me some data showing banks on a lending spree!

In that case, the crowd is expecting massive inflation.  It’s me and Mish and about four other people banging the deflation gong.  Everybody else is screaming like it’s 1980.

I saw in another thread you were promoting raising the Fed funds rate to fight “inflation” that DOESN’T EXIST so we can cause another particularly nasty recession.

Did I get that right?

I’m not sure if you included me in the deflation gang, but I still think the risk of deflation outweighs the risk of inflation today and will do so for at least the next 12-18 months.  I know the Fed is printing money like it is going out of style but the money is not making it back into the economy at this point.  Banks are still shell shocked and are licking their wounds, besides they are preparing for the next wave of asset writedowns from the Option ARM wave along with commercial real estate.  Inflation will not become a significant risk until the banks start opening the lending tap (along with employment increasing and capacity utilization increasing) and that’s not going to happen for at least the next 2-3 years.  I’ll say this much, if the FED were to pull back all of its quantitative easings and other programs along with the stimulus programs stopping today I would bet the economy falls flat on its face.  All the stimulus and printing money is just propping up the economy for now.

awgee - 22 September 2009 02:06 AM

Lending by banks is unnecessary for monetary and/or price inflation.
The Fed is printing currency and buying treasuries at an unprecedented rate.  The Treasury does not store dollars in capital reserves.  It is spending it faster than it can acquire it and the extra currency is moving directly into the general economy.
Give me a couple of minutes and I will find the dollar amount of Ts the Fed has been buying with currency electronically created out of thin air.

Federal Reserve Accounts for 50% of Q2 Treasury Purchases
Auction Week: Sponsor The Deficit, Buy US Treasuries
$4.1 Billion POMP Closes, Consisting of 86% in 2009 Issues, Market Ramps Like Clockwork:  As an aside of interest, I have a friend who trades based solely on POMO.
By the time anyone recognizes price inflation, it will be too late to do anything about it.  And once it becomes recognizable, the Chinese are gonna get pissed and they WILL start dumping.

Lending by banks may not be necessary for monetary and/or price inflation, but it is the fuel that would feed that inflation fire.  Remember, it’s all about the multiplier effect of bank lending that increases money in circulation.  Unless the FED begins to accept collateral from you and I for such things as our TVs or watches at a 0.25% interest rate, only a small amount of the money that the FED has printed has found it’s way into the economy.  I would argue that the credit destruction is probably pretty close to the amount of money the FED has pumped into the system.

If the Fed (Greenspan) printed a trillion dollars with low interest rates and FCBers buying our Treasury bonds.

Then the banks who lent out a trillion dollars (Goldman, MS, Bear Stearns, WAMU, IndyCrap, Lehman, Skank of America, Countryfried, and all the other “lenders” who no longer exist). And then those banks wrote off more than a trillion dollars… and, continue to write off billions…

And then the Fed pumps in another trillion dollars…

Can someone please explain to me how this is inflationary?

Here is the basic math:

+$1T
-$1.5T
= -$.5T
+ $1T
= +$.5T

Banks are not lending, they need the money more than they want to lend it out. I am so confused… Because I don’t see inflation… the $.5 trillion added is not getting to the end user… the consumer… and since it is not getting to the end user it is not inflationary. Add in the fact that banks are STILL writing down “assets” and especially commercial RE related assets, then all I see is deflation.

Am I naive? You can pump all the money you want, but as long as the banks make it disappear with write downs as fast is it is pumped out does not equal inflation. This is beyond residential RE… it is CRE, Farm RE, Credit Card debt, Auto Loans… and so… so… much more… is being written down… or dollars disappearing. Where are they going? Help me understand how this is inflationary.

graphrix - 22 September 2009 08:15 AM

If the Fed (Greenspan) printed a trillion dollars with low interest rates and FCBers buying our Treasury bonds.

Then the banks who lent out a trillion dollars (Goldman, MS, Bear Stearns, WAMU, IndyCrap, Lehman, Skank of America, Countryfried, and all the other “lenders” who no longer exist). And then those banks wrote off more than a trillion dollars… and, continue to write off billions…

And then the Fed pumps in another trillion dollars…

Can someone please explain to me how this is inflationary?

Here is the basic math:

+$1T
-$1.5T
= -$.5T
+ $1T
= +$.5T

Banks are not lending, they need the money more than they want to lend it out. I am so confused… Because I don’t see inflation… the $.5 trillion added is not getting to the end user… the consumer… and since it is not getting to the end user it is not inflationary. Add in the fact that banks are STILL writing down “assets” and especially commercial RE related assets, then all I see is deflation.

Am I naive? You can pump all the money you want, but as long as the banks make it disappear with write downs as fast is it is pumped out does not equal inflation. This is beyond residential RE… it is CRE, Farm RE, Credit Card debt, Auto Loans… and so… so… much more… is being written down… or dollars disappearing. Where are they going? Help me understand how this is inflationary.

Post of the month graphcakes…love the back-of-the-napkin math.  haha   You hit the nail on the head, all the printing of money is getting stuck at the banks to shore up their balance sheets and to allow them to lend the reduced amounts that they currently lending.  Just image if the FED didn’t lower interest rates, didn’t print these trillions of dollars, and didn’t backstop all that bank/I-bank/Fannie & Freddie debt and deposits….it wouldn’t be pretty.  All those dollars that have been destroyed through the writeoffs have gone to dollar heaven.  haha

graphrix - 22 September 2009 08:15 AM

Can someone please explain to me how this is inflationary?

There was very little produced that justified the expansion of the monetary supply. Unless you count innovative financial products.

graphrix - 22 September 2009 08:15 AM

If the Fed (Greenspan) printed a trillion dollars with low interest rates and FCBers buying our Treasury bonds.

Then the banks who lent out a trillion dollars (Goldman, MS, Bear Stearns, WAMU, IndyCrap, Lehman, Skank of America, Countryfried, and all the other “lenders” who no longer exist). And then those banks wrote off more than a trillion dollars… and, continue to write off billions…

And then the Fed pumps in another trillion dollars…

Can someone please explain to me how this is inflationary?

Here is the basic math:

+$1T
-$1.5T
= -$.5T
+ $1T
= +$.5T

Banks are not lending, they need the money more than they want to lend it out. I am so confused… Because I don’t see inflation… the $.5 trillion added is not getting to the end user… the consumer… and since it is not getting to the end user it is not inflationary. Add in the fact that banks are STILL writing down “assets” and especially commercial RE related assets, then all I see is deflation.

Am I naive? You can pump all the money you want, but as long as the banks make it disappear with write downs as fast is it is pumped out does not equal inflation. This is beyond residential RE… it is CRE, Farm RE, Credit Card debt, Auto Loans… and so… so… much more… is being written down… or dollars disappearing. Where are they going? Help me understand how this is inflationary.

When you build a straw house as you have done, there is nothing inflationary about it.
Reality would entail acknowedging the differeces in M0, M1, M3, and MZM and the different effects they have.

As you build it, there will be no inflation, so no worries.  No need to plan for inflation.
Just curious.  Remember the summer of 2006?  Remember the folks all saying re prices could not come down?  And their reasons why?

I’m with awgee, inflation is coming. Some areas will see deflation first, specifically agriculture and retailers, as inventories adjust to match the decreased demand from unemployment and fear-based frugality. But inflation is coming, whether the banks lend or not because the government is going to pump that money into the economy directly via the StimPak, of which very little has actually been spent. By this time next year (election season) this country is going to be awash in government cash that bypasses the banks and gets injected directly into the local economies.

Where are they going to get out?  Show me some data showing banks on a lending spree!

In that case, the crowd is expecting massive inflation.  It’s me and Mish and about four other people banging the deflation gong.  Everybody else is screaming like it’s 1980.

I saw in another thread you were promoting raising the Fed funds rate to fight “inflation” that DOESN’T EXIST so we can cause another particularly nasty recession.

Did I get that right?

The crowd understands there will be EVENTUAL inflation, just as they understood we might have a MODEST cooling in house prices.  I feel price increases will happen sooner and much higher than we are all expecting - no numbers needed, the tin foil hat is blocking the government scrambling of my brain allowing clear thought.  If we see deflation, that’s great!  We should be experiencing massive deflation right now, I completely agree.  We are in a deflationary economic environment.  But CPI is around 0.  Why? Unfortunately, we have a government (who has been consistently wrong about a lot of stuff - either really dumb or flat out lying) fighting free market forces.  Prices should be falling much further and we would all benefit from a purchasing power standpoint.  But we won’t, why?  Why do we fear a deflationary boogie man?

In a recent speech to the company google, Mish stated that gold does well in a deflationary environment and is not an inflation hedge.  Wow.  He claims to study Austrian Economics, free market stuff, but obviously doesn’t understand it well enough.  Mish does have some valid points but I feel he underestimates our situation.

A lot of the stuff we buy and use comes from where?  US?  Not likely.  Is there anybody who thinks the dollar is fundamentally strengthening anytime soon?  Good luck.

And finally, the particularly nasty recession/depression has already been created.  Raising interest rates is the best thing we could possibly do right now as we will experience the pain/cure right now and reach economic equilibrium allowing true growth sooner.  REad the book AMERICAS GREAT DEPRESSION by Murray Rothbard, I will loan it to you, and you will no longer have faith in Keynesianism nor our government being able to fix our “already created” recession.

matt138 - 23 September 2009 07:40 PM

REad the book AMERICAS GREAT DEPRESSION by Murray Rothbard, I will loan it to you, and you will no longer have faith in Keynesianism nor our government being able to fix our “already created” recession.

Thanks, but I’ll pass.  I don’t read books by crackpots.  His influence is partially to blame why we are in this mess.

http://en.wikipedia.org/wiki/Murray_Rothbard

Murray Newton Rothbard (March 2, 1926 – January 7, 1995) was an American intellectual, individualist anarchist,[1] author, and economist of the Austrian School who helped define modern libertarianism and popularized a form of free-market anarchism he termed “anarcho-capitalism”.[2][3] Building on the Austrian School’s concept of spontaneous order in markets, support for a free market in money production, and condemnation of central planning,[4] Rothbard sought to minimize coercive government control of the economy and considered the monopoly force of government the greatest danger to liberty and the long-term wellbeing of the populace.[5][6][7]

Rothbard concluded that taxation represents theft on a grand scale, and “a compulsory monopoly of force” prohibiting the voluntary procurement of defense and judicial services.[5] He also considered central banking and fractional reserve banking under a fiat money system a form of institutionalized, legalized financial fraud, antithetical to libertarian principles and ethics.[8][9][10] Rothbard opposed military, political, and economic interventionism in the affairs of other nations.[11][12] Rothbard wrote over twenty books before his death in 1995.

I thought the Chicago School crowd had lost thier minds, this guy takes the cake.

no_vaseline - 23 September 2009 08:15 PM

matt138 - 23 September 2009 07:40 PM

REad the book AMERICAS GREAT DEPRESSION by Murray Rothbard, I will loan it to you, and you will no longer have faith in Keynesianism nor our government being able to fix our “already created” recession.

Thanks, but I’ll pass.  I don’t read books by crackpots.  His influence is partially to blame why we are in this mess.

http://en.wikipedia.org/wiki/Murray_Rothbard

Murray Newton Rothbard (March 2, 1926 – January 7, 1995) was an American intellectual, individualist anarchist,[1] author, and economist of the Austrian School who helped define modern libertarianism and popularized a form of free-market anarchism he termed “anarcho-capitalism”.[2][3] Building on the Austrian School’s concept of spontaneous order in markets, support for a free market in money production, and condemnation of central planning,[4] Rothbard sought to minimize coercive government control of the economy and considered the monopoly force of government the greatest danger to liberty and the long-term wellbeing of the populace.[5][6][7]

Rothbard concluded that taxation represents theft on a grand scale, and “a compulsory monopoly of force” prohibiting the voluntary procurement of defense and judicial services.[5] He also considered central banking and fractional reserve banking under a fiat money system a form of institutionalized, legalized financial fraud, antithetical to libertarian principles and ethics.[8][9][10] Rothbard opposed military, political, and economic interventionism in the affairs of other nations.[11][12] Rothbard wrote over twenty books before his death in 1995.

I thought the Chicago School crowd had lost thier minds, this guy takes the cake.

So right now in reality, government control of the economy (via interest rates and policy) has bankrupted just about every bank, the FHA (stay tuned), Fannie n Freddie, and a solid amount of businesses and citizens and this guy gets labeled a crackpot?

Rothbard’s main point is that businessmen/businesses are nimble and quickly adapt to changes in supply, demand, and prices to remain profitable.  Cheap and/or easy money creates a large scale boom that sends false signals to businesses who then make malinvestments (ones they would never have made without the false signals).  The ensuing bust purges the economy of all the malinvestment.  The quicker the purge, the sooner “normalcy” is reached.  Sounds like a rational, intelligent, common sense argument to me.

Modern economists have turned this completely upside down and perpetuated their theory through college econ classes and money shows.  “We can just keep pumping in money, keep sweeping things under the rug, keep priming the economy until it turns around”  Completely juvenile.  All this comes at the expense of the ordinary citizen via reduced standard of living - fighting the free market is an expensive endeavor and the money has to come from you.  This becomes a completely inefficient allocation of resources, simply put the government forces free market money to be lent to poorly run businesses instead of well run businesses.  Do you see a problem here?

Read the book and you can call him any name you wish.

matt138 - 23 September 2009 09:47 PM

So right now in reality, government control of the economy (via interest rates and policy) has bankrupted just about every bank, the FHA (stay tuned), Fannie n Freddie, and a solid amount of businesses and citizens and this guy gets labeled a crackpot?

No, stupid, irresponsible lending done under the “supervision” of the Fed (which was run by Alan Greenspan who loves to deregulate) got us in this mess.  Had the Fed been doing it’s job under Greenspan we wouldn’t have this problem.  There’s a reason these banks and S&Ls; were tightly regulated from 1932-1980 and we had minimal problems.  Foreclosures might be the cure, but regulation is the answer.

BTW, both “Crackpot” and Greenspan were contemporaries of Ayn Rand.  And this isn’t personal; I simply think you’re dead wrong.  The fundamental problem with Libertarianism is it assumes people to be good and smart and will do what’s in their best interests.  It doesn’t account for what happens when somebody starts gaming the system for their own selfish benefit.  Like small government Conservatism, eventually the solution is to abolish the government all together and that’s no solution.

Hey Eva, can I have my “Godless Pinko” t-shirt now please?

Greenspan has drastically changed in 5 decades.

Low interest rates created demand for higher returns which created a supply of money for creative financing.

Government “supervised” the financing, so government regulating it will solve it?  Hello Barney Fife, you missed it the first time!

Let the free market sell neg am loans right now.  Zero.  What investor, in their right mind, would lend their own money?

Let the free market sell 3.5% down loans right now and give the buyer $8K back next year.  Any takers?  I’ll gladly use your money but not mine.

People need to fail, lose money, and be fearful of both otherwise they become monsters and stupid.  Regulation/oversight gives us a false sense of security with our money.  People will always game the system, especially those who ARE the system.  More system is not the answer.

Both business and government are corrupt.  A business makes mistakes and fails.  A government makes mistakes and grows.  And now we have a growing government keeping failing businesses operating.  And I’m dead wrong!

Survival of the least fit.  Stupid people are easily taken advantage of so let’s create more of them and offer cradle to the grave services - vicious circle anyone?  The free market is the cheapest, most effective policeman out there.  People would be smarter with it and our economy would be better off with it.

matt138 - 23 September 2009 10:39 PM

Greenspan has drastically changed in 5 decades.

Low interest rates created demand for higher returns which created a supply of money for creative financing.

Government “supervised” the financing, so government regulating it will solve it?

NO.  The exact problem was government STOPPED regulating.

Hello Barney Fife, you missed it the first time!

You are violating the “nice policy”.  Stop name calling or you will be banned.  And they didn’t miss it, they just “deregulated” it.

Let the free market sell neg am loans right now.  There would be none.  What investor, in their right mind, would lend their own money on a loan like that right now?

Let the free market sell 3.5% down loans right now and give the buyer $8K back next year.  Any takers?  I’ll gladly use your money but not mine.

People need to fail, lose money, and be fearful of both otherwise they become monsters and stupid.  Regulation/oversight gives us a false sense of security with our money.

Survival of the least fit.  The free market is the cheapest, most effective policeman out there.  People would be smarter with it.

You’ve obviously never worked at a bank.

Barney Fife was directed at the government not No_Vaseline.

Never worked at a bank.  I do understand how underwriting should work in theory and the idea of risk reward.

Maybe we just need smaller banks, oh wait the big ones are too big to fail.

Why are rates on portfolio loans high?

no vaseline - got any good books to change my mind?

matt138 - 23 September 2009 10:39 PM

Hello Barney Fife, you missed it the first time!

Can’t do that….

If people are bad, and government and regulators are people…

matt138 - 23 September 2009 11:37 PM

If people are bad, and government and regulators are people…

The move over the past 30 years from “highly regulated” to “less regulated” resulted in the regulatoree failing - twice (once in the S&Ls; during the 1980s, and todays mess). Your solution is abolish the Fed - because obviously what we need is more deregulation!

Talk about circular logic.  No wonder people never learn.

Greenspan used to be a good Austrian economist and somewhere along the line, he threw that all into the trashcan.

And Rothbard is far from a crackpot.

ukyo116 - 24 September 2009 01:01 AM

Greenspan used to be a good Austrian economist and somewhere along the line, he threw that all into the trashcan.

And Rothbard is far from a crackpot.

Or, Greenspan didn’t change at all, and what he “became” is the end of the road of all Austrian economists - failure when you go to implement it.

Which world governments follow the Rothbardesque perscription, and are they in better or worse condition than the US?