Comments on: Central banks will face a Scylla and Charybdis flation challenge for years http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: The recession is over but the depression has just begun | The Big Picture http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html#comment-7604 The recession is over but the depression has just begun | The Big Picture Fri, 18 Dec 2009 22:29:43 +0000 http://www.creditwritedowns.com/?p=8894#comment-7604 [...] believe this dynamic will induce a Scylla and Charybdis of inflationary and deflationary forces, forcing central bankers to add and withdraw liquidity in a manic way. The likely volatility in [...] [...] believe this dynamic will induce a Scylla and Charybdis of inflationary and deflationary forces, forcing central bankers to add and withdraw liquidity in a manic way. The likely volatility in [...]

]]> By: barryschaeffer http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html#comment-56542 barryschaeffer Sat, 06 Jun 2009 03:14:00 +0000 http://www.creditwritedowns.com/?p=8894#comment-56542 Ed, I also want to know if the new Fed tool gives them much more control. Barry Ed,

I also want to know if the new Fed tool gives them much more control.

Barry

]]> By: barryschaeffer http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html#comment-56541 barryschaeffer Sat, 06 Jun 2009 02:52:00 +0000 http://www.creditwritedowns.com/?p=8894#comment-56541 Edward, In the worldview you describe, do resource-based stocks like oils plummet with the US market? Since Asia and Latin America are doing better, and consuming more resources, wouldn't that moderate drops in oil stocks? Barry Edward,

In the worldview you describe, do resource-based stocks like oils plummet with the US market? Since Asia and Latin America are doing better, and consuming more resources, wouldn’t that moderate drops in oil stocks?

Barry

]]> By: Edward Harrison http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html#comment-56513 Edward Harrison Tue, 02 Jun 2009 23:58:00 +0000 http://www.creditwritedowns.com/?p=8894#comment-56513 I just wrote another post which carries this theme further. The essence of the next post is that a statistical number might serve as a good arbiter as to where this is headed. I have chosen the Consumption Income Gap (CIG) as a proxy for excess consumption. The bottom line is this: if we get more of the same in terms of excess consumption, it will show up in the CIG. If we get a balance sheet recession, the CIG will show this as well. Right now, we are seeing income growth outstripping consumption growth. If we see this switch and stay switched for a few months, then you know reflation has taken hold. I just wrote another post which carries this theme further. The essence of the next post is that a statistical number might serve as a good arbiter as to where this is headed. I have chosen the Consumption Income Gap (CIG) as a proxy for excess consumption. The bottom line is this: if we get more of the same in terms of excess consumption, it will show up in the CIG. If we get a balance sheet recession, the CIG will show this as well.

Right now, we are seeing income growth outstripping consumption growth. If we see this switch and stay switched for a few months, then you know reflation has taken hold.

]]> By: Bob_in_MA http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html#comment-56512 Bob_in_MA Tue, 02 Jun 2009 19:36:00 +0000 http://www.creditwritedowns.com/?p=8894#comment-56512 I think choice two seems unlikely because it would assume the Fed can always make the choice and switch between the two. For inflation to actually take hold and benefit households repairing their balance sheets, it needs to involve wage inflation. If all the liquidity merely merely drives commodities and bank profits higher, it will just make for further wage deflation. That's what I think is happening now. We have inflation (gas just passed $2.50/gal), but it's just going to make the situation worse. How can the Fed create wage inflation when there is such overcapacity world-wide? I think choice two seems unlikely because it would assume the Fed can always make the choice and switch between the two.

For inflation to actually take hold and benefit households repairing their balance sheets, it needs to involve wage inflation. If all the liquidity merely merely drives commodities and bank profits higher, it will just make for further wage deflation. That’s what I think is happening now. We have inflation (gas just passed $2.50/gal), but it’s just going to make the situation worse.

How can the Fed create wage inflation when there is such overcapacity world-wide?

]]> By: Ranger Turtle http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html#comment-56511 Ranger Turtle Tue, 02 Jun 2009 17:20:00 +0000 http://www.creditwritedowns.com/?p=8894#comment-56511 Wow, what a thought provoking article... Any recovery that has legs must be one that comes after substantial deleveraging/debt reduction has occurred. Another way (not preferred) is like your number 2 choice, with the FED using inflation as a tool to reduce debt, without letting it get out of hand. Another scenario might be to devalue the dollar. EH, does the new FED tool of paying interest on Reserves really give them much more control? TIA Wow, what a thought provoking article…
Any recovery that has legs must be one that comes after substantial deleveraging/debt reduction has occurred.
Another way (not preferred) is like your number 2 choice, with the FED using inflation as a tool to reduce debt, without letting it get out of hand. Another scenario might be to devalue the dollar.
EH, does the new FED tool of paying interest on Reserves really give them much more control?

TIA

]]> By: Stevie b. http://www.creditwritedowns.com/2009/06/central-banks-will-face-a-scylla-and-charybdis-flation-challenge-for-years.html#comment-56510 Stevie b. Tue, 02 Jun 2009 16:36:00 +0000 http://www.creditwritedowns.com/?p=8894#comment-56510 Ed - your conclusion to outcome no. 2 is the key, where you say that Outcome no 1 is the resultant "risk". Maybe "likelihood" would be nearer the mark, as all those who have 1st degree burns from the recent and perhaps on-going bond market price implosion are not going to allow themselves to be so severely burnt second time around, whilst any new buyers will have learnt the lesson of not chasing rates to absurdly low levels in the future. Therefore the next time the Fed tries to play the game all over again, longer rates will not fall anywhere near as much as before, so any turn-around will be much less likely to happen. Based on your comments, stagflation does now seem to me to be the most realistic prospect. Ed – your conclusion to outcome no. 2 is the key, where you say that Outcome no 1 is the resultant “risk”. Maybe “likelihood” would be nearer the mark, as all those who have 1st degree burns from the recent and perhaps on-going bond market price implosion are not going to allow themselves to be so severely burnt second time around, whilst any new buyers will have learnt the lesson of not chasing rates to absurdly low levels in the future. Therefore the next time the Fed tries to play the game all over again, longer rates will not fall anywhere near as much as before, so any turn-around will be much less likely to happen. Based on your comments, stagflation does now seem to me to be the most realistic prospect.

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