Credit Writedowns » inflation

The Fed Resumes “Printing”

Casey Research — Tue, 07 Feb 2012 21:00:14 +0000

One conclusion from the Fed's actions is that it doesn't care as much about its inflation target as it does about improving the unemployment rate. Thus, it will err on the side of letting inflation rise, if it would improve unemployment. But holding rates too low too long fueled the housing bubble. Repeating the same game will have consequences of malinvestment in the form of new bubbles in the economy. The Fed hopes to restore employment before the negative consequences of loose monetary policy show up

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Headline 4Q-2011 GDP Growth of 2.75% Masks Mixed Signals

Guest Author — Fri, 27 Jan 2012 22:00:11 +0000

This report is disturbing because of how the headline number masks real and troubling weakness in the more substantive details. Hopefully anyone trying to engineer the economy is basing their tinkering on better information than that provided by the BEA. In fact, it is likely that much of the negative consequences of the recent economic event can be attributed to precisely the poor quality and timeliness of the economic and monetary information available to those whose hubris drives them to such tinkering

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Monetary and Fiscal Policy for Sovereign Currencies

Randall Wray — Mon, 09 Jan 2012 13:30:48 +0000

This week we begin a new topic: functional finance. This will occupy us for the next several blog posts. Today we will lay out Abba Lerner’s approach to policy

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ECB/Fed Support for the European Banking System – 750 billion USD, and counting …

Claus Vistesen — Wed, 04 Jan 2012 23:00:54 +0000

It is my view that the ECB is now the only thing between the economy and widespread bank failures, but I also concur that the consequence of this is a permanent outsourcing of the interbank market in Europe to the ECB's balance sheet and, quite possibly, Fed's USD swap lines

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Footnote 2011: Being cautiously optimistic was right

Edward Harrison — Tue, 27 Dec 2011 17:00:45 +0000

In January, I wrote my prognosis for 2011. The title was "Cautiously Optimistic Into 2011". I intend to write another post like this early in 2012 with asset allocation and market calls for the new newsletter. But right now I just want to review the basic outlook I presented. I had seven major conclusions. Here's what I said and how well it has stacked up

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Downgrades, Upgrades and US Inflation

BBH — Fri, 16 Dec 2011 12:30:57 +0000

The dollar is broadly weaker as news developments remain mostly positive, boosting sentiment. North American session sees US November inflation; euro likely supported today on short-covering rally. RBI left rates on hold at 8.5%, as expected; IDR rallies after Fitch upgraded it to investment grade

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Look for North America to Fade Euro Moves

BBH — Fri, 09 Dec 2011 12:47:52 +0000

The dollar is broadly weaker as sentiment improves in the wake of an agreement on fiscal integration. European officials have struck what appears to be significant agreement; one of the costs is a new split in Europe as the UK and others are not in agreement. UK trade deficits narrows but unlikely to change economic outlook; China’s inflation decelerates

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News Links: Draghi – If fiscal policy becomes hawkish, monetary policy will be dovish

Edward Harrison — Fri, 02 Dec 2011 14:31:16 +0000

News links from 2 December 2011 include links on the European sovereign debt crisis, the UK economy, the latest on mortgages and technology as well as other stories.

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You couldn’t inflate, even if you wanted to

Guest Author — Sun, 27 Nov 2011 01:30:35 +0000

So here we are, with the ECB demanding deflationary austerity from the member nations in return for the limited bond buying that has been sustaining some semblance of national government solvency, not seeming to realize it can’t inflate with its monetary policy tools, even if it wanted to

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Juergen Stark explains ECB opposition to monetisation is not about inflation

Edward Harrison — Sun, 27 Nov 2011 00:30:39 +0000

As I have been saying at Credit Writedowns, the ECB’s opposition to monetising sovereign debt is not about inflation concerns but rather its resistance to moving into a politicised quasi-fiscal role

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Turkey: Outlook Remains Bearish

Win Thin — Thu, 24 Nov 2011 01:30:09 +0000

The central bank intervened aggressively in September-October to limit TRY weakness, but it does not have a huge war chest like Brazil or Asia. Reserves were $84.4 bln at the end of October, down 10% from a peak of $93 bln in July. Reserves are thus less than short-term debt of around $85 bln, making a protracted intervention defense unworkable. Instead, the central bank should hike interest rates. While it wouldn’t save the lira in this environment, it would be a step towards re-establishing credibility and perhaps help it become an EM market performer instead of an underperformer

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Charts of the day: Understanding the latest economic data out of China

Win Thin — Wed, 23 Nov 2011 21:30:23 +0000

The weak November HSBC PMI for China has added to market bearishness. This is not the official PMI but we do note that while the HSBC measure has been below 50 for 4 of the 5 past months, the official PMI has yet to fall below 50, but it was reported at 50.4 in October, the lowest since February 2009. A further drop in the official PMI below 50 seems hard to avoid. Slowing in the Chinese economy is inevitable given the deteriorating external environment as well as PBOC tightening measures taken in 2010-

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Predicting the future of policy making

Edward Harrison — Tue, 22 Nov 2011 02:47:39 +0000

Predicting the future of policy making has been and will continue to be key to understanding where this economy is headed – and by extension what your investment portfolio will do

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Chart of the day: Hours of work needed to buy an ounce of gold

Global Macro Monitor — Thu, 17 Nov 2011 16:38:05 +0000

Central banks have done a great job at driving up the price of gold but a horrible job at creating wage inflation. If it now takes 88 hours to buy an ounce of gold versus 20 hours in 2000, hasn’t that grossly deflated real wages in a strict monetary sense? Just askin’

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Warren Mosler’s Big Fat Greek MMT Exit Strategy

Randall Wray — Thu, 17 Nov 2011 16:26:20 +0000

It is beginning to look like a Greek exit is ever more likely, which means that the end of the EMU could be near. Even if exits and a break-up are not inevitable, countries should have a plan on the shelf. It is clear that Germany is going to insist on the maximum austerity it can squeeze from nations facing a run on their debt. Hence, if nothing else, an exit strategy is required for negotiations. The best strategy would be for all the so-called PIIGS to band together with a believable threat to exit together. That could finally break the logjam. I’m not optimistic about that. In any event, it is time to examine proposals for dissolution. Warren Mosler has formulated what looks like a nice, clean exit strategy that EMU members can adopt. I am reprinting here with his permission

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Key data to focus on in the week ahead

Marc Chandler — Mon, 14 Nov 2011 14:20:51 +0000

Economic data has been of tertiary concern to the market recently, overwhelmed by the drama in Europe. Given that the drama may die down, with new governments in Greece and Italy, the economic data may become somewhat more important

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It must be impossible for the Fed to create inflation

Guest Author — Mon, 14 Nov 2011 13:15:55 +0000

For all practical purposes the Fed has done it all. And yet unemployment remains at depression levels of over 9% (and over 16% the way it used to be calculated not long ago) and the only thing keeping what’s called ‘inflation’ over 1% is a foreign monopolist supporting the price of crude oil. So if inflation is this ominously lurking around every corner that requires eternal vigilance to keep from suddenly rearing it’s ugly head, why have all the Fed’s horses and all the Fed’s men not been able to inflate again? And why would anyone still think they can? I mean, we’re talking about college graduates with advance degrees and resources and power up the gazoo doing everything they can to reflate, and still failing after 3 long years? Not to mention the same in Japan for going on 20 years, where they have college grads with advanced degrees as well (though pretty much from the same schools)

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Argentina Reelects Fernandez, Unorthodox Policies And Peso Weakness To Continue

Win Thin — Mon, 24 Oct 2011 19:20:19 +0000

Fernandez will try to maintain the unorthodox mix of policies for as long as she can, and has shown little willingness to more towards orthodoxy during her first term. Troubles will come both internally and externally, with the growing fear that the exchange rate will bear the brunt of adjustment in the coming months

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A Douse of Cold Water

BBH — Tue, 18 Oct 2011 11:30:00 +0000

Risk sentiment remains under pressure overnight; global equities lower, dollar mostly higher. European economic data continue to deteriorate; UK September inflation surges to new highs. RBA minutes point to some capacity to lower policy rate; China’s GDP softer than expected

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China: Continued Boom or Bursting Bubble?

Casey Research — Wed, 12 Oct 2011 21:15:07 +0000

In a February 2010 Casey Report article titled Is China’s Recovery a Fraud?, my thesis was the $2.1 trillion stimulus package rolled out by Chinese authorities after the 2008/2009 financial crash was leading to enormous malinvestment. As with all monetary and fiscal stimuli, however, the initial high is always followed by a hangover

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Manufacturing inflation in a wage deflationary environment

Edward Harrison — Mon, 10 Oct 2011 14:00:32 +0000

How does manufacturing CPI inflation benefit an economy in which incomes are falling? When inflation rises and incomes are stagnant or falling, the economy rolls over

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The Golden Constant

Frederick Sheehan — Fri, 07 Oct 2011 12:38:15 +0000

The following is a brief outline of "Gold and the 'Flations," published in the April 2005 Gloom, Boom & Doom Report. General talk has it that gold is a hedge against inflation. We might take this a step further and conclude that a unit of gold will purchase a constant basket of goods when prices are inflating. Standard advice does not include gold in one's asset mix during non-inflationary periods. The evidence presents a more complicated picture

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Currency Sovereignty

Randall Wray — Mon, 03 Oct 2011 18:18:00 +0000

This week we will begin to examine our next topic: government spending, taxing, interest rate setting, and bond issue. We will examine fiscal and monetary policy formation by a government that issues its own currency. We will bear in mind that the exchange rate regime chosen does have implications for the operation of domestic policy. We will distinguish between operational procedures and constraints that apply to all currency-issuing governments and those that apply only to governments that allow their currency to float

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Continued Policy Mistakes in Brazil

Win Thin — Mon, 19 Sep 2011 16:47:45 +0000

BRL is one of the worst EM performers today, and continues a string of underperformance (-10.8% vs. USD) that began with the unexpected 50 bp rate cut August 31. Since then, only HUF has done worse at -11.5%. It’s really a confluence of factors, but markets are clearly punishing Brazil for its continued efforts to weaken the currency, which have distorted markets there. Besides the countless FX measures, of which Friday’s was only the latest in a long line of poorly communicated policy shifts, we are now seeing even more distortions added into the economy with the imposition of import tariffs to help protect domestic manufacturers. Not only is this inefficient from pure trade theory, but it will also likely add to already high price pressures

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Monetary Policy and the Future of China

John Lounsbury — Sun, 18 Sep 2011 03:38:47 +0000

There is a road open for China involving controlled inflation that would lead to re-balancing, both domestically and internationally, which has some uncertainties. These must be compared to those of sustaining the export-led growth model, basically an even bigger currency mismatch in the PBoC balance sheet and ever more unproductive capital investments

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The damaged ECB legitimacy

Guest Author — Thu, 15 Sep 2011 12:15:00 +0000

The European Central Bank was once known for its focus on price stability. Since the global economic crisis, however, its role has extended to saving banks and sovereign countries. This column argues that such a move has badly harmed the institution’s legitimacy – something that will damage both its policy effectiveness and confidence in the governing bodies of the EU as a whole

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Why Made in China Costs More in China

John Lounsbury — Sun, 04 Sep 2011 20:29:45 +0000

Chinese goods cost more in China because of currency, taxes, transportation,logistics and inflation. The Chinese get the jobs, while Americans get the consumer products; The Chinese government gets the dollar, but the U.S government gets to spend the dollar! The Chinese like to say: the Americans get a better deal!

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Some predictions for the rest of the decade

Michael Pettis — Sun, 28 Aug 2011 22:30:55 +0000

Markets have been crazy this month, but rather than try to wade through all the news, much of which doesn’t seem to have much informational content, I thought I would duck out altogether and instead make a list of things I expect will happen over the next several years

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Paul Krugman Still Gets MMT Wrong

Randall Wray — Wed, 17 Aug 2011 19:00:30 +0000

I appreciate the role that Krugman plays. Like many of you, I enjoy reading his blogs and more often than not, I agree with him. He is almost the lone, sane, voice in a position of authority who argues against the standard deficit hyperventilation that is driving the nation into a great depression. I mean no disrespect in the following critique. And I am glad that he is writing about MMT—most of those within the Beltway simply ignore it. But there are two reasons to respond to his critique: first, there is some hope that he might change his mind and embrace MMT. That would allow him to mount a much more powerful attack on the deficit hysterians. Second, he is misleading his many readers—by misstating what MMT believes, and by his own misunderstanding of monetary operations

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The lessons of the crisis of 40 years ago

Guest Author — Wed, 17 Aug 2011 00:00:53 +0000

Andy Lees takes a sceptical view of fiat currency and the excess credit it has created over the past forty years and uses a few charts to demonstrate his points

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Krugman on Modern Monetary Theory

Edward Harrison — Mon, 15 Aug 2011 05:18:09 +0000

Last summer I wrote a post clarifying some points that I have learned about Modern Monetary Theory. The genesis of the post was a gross mischaracterization of Modern Money Theory (MMT) by Paul Krugman in a piece called “I Would Do Anything For Stimulus, But I Won’t Do That (Wonkish)”, which Paul Krugman had written in July of last year. Last week Paul Krugman again attempted to take on MMT in another piece called "Franc Thoughts on Long Run Issues."

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Kocherlakota: Statement on Dissenting Permanent Zero Policy

Edward Harrison — Fri, 12 Aug 2011 14:30:00 +0000

Written and video statements explaining Minnesota Fed President Kocherlakota's dissent on 9 August

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Andy Xie Recommends China Diversify Out Of Treasuries

Edward Harrison — Tue, 09 Aug 2011 12:30:00 +0000

The Chinese foreign reserve accumulation is really about the exchange rate peg. As long as the Yuan's dollar peg remains near present levels, the current account imbalance will result in an accumulation of dollar reserves. Former Morgan Stanley Economist Andy Xie says the Chinesse do have a choice as to what US dollar assets to buy, even so. He suggests the US diversify out of Treasuries and into other US dollar assets

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Andy Xie Recommends China Diversify Out Of Treasuries originally appeared on Credit Writedowns

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Crash!

Claus Vistesen — Thu, 04 Aug 2011 20:45:31 +0000

In case you did not notice it, the much discussed "range" on the SP500 broke in spectacular fashion today as the short rollers bypassed the 1250 mark in the same style as the Germany panzer passed the Maginot line back in the early stages of

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Crash! originally appeared on Credit Writedowns

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Government tax coercion versus fiat money liberty

Edward Harrison — Thu, 28 Jul 2011 21:34:32 +0000

This is a polemic on fiat currency. it is long and detailed. But I believe it is both thorough and logical

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Government tax coercion versus fiat money liberty originally appeared on Credit Writedowns

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