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Posts Tagged ‘inflation’

Yearning for more inflation

Posted by Richard on March 28, 2014

At The Economist, someone identified only as R.A. wants the world’s central bankers to work harder at increasing inflation. I think it’s Paul Krugman writing anonymously.

Alone among big rich economies, Japan is now actively trying to raise inflation, in hopes of finally kicking its low rate, low growth habit. Higher inflation is the only reasonable way forward:

This would let central banks cut effective borrowing costs despite the zero bound on interest rates, since inflation reduces the burden of repaying a given loan. Just as important, higher inflation would speed up interest-rate normalisation.

The rich world’s central banks are behaving with a dangerous complacency. Low and falling inflation will retard ongoing recoveries. …

If low inflation retards economic growth, then Venezuela’s economy must be growing like crazy:

Venezuelan Inflation

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Bernanke began at an early age

Posted by Richard on September 14, 2012

Mark J. Perry has evidence showing that Ben Bernanke developed certain proclivities early in life which remain with him to this day.


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Disturbing history of Fed

Posted by Richard on February 16, 2012

Gresham’s Law has a sobering graphical history of the Federal Reserve System’s assets from 1915 to 2012. Here’s Tom Gresham’s introduction:

Here we present a history of the Fed in charts. As you’ll surely glean from the below — the Fed has degenerated from a by and large passive institution (dealing only in high-quality self-liquidating commercial paper and gold) to an active pursuant of junk, an enabler of wars, a ‘benevolent’ combatant of the depressions of its own creation, a central planner of employment & prices and of course a forgiving friend to inconvenient market follies.

The first graph, showing the entire 97-year history, is a hockey stick if there ever was one. And unlike Mann’s bogus global warming hockey stick, it’s not based on jiggering the data.

There are only two possible endgames: default or devaluation of the currency. My money’s on the latter.

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Helicopter Ben is not alone in the skies

Posted by Richard on January 28, 2012

If you’re not concerned about inflation, a set of graphs at The Big Picture may change your mind. They show the balance sheets of the world’s eight largest central banks: the European Central Bank (ECB), the Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), the Bundesbank (Germany), the Banque de France, the People’s Bank of China (PBoC) and the Swiss National Bank (SNB). They were posted by James Bianco of Bianco Research, who summed up the information succinctly in the first sentence of his post:

The degree to which central banks around the world are printing money is unprecedented.

The combined size of these eight central banks’ balance sheets has almost tripled in the last six years from $5.42 trillion to more than $15 trillion and is still on the rise!

Prior to the 2008 financial crisis, the eight central bank balance sheets were less than 15% the size of world stock markets and falling.  In the immediate aftermath of Lehman Brothers’ failure, these eight central bank balance sheets swelled to 37% the capitalization of the world stock market.  But keep in mind that the late 2008/early 2009 peak was due to collapsing stock market values combined with balance sheet expansion via “lender of last resort” loans.

Recently, the eight central bank balance sheets have spiked back to 33% of world stock market capitalization.  This has come about not by lender of last resort loans, but rather by QE expansion (buying bonds with “printed money“) even faster than world stock markets are rising.

So how long can these eight helicopters keep dropping trillions of dollars in newly printed money all over the world before we need a wheelbarrow-full to buy a few days’ groceries? No one knows. But if ever there was an argument for fleeing to hard assets (gold, silver, platinum, …), these charts are it. Sometime down the road, gold at $1700 per ounce is going to look like a bargain.

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Purchasing power of dollar vs. gold

Posted by Richard on March 31, 2011

MineFund has a couple of graphs that every American needs to look at. The first shows the change in purchasing power for the US dollar from 1792 to today. The second shows the same for gold.

The relentless and near-precipitous decline in the value of the dollar after it was "unfettered" from gold is sobering. With the Federal Reserve creating new dollars ("monetizing the debt") hand over fist, what do you suppose that graph will look like a few years from now?

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Don’t worry, it’s just a little quantitative easing

Posted by Richard on January 16, 2011

Wholesale prices surged 1.1% in December, but the experts assured us it was nothing to worry about. Most of the increase was just due to rapidly rising prices for things like food, gasoline, and home heating oil. And who needs those?

This might be a good time to review the experts' plan to "fix" our economy: more quantitative easing. 

[YouTube link]

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Gold or house?

Posted by Richard on October 6, 2010

Gold hit another new record today. Richard E. Band recently noted (in a subscriber-only journal entry) that the price of gold has been rising as if a "tsunami of inflation" were about to hit, but in the here and now, quite the opposite is the case (emphasis added):

Recently, Enid and I spent a night at the brand-new Country Inn & Suites just south of Toledo, Ohio. Beautiful room, freshly decorated, better-quality furniture. Breakfast included. Cost of our stay: $59. That's less than I would have paid 10 years ago in the same region, when we were visiting our girls in college. (And there was no free Wi-Fi then, either.)

Sure, prices continue to rise for some products and services (notably, healthcare and education). However, broad swaths of the economy are locked in a vicious deflationary undertow.

Meanwhile, gold goes its merry way. Today, it costs 138 ounces of gold to purchase a typical existing home in the United States. Ten years ago, the same house cost 498 ounces of gold.

In other words, home prices have dropped 72% in terms of gold. Is gold the better buy now, or a house? To anyone who focuses on long-term value, the answer should be obvious.

That's a compelling factoid, and one worth thinking about before placing that order for Gold Eagles, Maple Leafs, or Krugerrands.

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