Inflation starting to rear it's ugly head...

[ThaBigP]

http://finance.yahoo.com/news/Wholesale-inflation-takes-apf-14410311.html

I get little comfort from the Fed claiming, in effect, "move along people, nothing to see here". They claim it's no problem, they're not going to cause runaway inflation...besides, they can stop it by turning their magic valves.

This statement was issued hot on the heels of "Oh, we're not creating a credit bubble! Besides, if we did we can stop it from popping by turning our magic valves."

This early sign of inflation I don't even attribute to the printing of money...that hasn't even really hit the economy at large yet. This is most likely the result of dwindling inventories of goods and the reduction in availability of services. How many stores have closed? How much manufacturing has been throttled back? The number of imports declining? Employees laid off and therefore not providing services and manufacturing goods? Simple supply and demand folks. The supply has shrunk to get in line with reduced demand. Now....just wait until the floodgates open and a sea of monopoly money hits the streets - chasing this now-reduced number of goods and services in what will amount to a bidding war in the open market. That, by the way, is the whole intent of the "stimulus plan". Banks have TARP money but aren't lending (Keynes called this a "liquidity trap"). So the administration/Congress' idea is what the Chinese did many, many years ago...drop the money by airplane. This airplane just happens to be called a "stimulus bill".

[theogt]

Right now, inflation is a good sign.

[ThaBigP]

Right now, inflation is a good sign.

Right now it's partially just a reversal of the deflation as supply gets back in line with demand...but man oh man...reduced goods and services...with a river of monopoly money still wet with ink from the printing presses about to start chasing them.

[theogt]

Right now it's partially just a reversal of the deflation as supply gets back in line with demand...but man oh man...reduced goods and services...with a river of monopoly money still wet with ink from the printing presses about to start chasing them.Like I've said before, almost all of that new money comes in the form of loans from the government. All they have to do is stop renewing those lending facilities.

[ThaBigP]

Like I've said before, almost all of that new money comes in the form of loans from the government. All they have to do is stop renewing those lending facilities.

That would be one way to turn off the firehose...but then the matter of sucking up all the water already drenching everything. Interest rates could be jacked up sky-high...but how likely is that with subprime, adjustable rate mortage defaults being the epicenter of this mess? You could tax the bejeesus out of everybody and "destroy" the money coming in rather than respending it...but with trillions of dollars promised in both default guarantees and new programs ON TOP of our already sky-high deficits...how likely is that? Furthermore, will cranking up tax rates help people struggling to meet mortgage payments? Taxes have a way of working their way though the system and raising prices for everything, so you can't just "tax the rich" to fix that problem either.

The problem here is the arbitrary definition of "success" as being a return to the artificially-inflated housing prices. That's a problem because housing prices finally returned to reason due to a glut of supply. In order to get prices up, you must increase demand, reduce supply, or a combination of the two. Nobody wants to demolish perfectly good homes, nor would that help. It would represent a significant loss, as the property is obviously demolished and worth only what the parcel of land could fetch, and demolition is not free in and of itself. So, we have to increase demand. Increasing demand means reducing price (so buyers gobble up the inventory glut). Uh-oh, we have a classic paradox here. There is but one way left....if you can't *increase* the value of the homes, you must *decrease* the value of the currency traded against them. Hence...inflation. I'm becoming more and more convinced inflation is *precisely* the goal of the Fed. Nobody who graduates Kindergarten thinks you can simply print money willy-nilly without causing rampant inflation. However, inflation causes a rise in all prices..including homes. I think they're trying to engage in a controlled inflation to clear out the balance sheets, then they think they can dial it back. My two cents... I just pray to God this thing doesn't get away from them. So far, everything has gotten away from them...

[theogt]

That would be one way to turn off the firehose...but then the matter of sucking up all the water already drenching everything. Interest rates could be jacked up sky-high...but how likely is that with subprime, adjustable rate mortage defaults being the epicenter of this mess? You could tax the bejeesus out of everybody and "destroy" the money coming in rather than respending it...but with trillions of dollars promised in both default guarantees and new programs ON TOP of our already sky-high deficits...how likely is that? Furthermore, will cranking up tax rates help people struggling to meet mortgage payments? Taxes have a way of working their way though the system and raising prices for everything, so you can't just "tax the rich" to fix that problem either.

The problem here is the arbitrary definition of "success" as being a return to the artificially-inflated housing prices. That's a problem because housing prices finally returned to reason due to a glut of supply. In order to get prices up, you must increase demand, reduce supply, or a combination of the two. Nobody wants to demolish perfectly good homes, nor would that help. It would represent a significant loss, as the property is obviously demolished and worth only what the parcel of land could fetch, and demolition is not free in and of itself. So, we have to increase demand. Increasing demand means reducing price (so buyers gobble up the inventory glut). Uh-oh, we have a classic paradox here. There is but one way left....if you can't *increase* the value of the homes, you must *decrease* the value of the currency traded against them. Hence...inflation. I'm becoming more and more convinced inflation is *precisely* the goal of the Fed. Nobody who graduates Kindergarten thinks you can simply print money willy-nilly without causing rampant inflation. However, inflation causes a rise in all prices..including homes. I think they're trying to engage in a controlled inflation to clear out the balance sheets, then they think they can dial it back. My two cents... I just pray to God this thing doesn't get away from them. So far, everything has gotten away from them...The Fed lends against assets. It keeps the assets on its balance sheets. Once it stops the lending facility, the asset goes back into private hands and money comes out of the system.

This is basic econ stuff here.

[ThaBigP]

The Fed lends against assets. It keeps the assets on its balance sheets. Once it stops the lending facility, the asset goes back into private hands and money comes out of the system.

This is basic econ stuff here.

You're speaking of normal times. They issue money against assets to prevent inflation - i.e. goods and services to back the fiat currency we have. They're running the printing presses day-and-night now, with no 'assets', real or otherwise, to back the currency issues. I suppose the Fed is issuing "IOU"s to the Treasury...but come on. How stupid does this system have to get before you stop and think "uh.....this *may* not work after all"?

You do know what "quanititative easing" is, right? And you're aware that this is, word-for-word, what they've volunteered their policy is? You realize that "quantitative easing" means issuing unbacked currency with the intent of devaluing it, and increasing it's velocity in the economy? You do realize that all of that translates to "inflation"...intentional inflation? Granted, it was originally to stave off deflation. But...they already admit they're issuing unbacked currency. Please stop coming back with "But! They're lending against assets!" when they've stated themselves that they are most certainly not. Furthermore, they've already said that in regards to the "stimulus" package, they intend to "monetize" it rather than finding willing/able creditors (read: there aren't any). "Monetizing" a spending bill means???? printing the currency to pay for it... Pretty soon they're going to run out of synonyms for "printing unbacked currency".

[theogt]

You're speaking of normal times. They issue money against assets to prevent inflationNo, that's not true. They issue money against assets, to INCREASE the money supply, which is, by definition, inflation. When you reverse the process, it causes deflation. As prices rise in the US, the Fed can just begin that process and control the "reflation" pretty easily.

[VCDefectors]

No, that's not true. They issue money against assets, to INCREASE the money supply, which is, by definition, inflation. When you reverse the process, it causes deflation. As prices rise in the US, the Fed can just begin that process and control the "reflation" pretty easily.

I've typed many a word trying to educate BigP on economic fundamentals. He has a knack for some of the vocabulary, but with some of the concepts he gets it completely backwards. Don't give up on him, though. He tries and is eager to learn. I'm glad to be getting some help with him. One teacher is not enough for the job.

I hope that BigP doesn't take this as an insult, because I do think his heart is in the right place. BigP, just keep working on it buddy!

[burmafrd]

http://money.cnn.com/2009/02/19/news/economy/deflation/index.htm?cnn=yes

So I guess this column kind of looks stupid, right?

[ThaBigP]

http://money.cnn.com/2009/02/19/news/economy/deflation/index.htm?cnn=yes

So I guess this column kind of looks stupid, right?

No, not at all. Certain sectors are seeing prices rise, others fall. Look at the dow chart (for what that's worth nowadays), you could cut lumber with it. Look at the chart from the Fed showing the increase in the monetary base...you could use it for an icepick. Times are crazy, and people are doing crazy things. Uncertainty in the market is causing all manner of strange behavior.

[ThaBigP]

No, that's not true. They issue money against assets, to INCREASE the money supply, which is, by definition, inflation. When you reverse the process, it causes deflation. As prices rise in the US, the Fed can just begin that process and control the "reflation" pretty easily.

So, you don't know what "quantitative easing" is, do you?

[ThaBigP]

I've typed many a word trying to educate BigP on economic fundamentals. He has a knack for some of the vocabulary, but with some of the concepts he gets it completely backwards. Don't give up on him, though. He tries and is eager to learn. I'm glad to be getting some help with him. One teacher is not enough for the job.

I hope that BigP doesn't take this as an insult, because I do think his heart is in the right place. BigP, just keep working on it buddy!

You're a riot.

[ThaBigP]

No, that's not true. They issue money against assets, to INCREASE the money supply, which is, by definition, inflation. When you reverse the process, it causes deflation. As prices rise in the US, the Fed can just begin that process and control the "reflation" pretty easily.

BTW, increasing the money supply is easy...you don't need assets to do it...just print it (or strike it...or add zeros into a database). There's a difference between printing/issuing against assets and printing/issuing backed by nothing. When the Treasury sells Treasuries at auction...that's one of the assets you mention. Sell those, take the investment to back the new currency issue. That's one way. Way #2 is "quantitiative easing"...just print with no sale of debt, etc, to back it.

[ABQCOWBOY]

Right now, inflation is a good sign.


How long does "Right Now" last?

[Doomsday101]

If prices go up I and everyone else spends less I don't see that as helping or a good thing. Seems to me we spend billions for wrong doers and those who have played by the rules, who have not over extended themselves, who pay their mortgages on time once again are the ones punished and who have to pay the price

[ABQCOWBOY]

If prices go up I and everyone else spends less I don't see that as helping or a good thing. Seems to me we spend billions for wrong doers and those who have played by the rules, who have not over extended themselves, who pay their mortgages on time once again are the ones punished and who have to pay the price


And on that note, I just got a bill from my insurance that says the insurance on my home has just been increased by 1,559.00. No claims, no additional coverage, nothing differnt from last year. This is just great.

[Doomsday101]

And on that note, I just got a bill from my insurance that says the insurance on my home has just been increased by 1,559.00. No claims, no additional coverage, nothing differnt from last year. This is just great.

So you are paying more but not getting more just a price increase? I'm still trying to figure how this is good. I guess it is good under this administration if you just go broke so that the Government can take care of you since they are setting you up for failure. Playing by the rules gets you nowhere but if you run around like an idiot spending money you don't have then the Government will come in and take care of you. Socialism at its finest

[ThaBigP]

Theo, I think our impasse, and why we're butting heads on this, is that we're talking about two different things...sort of.

You're going on about what the Fed is going to do with the money after they print it. I'm talking about the fact that the underlying expansion of the monetary base is not supported by the traditional means...the Treasury selling debt (treasuries), and the proceeds "deposited" in their "account" at the Fed, which can then issue "loans" (federal reserve notes....aka dollar bills) against those deposits. Nor is the new currency supported by tax receipts...which would also be "deposited" with the Fed. Nor does the stagnation (and contraction) of the GDP warrant an increase in the monetary base.

To tell me, in effect, that the Fed intends to spend the newly printed money is rather "no duh" - reglardless of what they buy with it. But what are they spending it on? They are *not* buying up gold, or any other solid commodity.

What they are doing is "pretending" (I use the phrase "print" lightly, considering our digital age) new money into the reserves of banks who have deposits with the Fed. Then, they clap their hands and say "Oh boy! Free money! We can use that!". That is soon followed by the Fed issuing new currency against these newly inflated bank reserves and that new currency is used to buy much of the toxic assets the banks cannot accurately value or find willing buyers for - or they could do it more directly, saying "we dumped pretend money into your reserves, hand over x amount of these particular assets...we'll call that a 'transaction'". So there's where your argument comes into the equation...the buying of assets, holding them, then when the markets recover, hopefully unloading them back on the private sector and sucking back the money they printed...

But....

How much are those "assets" worth? First, those assets HAD NO WILLING BUYERS in the private market, which caused the credit freeze in the first place. The Fed bought them because nobody else would...at least not at any price that would prevent massive losses. So the Fed bought them at a prearranged price. Word has it that price was wildly inflated...to give the banks some cover, avoid losses, and inject sufficient liquidity.

So, riddle me this: How is the Fed going to suck up dollar-for-dollar what they spent to buy this smelly soup of assets in the first place by selling them on the open market? The same open market that collectively said "no thanks, not in this lifetime" when subprime mortgages started folding? Most of the assets they bought were likely equity-level CDOs (uh...heh...your favorite 'worthiness' test, apparently), the highest-risk of the investments. I've said time and time again what we have done, in effect, is to go back to a "gold" standard backing our currency. Only it's not gold...our currency is currently backed by worthless subprime-mortgage-backed securities and CDOs. We've tied the value of our dollar to this crap. Would you lash your lifeboat to the Titanic in a vain attemp to prevent it from sinking? Or would you row away as fast as you can to avoid getting sucked down to the briney depths with it?

[ABQCOWBOY]

So you are paying more but not getting more just a price increase? I'm still trying to figure how this is good. I guess it is good under this administration if you just go broke so that the Government can take care of you since they are setting you up for failure. Playing by the rules gets you nowhere but if you run around like an idiot spending money you don't have then the Government will come in and take care of you. Socialism at its finest


Looks like I better get used to Beans and Tortillas again.

[Doomsday101]

Looks like I better get used to Beans and Tortillas again.

Don't worry big brother is going to take care of you. :(

[ABQCOWBOY]

Don't worry big brother is going to take care of you. :(


Great, Oat Meal and Reagan Cheese.

I'd rather eat my own beans. Is that crazy?

:laugh2:

[Doomsday101]

Great, Oat Meal and Reagan Cheese.

I'd rather eat my own beans. Is that crazy?

:laugh2:

No!!!! Big Brother is going to take care of you whether you like it or not!!!!:laugh2:

[VCDefectors]

You're going on about what the Fed is going to do with the money after they print it.

I don't know how many times you have to be told that the government doesn't just print money like you suggest. It has to borrow the money. If our government did as you suggested, this country would not have become the economic superpower that it has.

Now, there has been examples in history of governments actually printing money. 1960s Latin America, 16th century Europe, 1980s Mexico. That's not what we do. Do you honestly think our country would be able to attract the foreign investment that is does if we were printing money? Get real.

Please stop with these threads. I don't have time to school you again today.

[MetalHead]

Looks like I better get used to Beans and Tortillas again.
ABQ.I grew up in Dominican Republic.
I know how 3rd world life is...I feel it,I can smell it.
i'll sell my survival guides when Obama turns this into a 3rd world deal.
Your copy is free.

[ABQCOWBOY]

ABQ.I grew up in Dominican Republic.
I know how 3rd world life is...I feel it,I can smell it.
i'll sell my survival guides when Obama turns this into a 3rd world deal.
Your copy is free.


:laugh2:

Well, it's better then a peck in the head with a sharp rock.

Thank you Artie. Much appriciated.

[ThaBigP]

I don't know how many times you have to be told that the government doesn't just print money like you suggest. It has to borrow the money. If our government did as you suggested, this country would not have become the economic superpower that it has.

Now, there has been examples in history of governments actually printing money. 1960s Latin America, 16th century Europe, 1980s Mexico. That's not what we do. Do you honestly think our country would be able to attract the foreign investment that is does if we were printing money? Get real.

Please stop with these threads. I don't have time to school you again today.

You too apparently don't know what "quantitative easing" is, nor are aware that the Fed has already confessed this is their current program. Nobody is suggesting that we've merely printed currency willy-nilly for the entire duration of our republic. Quite the contrary...we went off the gold standard for good in the 70s. We've gradually inflated our monetary base since then to pay for all of our social spending. But the last few months (since the eruption of the credit market), we HAVE been printing day and night (such that it is in the digital age).

http://www.iht.com/articles/2009/01/11/business/views12.php

From the article:

Quantitative easing: A therapy of last resort
breakingviews.comPublished: January 11, 2009

Desperately ill patients are willing to try drugs that have not been shown to be either effective or safe. Even questionable medicines look better than the alternative. As countries' financial systems remain immobile in the face of standard monetary policy treatment, more are turning to quantitative easing as a therapy of last resort. The U.S. Federal Reserve is already trying it out. The Bank of England is likely to follow.

Quantitative easing is the modern way to print money. The central bank does not actually have to use a press to spew out crisp notes. But ultimately, the impact is not very different.

The aim of quantitative easing is to get money flowing around an economy when the normal process of cutting interest rates is not working - most obviously when interest rates are so low that it is impossible to cut them further.

In such a situation, it still may be possible to increase the quantity of money. The way to do this is for the central bank to pay banks for assets like government debt or mortgage-backed securities.

Where, one might ask, does the central bank get the money to buy all these securities? The answer is that it just waves a magic wand and creates some. It simply increases the size of banks' accounts at the central bank. These accounts held by ordinary banks at the central bank go by the name of reserves. In quantitative easing, the banks build up excess reserves.

If banks swap their securities for reserves, they have fewer loans on their balance sheets and more cash to lend. Assuming they want to keep their own businesses static - admittedly, a big assumption in the current climate - they will then start lending to end-borrowers and so start putting more liquidity into the economy.

To some extent, central banks have been engaging in quantitative easing for the past year. The Federal Reserve's balance sheet, for example, has mushroomed: It is up eighteenfold in the past four months.

[ThaBigP]

I don't know how many times you have to be told that the government doesn't just print money like you suggest. It has to borrow the money. If our government did as you suggested, this country would not have become the economic superpower that it has.

Now, there has been examples in history of governments actually printing money. 1960s Latin America, 16th century Europe, 1980s Mexico. That's not what we do. Do you honestly think our country would be able to attract the foreign investment that is does if we were printing money? Get real.

Please stop with these threads. I don't have time to school you again today.

And by the way, about the "how would we get investment?"...have you read the news, my clueless friend? China has been infuriated about our *gasp!* money printing...precisely the scenario you outlined.

[ThaBigP]

I don't know how many times you have to be told that the government doesn't just print money like you suggest. It has to borrow the money. If our government did as you suggested, this country would not have become the economic superpower that it has.

Now, there has been examples in history of governments actually printing money. 1960s Latin America, 16th century Europe, 1980s Mexico. That's not what we do. Do you honestly think our country would be able to attract the foreign investment that is does if we were printing money? Get real.

Please stop with these threads. I don't have time to school you again today.

For your personal edification, VC. You know, just in case you have to "school" somebody again...you might want to be armed with the facts next time.

http://hotair.com/archives/2009/02/14/china-we-hate-you-but-we-hate-everyone-else-more/

China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday.

China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries. …

Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

[iceberg]

I don't know how many times I have to be told that the government justs print money like you suggest. It we didn't, our government would not have become the economic superpower that it has.

Please stop with these threads. you're going to make me cry again and my therapist says i'm doing much better...

i'm cold...and the wolves are after me, i gotta go now.

fixed.

[theogt]

For your personal edification, VC. You know, just in case you have to "school" somebody again...you might want to be armed with the facts next time.

http://hotair.com/archives/2009/02/14/china-we-hate-you-but-we-hate-everyone-else-more/

China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday.

China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries. …

Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”
What does this have to do with his post?

[VCDefectors]

For your personal edification, VC. You know, just in case you have to "school" somebody again...you might want to be armed with the facts next time.

Facts? You, who started a thread about inflation starting to rear its ugly head, want to lecture me about facts? Get real.

What's even funnier, is that you provided evidence that directly refutes your belief that our government prints extra money to resolve economic issues. Way to prove my point. Nice job.

[ThaBigP]

Facts? You, who started a thread about inflation starting to rear its ugly head, want to lecture me about facts? Get real.

What's even funnier, is that you provided evidence that directly refutes your belief that our government prints extra money to resolve economic issues. Way to prove my point. Nice job.

So...you're issue isn't with me then, so much as the Fed data coming out? I shouldn't post data from the Fed, or articles mentioning same, because...I'm having problems with facts?

[ThaBigP]

What does this have to do with his post?

Has to do with VC...claiming we aren't engaging in quantitative easing, and that if we were doing that, it would tick off those whom we seek to buy our treasuries. I was proving both points...yes, we're engaged in quantitative easing (yes that's just the latest buzzword that means creating money out of thin air, coined by Japan in the 90s), and yes it's ticking off our creditors.

[ThaBigP]

What's even funnier, is that you provided evidence that directly refutes your belief that our government prints extra money to resolve economic issues. Way to prove my point. Nice job.

Point to it, then, genious. Rather than doing the usual Progressivethink move of "fact by mere proclamation of same".

[VCDefectors]

So...you're issue isn't with me then, so much as the Fed data coming out? I shouldn't post data from the Fed, or articles mentioning same, because...I'm having problems with facts?

Yes, until you get your economic fundamentals figured out, it would probably be best if you leave that kind of posting alone. Just do what most of the other posters here do, that is, go to your favorite right-wing cybermag and copy and paste some articles. Even if these articles get exposed for being full of holes, at least you can scapegoat to the original author.

Just looking out for your best interest, buddy.

[ThaBigP]

Yes, until you get your economic fundamentals figured out, it would probably be best if you leave that kind of posting alone. Just do what most of the other posters here do, that is, go to your favorite right-wing cybermag and copy and paste some articles. Even if these articles get exposed for being full of holes, at least you can scapegoat to the original author.

Just looking out for your best interest, buddy.

So, again with the "it's a fact because I say so", and "you don't know what you're talking about", and "don't bother engaging in debate".

All backed up by...*poof*...nothing but more proclamations of "I know what I'm talking about because I say so! I SAY SO!!!!!!! LISTEN TO ME!!!!!! STOP LISTENING TO HIM!!!!!! AAAAAAAAAAAHHHHHHHHHHH!"

[VCDefectors]

So, again with the "it's a fact because I say so", and "you don't know what you're talking about", and "don't bother engaging in debate".

All backed up by...*poof*...nothing but more proclamations of "I know what I'm talking about because I say so! I SAY SO!!!!!!! LISTEN TO ME!!!!!! STOP LISTENING TO HIM!!!!!! AAAAAAAAAAAHHHHHHHHHHH!"

Why can't you just type like a normal human being? I've been trying to help you, but you just won't listen. You just want to type, type, type.

And you keep asking me to repeat myself. Just calm down, and go back and reread some of my replies. There you will find the correct answer to your questions.

And don't be getting upset and start typing more gibberish. Just calm down and start listening. It will help you improve as a poster.

[ThaBigP]

Why can't you just type like a normal human being? I've been trying to help you, but you just won't listen. You just want to type, type, type.

And you keep asking me to repeat myself. Just calm down, and go back and reread some of my replies. There you will find the correct answer to your questions.

And don't be getting upset and start typing more gibberish. Just calm down and start listening. It will help you improve as a poster.

:laugh2: :laugh1: :lmao2: My God you're a riot. I swear...just like the old saying goes, I'd never have to work again another day in my life if I could just buy you for what you're worth, and turn around and sell you for what you *think* you're worth.

[theogt]

Has to do with VC...claiming we aren't engaging in quantitative easing, and that if we were doing that, it would tick off those whom we seek to buy our treasuries. I was proving both points...yes, we're engaged in quantitative easing (yes that's just the latest buzzword that means creating money out of thin air, coined by Japan in the 90s), and yes it's ticking off our creditors.You do realize that "quantitative easing" doesn't literally mean creating money out of thin air, right? The fed either (1) establishes lending facilities where it lends against assets (which means that the money can disappear just as easily as it's created when the Fed terminates the lending facility) or (2) actually buys assets on the open market (which means that the money can disappear just the same by selling the assets in open market). The only difference between the two is that the first is essentially a forced sale back to the borrowing entity.

There's not a dime of money entered into the system that can't be soaked up by the Fed at almost literally a moment's notice.

Just because you haven't heard of quantitative easing until recently, doesn't mean it's some "new buzz word."

[ThaBigP]

You do realize that "quantitative easing" doesn't literally mean creating money out of thin air, right? The fed either (1) establishes lending facilities where it lends against assets (which means that the money can disappear just as easily as it's created when the Fed terminates the lending facility) or (2) actually buys assets on the open market (which means that the money can disappear just the same by selling the assets in open market). The only difference between the two is that the first is essentially a forced sale back to the borrowing entity.

Just because you haven't heard of quantitative easing until recently, doesn't mean it's some "new buzz word."

I did hear it in the 90s when Japan experimented with it. That's when the "buzzword" came to be. It's now being tried again. That wasn't that long ago...at least it doesn't seem that long ago to me. We're not talking about some sound monetary policy that has been tried and true for hundreds if not thousands of years.

And as for "the money isn't created out of thin air", oh my friend it most certainly is. You keep staring at only the 2nd half of the equation...what they do with the new money...loan it or buy assets. Never do you probe the depths to figure *where* that new magic money comes from. Neither bonds nor tax receipts (or anything of the sort) has been sold or received, respectively, to back this new money. They, quite literally, simply added additional currency to the reserves of the banks with deposits there. Again, I want to stress I've been using the word "printing" somewhat lightly, as much of this is done digitally today. We're still trying to auction off treasuries...don't get me wrong. But we aren't selling 2 trillion dollars' worth to the Chinese to cover all of this...or anybody else for that matter. Don't forget...the funding of our "regular" budget, somewhere in the 2.5 trillion dollar range, didn't suddenly stop because we have a NEW 2 trillion dollars worth of spending - about 9 trillion in total if you count the default guarantees.... Theo, you'd better be on your knees praying to whatever God you belive in that these banks don't completely collapse and have to be nationalized. That makes the 9 trillion in promises suddenly turn into 9 trillion in spending in the blink of an eye.

Again, you also make it all sound so darned easy. We (the Fed) will buy up those subprime-mortage backed securities and derivatives that nobody else wants....we'll also buy them at an inflated prearranged price...all in exchange for digitally "printing" money into those banks' reserves. Fine, now you have extra liquidity, the banks have some crappy stuff off their books. Everything is going to be OK. Or is it? When it comes time to resell those toxic assets, who'se buying them? The same market that rejected them, forcing the Fed to have to buy them at inflated prices to begin with? They're worth nowhere near the amount of money "created" to buy them. Do you force the private sector to rebuy them at the inflated price the Fed paid for them? You outlined the potential for lending facilities where such would be the case - makes sense. But...is that not just creating a credit mess all over again - putting those toxic assets BACK on the balance sheets of the banks, and making them pay WAY too much for them? I suppose you could dole them back out over time, to allow for the private sector to absorb them. But that won't be nearly as quick a fix as you seem to think. Or, the housing market could completely turn around by then, making those assets worth something again. If you think that's the case, I suppose your portfolio is ballooning with newly purchased subprime-mortgage backed securities, deriviatives, and equity-level CDOs. After all, imagine the killing you'd make buying 'em up now at pennies on the dollar. It's a bet...a VERY risky bet. And we've bet the value of our dollar on it.

This quantitative easing bit doesn't even touch on the new stimulus bill, either. They've already said they intend to "monetize the spending bill"...their own words. That's another way of saying "make money out of thin air", only this time just to pay the bills, not to swap for assets on a presumably temporary basis, or to loan against worthless collateral. This is a real problem, because there is NO mechanism to easily pull that money back, not even a bad and illogical one. This one likely will be in the form of printed money, as it is expenditures in the market at large, and some of that MUST translate to paper currency (though not necessarily all of it).

I don't understand why you're in utter refusal to simply acknowledge that the Fed is pumping created money into the system through TARP and now soon the stimulus bill. THEY'RE saying it themselves! Granted they don't rush out to the nearest mic and say "Hey, guys! We're pulling money out of our arses!" They use phrases like "quantitative easing" and "monetize the spending bill" since they sound so....cozy. Like they know exactly what they're doing. But it's no different than a trash collector putting "sanitation engineer" on their business card. It's fluff and make-believe. I understand there may be a reason for doing it...I also understand about the only way they can "fix" the housing market problem (since they've defined "fixed" as "a return to artificially inflated prices") is to devalue the currency, causing all prices to rise and hopefully float home prices enough with it that the derivatives, etc, can be cleared off the books. Then, I presume, they expect to throttle it back down. But we can't even have that debate on the merits of *why* they're doing it...you don't even acknowledge they're doing anything of the sort...

[theogt]

There are quite a few things factually wrong with this post. I'll try to address it later today.

[iceberg]

There are quite a few things factually wrong with this post. I'll try to address it later today.

oh how will i ever contain my antici...

...pation?