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Has the Fed lost control of inflation?
Old 03-11-2008, 12:18 AM   #1
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Has the Fed lost control of inflation?

Bloomberg.com: Exclusive

Though they'll be pilloried as tinhats by the ERF regulars, have a look at what some folks believe.
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Old 03-11-2008, 12:24 AM   #2
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How does a negative real yield suggest that the fed has lost control of inflation?

Wouldn't investors demand a higher yield on nominal bonds if they feared higher inflation?

I think "flight to safety" makes more sense than the article's thesis.
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Old 03-11-2008, 03:05 AM   #3
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Pressure from the whitehouse to keep interest rates low over the last 7 years.

That has made investing in the US a little less attractive and affected the USD.

I saw a projection yesterday. It stated that we would be in Iraq in 2017 and the total cost would be $1.7T Gotta crank up the printing presses to destroy a country and rebuild it.
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Old 03-11-2008, 05:23 AM   #4
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The fed can do NOTHING about Inflation now. The genie is out of the bottle. It is gasoline and heating oil and natural gas costs. The fed can do little in the way of bringing the price of crude down. 108 118 128 a barrel is ruinous to the economy. Add that to people who are making less money at their jobs and the value of their homes has dropped well what is a poor boy to do??

The country was put together by CHEAP ENERGY, and without railroads well its going to be a really rough patch of road.
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Old 03-11-2008, 07:48 AM   #5
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Pressure from the whitehouse to keep interest rates low over the last 7 years.

That has made investing in the US a little less attractive and affected the USD.

I saw a projection yesterday. It stated that we would be in Iraq in 2017 and the total cost would be $1.7T Gotta crank up the printing presses to destroy a country and rebuild it.

what exactly did the white house do?
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Old 03-11-2008, 09:57 AM   #6
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what exactly did the white house do?
house(s).....politically encouraged gross lying about the actual inflation rate
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Old 03-11-2008, 09:58 AM   #7
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what exactly did the white house do?
Lost the veto pen?
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Old 03-11-2008, 02:36 PM   #8
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The fed can do NOTHING about Inflation now. The genie is out of the bottle. It is gasoline and heating oil and natural gas costs. The fed can do little in the way of bringing the price of crude down. 108 118 128 a barrel is ruinous to the economy. Add that to people who are making less money at their jobs and the value of their homes has dropped well what is a poor boy to do??

The country was put together by CHEAP ENERGY, and without railroads well its going to be a really rough patch of road.
Well they may have bought themselves some wiggle room today. It wasn't cheap - $200b - but if it works they may be able to reign in the free fall of interest rates.

DD
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Old 03-11-2008, 02:44 PM   #9
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Well they may have bought themselves some wiggle room today. It wasn't cheap - $200b - but if it works they may be able to reign in the free fall of interest rates.

DD
How does printing more money help?

Look at prices for food and energy. Look I know my numbers and can live as frugally as the next guy, but that will not help the spending economy we have here in the states. People will go into debt just to fill up the vehicle. Charge with the VISA weekly food trips to the grocery. Who knows but its weird out in the trenches.
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Old 03-11-2008, 03:10 PM   #10
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How does printing more money help?

Look at prices for food and energy. Look I know my numbers and can live as frugally as the next guy, but that will not help the spending economy we have here in the states. People will go into debt just to fill up the vehicle. Charge with the VISA weekly food trips to the grocery. Who knows but its weird out in the trenches.
Might have to move out of the country. Keep them options open.
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Old 03-11-2008, 07:48 PM   #11
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Well they may have bought themselves some wiggle room today. It wasn't cheap - $200b - but if it works they may be able to reign in the free fall of interest rates.DD
Doc, could you explain why you think this will decrease interest rates?
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Old 03-11-2008, 07:54 PM   #12
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How does printing more money help?

Look at prices for food and energy. Look I know my numbers and can live as frugally as the next guy, but that will not help the spending economy we have here in the states. People will go into debt just to fill up the vehicle. Charge with the VISA weekly food trips to the grocery. Who knows but its weird out in the trenches.
The good news is they are not printing any more money, at least not yet. That is a misconception of what is going on. The whole thing is complicated but this plan is just a swap of different types of debt. It only last 28 days. It is supposed to boost confidence and might not solve anything. The Fed has not been printing money this year. Inflation might not jump as many think, Bernacke could be correct about that. The Fed is acually fighting inflation as they lower rates, do not be fooled. It could change but so far, so good on that front.

The stimulus will have the effect of adding money to the eonomy because debt was used to fund it, it was not a good idea IMHO.
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Old 03-11-2008, 08:09 PM   #13
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Doc, could you explain why you think this will decrease interest rates?
What I meant was the Fed may feel less pressure to continue lowering interest rates which could help fending off inflation and further falling of the US dollar. Whether it will work remains to be seen. Sorry I wasn't clear.

DD
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Old 03-11-2008, 09:36 PM   #14
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The stimulus will have the effect of adding money to the eonomy because debt was used to fund it, it was not a good idea IMHO.
Adding money increases the money supply, no?

Milton Friedan's classic quote comes to mind.
"Inflation is always and everywhere a monetary phenomenon."

It seems to me they've throws gasoline onto a fire that was already beginning to blaze.
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Old 03-11-2008, 09:45 PM   #15
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Adding money increases the money supply, no?

Milton Friedan's classic quote comes to mind.
"Inflation is always and everywhere a monetary phenomenon."

It seems to me they've throws gasoline onto a fire that was already beginning to blaze.
I'm pretty sure the stimulus falls into that category. I'm not sure which M measure it will show up in, but it does go into the economy and have a multiplying effect and will likely add to inflation.

The Fed plan announced today is not the same thing though, it is not new money. If the banks use the liquidity to make more loans, it could be end up being inflationary. I think to a much lesser degree than the stimulus though.

I could be corrected.
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Old 03-12-2008, 12:07 AM   #16
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The good news is they are not printing any more money, at least not yet. That is a misconception of what is going on. The whole thing is complicated but this plan is just a swap of different types of debt. It only last 28 days. It is supposed to boost confidence and might not solve anything. The Fed has not been printing money this year. Inflation might not jump as many think, Bernacke could be correct about that. The Fed is acually fighting inflation as they lower rates, do not be fooled. It could change but so far, so good on that front.

The stimulus will have the effect of adding money to the eonomy because debt was used to fund it, it was not a good idea IMHO.
How does the fed think inflation is in check?? OK housing is in the crappa, and the cost of autos is well flat but Gasoline is waaay up food waaaay up airline tickets waaay up booze is waaay up. Sorry but its expensive around the country these days.
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Old 03-12-2008, 12:18 AM   #17
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How does the fed think inflation is in check?? OK housing is in the crappa, and the cost of autos is well flat but Gasoline is waaay up food waaaay up airline tickets waaay up booze is waaay up. Sorry but its expensive around the country these days.
Food is way up, and so is gas, but have you shopped for clothes this year? I hadn't, and when I tried to spend my tax refund a week or two ago, I was surprised at how inexpensive reasonably nice clothes are right now. I can't think of anything else that seems cheap these days, though.
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Old 03-12-2008, 12:27 AM   #18
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Electronics. Techno-lux is a tricky thing, it gets a lot of weight in the CPI, but how often do you replace your T.V.? So every year a 50" HDTV is a lot cheaper, but how much should that count? Hedonics makes things tricky. A 2008 Hyundai is a waay safer and more advanced and more luxurious car than a 1980 BMW, but how should that be measured? Part of what you are buying is the nameplate.
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Old 03-12-2008, 08:23 AM   #19
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How does the fed think inflation is in check?? OK housing is in the crappa, and the cost of autos is well flat but Gasoline is waaay up food waaaay up airline tickets waaay up booze is waaay up. Sorry but its expensive around the country these days.
I agree with all of that 100%, inflation is above what they say it is and is very high right now. The Fed likely does not feel inflation is ok either. Bernacke might think inflation is in check and will not go much higher because they are not expanding the monetary base. They know they have to try to avoid a serious meltdown so they are dropping rates and playing whatever games they can on the margin. There is stealth tightening behind the scenes as they are holding the monetary base steady, at least right now. That could change, if they panic and open the printing presses, all bets are off. Then buy all the gold you can get.

I'm thinking he is actually not going to be printing money and will let deflationary forces mount for awhile. They might let house prices drop and a few banks fail. Didn't he come out and say that last week? Deflation could very well be the next problem, as happened in Japan in the 90's. Deflation is already hit the housing market like a hammer.
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Old 03-12-2008, 09:01 AM   #20
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Rampant inflation in the future that is unrecognized in the CPI (for some reason or other) would be one obvious way to "fix" social security.

In fact, this type of maneuver seems like such a no-brainer that I have been assuming this will begin around 2010-2015 for my own financial planning purposes. I don't think it is happening yet, at least not to as great an extent as I expect in the future.

OK, I'm the world's greatest pessimist and cynic. Caution is the name of the game for me when I am working on my financial plan.
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