Thursday, December 06, 2007

"We" Have Been Inflating Out For 50 Years



The nature of Genetically modified Corn means that Farmers must purchase corn seed every year since their crops are modified to be Sterile...Some MBAType thought it would be cool to do this because then farmers would be slaves to banks since they would be forced to borrow money to afford the seeds needed to plant crops...Then their pathetic arguments would be validated...

The "assets" are all debt inflated assets...Debt inflation in great enough amounts to overpower the underlying debt deflationary potential must be maintained to sustain the price of debt inflated assets... real estate and land are examples of debt inflated assets...

Beep beep beep news flash...

"We" have been inflating out for 50 years...

Debt inflation is the production of debt in great enough quantities to overpower the underlying debt deflationary potential...

There is no way to inflate out of the situation...

Inflating out is what we are doing and have been doing for 50 years...

I attempted to decode fedspeak...This is a fragment of a speech.

Remarks by Governor Ben S. Bernanke
Before the Economics Roundtable, University of California, San Diego, La Jolla, California
July 23, 2003
An Unwelcome Fall in Inflation?

My translation (in parentheses)...

This distinction between (debt) inflation that is positive yet too low and (debt) deflation is worth exploring for a moment (Yes lets explore the basic mechanics of a scenario that is, according to you remote). Although the Federal Reserve does not have an explicit numerical target range for measured (debt) inflation, FOMC behavior and rhetoric have suggested to many observers that the Committee does have an implicit preferred range for (debt) inflation ( We will never be caught eating macaroni dinners that’s for sure). Most relevant here, the bottom of that preferred range clearly seems to be a value greater than zero measured (debt) inflation (Really? I’m shocked), at least 1 percent per year or so. Both the apparent tendency of measured (debt) inflation to overstate the true rate of price increase, as suggested by a range of studies, and the need to provide some buffer against accidental (debt) deflation (No such thing) serve as rationales for aiming for positive ((as opposed to zero) measured (debt) inflation, both in the short run and in the long run. To the extent that one accepts the view that measured (debt) inflation should be kept some distance above zero (The system collapses at zero), a very low positive measured rate of (debt) inflation (say, 1/2 percent to 1 percent per year) is undesirable (Macaroni dinner time) and implies a need for highly accommodative monetary policy (The encouragement of massive debt creation and consumption), just as would be required for outright (debt) deflation. The language of the May 6 statement encompasses the risks of both very low (debt) inflation and (debt) deflation. I suspect that for the foreseeable future, of the two, the risk of very low but positive (debt) inflation is considerably the greater. That is, (debt) inflation in the range of 1/2 percent per year in the United States in the next couple of years, though relatively unlikely, is considerably more likely than (debt) deflation of 1/2 percent per year. (So spiraling towards doomsday is more likely to happen then doomsday all of a sudden showing up, whew I was worried there for a sec)

Having drawn a distinction between very low inflation (Which shows up before “outright” deflation) and deflation (which shows up after very low inflation), however, I must also point out that, in terms of their costs to the economy, no sharp discontinuity exists at the point that measured inflation changes from positive to negative values. Very low inflation and deflation pose qualitatively similar economic problems, though the magnitude of the associated costs can be expected to increase sharply as deflationary pressures intensify (Buddy did you slip up? We are headed for deflation you say?).

(Meanwhile back at the ranch)What are these costs? In practice, the potential harm of very (Unlikely and undesirable) low inflation or (Outright) deflation (remote) depends importantly on the economic environment in which it occurs. For example, deflation can be particularly harmful when the financial system is already fragile (Newsflash: US economy is fragile…fast fact #33.3: Fractional reserve systems grow weaker the longer they are in operation until they collapse), with household and corporate balance sheets in poor condition and with banks undercapitalized and heavily burdened with nonperforming loans. Under such circumstances, deflation or unexpectedly low inflation, by increasing the real burden of debts (The only way to fight debt deflation is with debt inflation), may exacerbate financial distress and cause further deterioration in the functioning of the financial markets. This process of "debt deflation" (a term coined (Pun) by the early twentieth-century American economist Irving Fisher) (Dang I thought I created it oh well) was important (No itwas the paramount cause) in the U.S. deflation and depression of the 1930s (Due to a drop in consumer debt consumption once the maximum potential was reached) and may have played an important role in the economic problems of contemporary Japan (Due to a drop in consumer debt consumption once the maximum potential was reached). Fortunately, financial conditions in the United States today are sound (like Japan before they began collapsing), not fragile (Like now in Japan after years of disintegration). Both households and firms have done excellent jobs during the past few years of restructuring and rationalizing their balance sheets (Like Japan did when they were sound). For example, households have taken advantage of low interest rates to refinance their mortgages (Like Japan did when they were sound), in the process both lowering their monthly house payments and using accumulated equity to pay off more expensive forms of consumer debt (Like Japan did when they were sound), such as credit card debt (Like Japan did when they were sound). Likewise, firms have lengthened the maturities of their debts (Like Japan did when they were sound), lowered their interest-to-earnings ratios (Like Japan did when they were sound), and improved their liquidity (Like Japan is constantly doing). Completing the picture, the U.S. banking system is highly profitable (By creating debt out of thin air and charging compound interest on it to be paid by consumers) and well-capitalized (The FED is lending the banks all they need to keep the books looking good and to facilitate massive consumer consumption of debt, like Japan) and has managed credit risk over the latest cycle exceptionally well (Getting more people signing on the dotted line then the people sent to their screaming doom). Thus, in my view, a (debt) deflation that was relatively limited in magnitude and duration would be unlikely to have serious adverse effects on the U.S. financial system (If it does begin to have a serious effect it is your fault or we will make up an excuse to cover our asses).

A second set of circumstances in which (debt) deflation or very low (debt) inflation may pose significant problems is potentially more relevant to the current U.S. economy. That situation is one in which aggregate demand (For debt) is insufficient to sustain strong growth (In further debt consumption), even when the short-term real interest rate is zero or negative (Consumers have consumed all the debt they can consume). Deflation (or very low inflation) poses a potential problem when aggregate demand (For debt) is insufficient because deflation places a lower limit on the real short-term interest rate that can be engineered by monetary policymakers (Can’t drop rates past zero to encourage an orgy of debt consumption). This limit is a consequence of the well-known zero-lower-bound constraint on nominal interest rates (Well known to everyone except 99.999999% of the general population). For example, if prices are falling at a rate of 1 percent per year, the short-term real interest rate cannot be reduced below 1 percent, since doing so would require setting the nominal interest rate below zero, which is impossible. (Likewise, the very low inflation rate of 1/2 percent would prevent setting the real interest rate lower than minus 1/2 percent.) Thus, in a situation of insufficient aggregate demand (For debt), deflation or very low inflation (Which we caused to happen in the first place) might prevent the Fed from achieving full employment (Massive layoffs on the way), at least by means of the Fed's traditional policy tool of changing the short-term nominal interest rate.

In the worst-case scenario, one might worry that the interaction of deflation, the short-term nominal interest rate, and aggregate demand could conceivably touch off a destabilizing dynamic (You think?). Suppose that initially short-term nominal interest rates were already near zero and prices were falling. If aggregate demand (for debt) was sufficiently low relative to potential supply (of items on fire sale), deflation might grow worse (Oh my god!), as economic slack led to more aggressive wage- and price-cutting (Slash and burn economics). Because the short-term nominal interest rate cannot be reduced further, worsening deflation would raise the real short-term interest rate, effectively tightening monetary policy (I want my mommy). The higher real interest rate might further reduce aggregate demand (For debt), exacerbating the deflation and continuing the downward spiral (No no no nooooooo). That, at least, is the theoretical possibility (Not a theory , it has happened 100’s of times before). Fortunately, in practice, even if the Fed's ability to influence aggregate demand (For debt) was weakened by the interaction of worsening (debt) deflation and the zero-bound constraint on nominal interest rates, other factors could serve to short-circuit any incipient downward spiral. First, even in the presence of deflation, aggregate demand can be raised by fiscal actions (We have your daughter and if you don’t leverage yourself to the hilt and spend like a drunken sailor we will kill her). Second, the link between excess capacity in the economy and increased deflation, essential to this story, is not hard and fast. For example, despite a decade of economic weakness in Japan, deflation there has remained relatively stable at less than 1 percent per year (As long as the US is "sound" Japan can survive on the debt inflation exported from the US to maintain life-support); it has not worsened over time (1% per year compounding sounds like worsening), as the "deflationary spiral" scenario would imply (Are we talking about Japan or the US?). Third, if inflation expectations remain well anchored (Blind faith in the just think positive religion is maintained), the real return expected by borrowers and lenders--equal to the nominal interest rate less expected inflation--need not rise even as inflation declines (Stock up on macaroni dinners).
Finally, as I have discussed in earlier talks and will allude to again today, the Fed's tools for managing aggregate demand are not limited to control over the short-term nominal interest rate, but include other channels (C.N.B.C) as well.

In any case, I hope we can agree that a substantial fall in (debt) inflation at this stage has the potential to interfere with the ongoing U.S. recovery (From a substantial fall in debt inflation due to the first shockwave we have been fighting since 2000 when the New economy debt bubble we helped to create popped), and that in conceivable--though remote--circumstances, a serious (debt) deflation could do significant economic harm (To our reputations so we will have a cover story formulated soon, stay tuned). Thus, avoiding a further substantial fall in (debt) inflation should be a priority of monetary policy (Has been since 1913 but you have to break a few eggs to make an omelet) . To my mind, the central import of the May 6 statement is that the Fed stands ready and able to resist (Can’t prevent) further declines in (debt) inflation; and--if (debt) inflation does fall further--to ensure that the decline does not impede the recovery in output (Of greater amounts of debt) and employment. (32 weeks at 400,000 claims a week and the highest time to find a job since the record in the 80’s and it’s going to get worse…)"


There is only one outcome hyperdeflationary implosion of the debt supply...It is people like you that reject reality that is the cause of this situation.

You want to believe in fantasy...and so you shall...until of course the fantasy caves in...due to the fact it is a complete lie which reaches it's maximum potential to be sustained...You are just playing games or playing dumb...

All you need to know is the system is going to cave in...you want to be out of debt when that happens...and you should also be prepared to survive without an income for a year...then you will be in better shape then 100's of millions of other unfortunate victims who are going to be blindsided...

2 comments:

BillBoard said...

I like your sense of humor. I am only hoping to survive this mess.

mannfm11 said...

32 weeks of 400K? They finally got it below 400K by cooking the numbers and running out of people to fire last month. They have been claiming recovery for roughly 30 months, but anyone with a brain knows that normal is 325K or less.