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View Full Version : Obama Ability to kerb inflation is how Bernanke should be judged


wild1
08-25-2009, 02:13 PM
August 25, 2009
Senator warns of hyperinflation rivaling the 1980s
@ 10:04 am by Michael O'Brien

The economy could spiral into hyperinflation not seen since the early 1980s if the Federal Reserve does not tighten its monetary policy soon, Sen. Chuck Grassley (R-Iowa) warned Tuesday.

Grassley, speaking about the renomination of Federal Reserve Chairman Ben Bernanke to a second term as head of the Fed, asserted that Bernanke's ability to hold down inflation would be the metric by which the Fed's success would be measured.

"We won't know for a year if he's done a good job so far, because he shoveled money out of an airplane to save banks and the financial system," Grassley said in a conference call with Iowa reporters. "But shoveling money out of an airplane to solve problems can be inflationary — in this case, hyperinflationary — if he doesn't start mopping up some of the money that's out there."

Grassley, the ranking member of the Senate Finance Committee, said that inflation as a result from government spending on bailouts could result in inflation rivaling rates in 1980, when it hit a peak of 13.5 percent.

"The Fed has the ability to put money out, it's got the ability to take money back in, and if they don't do that, we will have hyperinflation worse than we had in 1980 and '81," Grassley said. "And I hope he demonstrates that ability."

Grassley argued that while it would be a year until lawmakers will know whether Bernanke has been successful at bringing inflation under control, it would probably be best to keep the chairman on board for a second term as head of the Federal Reserve.

"I would suggest that right now, when everybody's nervous about the economy, that you don't change horses in the middle of the stream, and consequently, it would probably be detrimental to not have him reappointed," he said.

Stewie
08-25-2009, 03:04 PM
These numb-nuts need to at least understand the definitions. JFC!

1) Inflation in the creation of liquidity. Nothing more, nothing less. PRICE inflation is the inescapable result of creating all that liquidity.

2) Deflation is failure of financial instruments. Look at Over The Counter derivatives that totally imploded.

3) Hyper-inflation is a loss in confidence of a currency (not monetary policy). We're up to about $20 trillion today in losing that confidence.

KC native
08-25-2009, 03:24 PM
These numb-nuts need to at least understand the definitions. JFC!

1) Inflation in the creation of liquidity. Nothing more, nothing less. PRICE inflation is the inescapable result of creating all that liquidity.

2) Deflation is failure of financial instruments. Look at Over The Counter derivatives that totally imploded.

3) Hyper-inflation is a loss in confidence of a currency (not monetary policy). We're up to about $20 trillion today in losing that confidence.

You need to understand that your narrow definitions aren't shared by everyone. Inflation is usually caused by a monetary expansion but an expansion in the monetary base isn't required for inflation to occur.

Deflation is a fall in asset prices across many (but not necessarily all) asset classes. Again, financial instruments aren't required for deflation.

Hyper-inflation can be due to a loss of confidence or a rapid expansion in the money supply.

KC native
08-25-2009, 03:26 PM
August 25, 2009
Senator warns of hyperinflation rivaling the 1980s
@ 10:04 am by Michael O'Brien

The economy could spiral into hyperinflation not seen since the early 1980s if the Federal Reserve does not tighten its monetary policy soon, Sen. Chuck Grassley (R-Iowa) warned Tuesday.

Grassley, speaking about the renomination of Federal Reserve Chairman Ben Bernanke to a second term as head of the Fed, asserted that Bernanke's ability to hold down inflation would be the metric by which the Fed's success would be measured.

"We won't know for a year if he's done a good job so far, because he shoveled money out of an airplane to save banks and the financial system," Grassley said in a conference call with Iowa reporters. "But shoveling money out of an airplane to solve problems can be inflationary — in this case, hyperinflationary — if he doesn't start mopping up some of the money that's out there."

Grassley, the ranking member of the Senate Finance Committee, said that inflation as a result from government spending on bailouts could result in inflation rivaling rates in 1980, when it hit a peak of 13.5 percent.

"The Fed has the ability to put money out, it's got the ability to take money back in, and if they don't do that, we will have hyperinflation worse than we had in 1980 and '81," Grassley said. "And I hope he demonstrates that ability."

Grassley argued that while it would be a year until lawmakers will know whether Bernanke has been successful at bringing inflation under control, it would probably be best to keep the chairman on board for a second term as head of the Federal Reserve.

"I would suggest that right now, when everybody's nervous about the economy, that you don't change horses in the middle of the stream, and consequently, it would probably be detrimental to not have him reappointed," he said.

On the OP topic, hyperinflation isn't going to happen. There is too much capacity out there for producers to have any type of pricing power. Capacity utilization is very low right now so if someone tries to rise prices the others can pump out more units at a lower price to take their market share.

We are firmly in a deflationary trend right now. The Fed is fighting desperately fighting deflation but not having much success.

Stewie
08-25-2009, 03:31 PM
You need to understand that your narrow definitions aren't shared by everyone. Inflation is usually caused by a monetary expansion but an expansion in the monetary base isn't required for inflation to occur.

Deflation is a fall in asset prices across many (but not necessarily all) asset classes. Again, financial instruments aren't required for deflation.

Hyper-inflation can be due to a loss of confidence or a rapid expansion in the money supply.

You're explanation of inflation is recursive and wrong.

Deflation is absolutely not a fall in asset prices. Deflation is caused by the REASON that assets fall in price.

Your definition of hyper-inflation is repetitive. A begets B, begets A.

You're focused on "price." Price is the result, not the cause.

Stewie
08-25-2009, 03:33 PM
On the OP topic, hyperinflation isn't going to happen. There is too much capacity out there for producers to have any type of pricing power. Capacity utilization is very low right now so if someone tries to rise prices the others can pump out more units at a lower price to take their market share.

We are firmly in a deflationary trend right now. The Fed is fighting desperately fighting deflation but not having much success.

JFC! Deflation in NOT PRICE! Deflation is failure of financial instruments!

KC native
08-25-2009, 03:38 PM
JFC! Deflation in NOT PRICE! Deflation is failure of financial instruments!

Um, just about every definition out there disagrees with you.
http://www.investopedia.com/terms/d/deflation.asp

Deflation
What Does It Mean?
What Does Deflation Mean?
A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.

The decline in prices of assets, is often known as Asset Deflation.
Investopedia Says
Investopedia explains Deflation
Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.

Deflationary periods can be both short or long, relatively speaking. Japan, for example, had a period of deflation lasting decades starting in the early 1990's. The Japanese government lowered interest rates to try and stimulate inflation, to no avail. Zero interest rate policy was ended in July of 2006.
http://en.wikipedia.org/wiki/Deflation
In economics, deflation is a decrease in the general price level of goods and services.[1] Deflation occurs when the annual inflation rate falls below zero percent, resulting in an increase in the real value of money — a negative inflation rate. This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when the inflation decreases, but still remains positive).[2] Inflation reduces the real value of money over time, conversely, deflation increases the real value of money. Money refers to the functional currency (mostly unstable monetary unit of account) in a national or regional economy.
http://www.answers.com/topic/deflation
Answers.com
deflation

Dictionary: de·fla·tion (dĭ-flā'shən) pronunciation

1. The act of deflating or the condition of being deflated.
2. A persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money because of a reduction in available currency and credit.
3. The erosion of soil by the wind.

deflationary de·fla'tion·ar'y (-shə-nĕr'ē) adj.
deflationist de·fla'tion·ist n.

KC native
08-25-2009, 03:39 PM
You're explanation of inflation is recursive and wrong.

Deflation is absolutely not a fall in asset prices. Deflation is caused by the REASON that assets fall in price.

Your definition of hyper-inflation is repetitive. A begets B, begets A.

You're focused on "price." Price is the result, not the cause.

:spock: Inflation and deflation are measures of the price level.

Stewie
08-25-2009, 03:41 PM
:spock: Inflation and deflation are measures of the price level.

Wrong. Price is the result of the underlying phenomena. If you look at inflation/deflation by price you're way behind the curve.

KC native
08-25-2009, 03:44 PM
Wrong. Price is the result of the underlying phenomena. If you look at inflation/deflation by price you're way behind the curve.

ROFL So, why are we not seeing hyper inflation right now? Why are we in a deflationary trend that is threatening to turn into a deflationary spiral?

Stewie
08-25-2009, 03:50 PM
ROFL So, why are we not seeing hyper inflation right now? Why are we in a deflationary trend that is threatening to turn into a deflationary spiral?

Look at the stock market if you want to see where the money is going. A 50% rebound in the Dow while bonds are down 25%? That's the biggest warning sign right here, right now.

Where's the deflation? Housing? What are the underlying assets? Worthless OTC derivatives (financial instruments)! Hmmm... that's strange. A begets B.

Deflation is a failure of financial instruments.

KC native
08-25-2009, 04:00 PM
Look at the stock market if you want to see where the money is going. A 50% rebound in the Dow while bonds are down 25%? That's the biggest warning sign right here, right now.

Where's the deflation? Housing? What are the underlying assets? Worthless OTC derivatives (financial instruments)! Hmmm... that's strange. A begets B.

Deflation is a failure of financial instruments.

So, you're trying to say that the stock market is a good gauge for inflation? You are aware that the bond market is much more keen at anticipating inflation right?

BTW You have the chain of events backwards. Housing imploded and then the derivatives went bad. The derivatives went bad because of the decline of the underlying assets (one of which was housing). Derivatives derive their value from other securities hence the name, "DERIVA-TIVES". It is impossible for those derivatives to drive the prices of those assets because the pricing of the derivatives is dependent on the underlying asset for its value.

Stewie
08-25-2009, 04:09 PM
So, you're trying to say that the stock market is a good gauge for inflation? You are aware that the bond market is much more keen at anticipating inflation right?

BTW You have the chain of events backwards. Housing imploded and then the derivatives went bad. The derivatives went bad because of the decline of the underlying assets (one of which was housing). Derivatives derive their value from other securities hence the name, "DERIVA-TIVES". It is impossible for those derivatives to drive the prices of those assets because the pricing of the derivatives is dependent on the underlying asset for its value.

The markets have nothing to do with inflation. Where did you get that idea? My point was that the money sloshing around has to go somewhere.

My events are not backwards. Housing imploded because the derivative scam was glowing red and money dried up. No money... no loans... housing bust. Credit drives a fiat economy, the creditors make or break an economy long before price has a say.

KC native
08-25-2009, 04:18 PM
The markets have nothing to do with inflation. Where did you get that idea? My point was that the money sloshing around has to go somewhere.

My events are not backwards. Housing imploded because the derivative scam was glowing red and money dried up. No money... no loans... housing bust. Credit drives a fiat economy, the creditors make or break an economy long before price has a say.

Once again, you're lack of knowledge of derivatives rears its head. DERIVATIVES GET THEIR VALUES FROM THE UNDERLYING ASSETS. THAT'S WHY THEY ARE CALLED DERIVATIVES. Securitization of mortgages drove the housing monster not derivatives. Once people finally took notice of what was going on in housing no one wanted to buy the securitized assets which dried up the funding for housing. Derivatives had no role in that. Derivatives did have a role in the collapse of the financial institutions but it did not drive housing off a cliff.

Stewie
08-25-2009, 05:17 PM
Once again, you're lack of knowledge of derivatives rears its head. DERIVATIVES GET THEIR VALUES FROM THE UNDERLYING ASSETS. THAT'S WHY THEY ARE CALLED DERIVATIVES. Securitization of mortgages drove the housing monster not derivatives. Once people finally took notice of what was going on in housing no one wanted to buy the securitized assets which dried up the funding for housing. Derivatives had no role in that. Derivatives did have a role in the collapse of the financial institutions but it did not drive housing off a cliff.

I understand derivatives, I've made a bundle from their demise.

Thanks for telling me their value is from an underlying asset. I had no idea.

Your "securitization of mortgages drove the housing monster not derivatives" is quite confusing. A "securitization" is not an island, it's bundled.

Reaper16
08-25-2009, 05:22 PM
Kerb?

KC native
08-25-2009, 05:25 PM
I understand derivatives, I've made a bundle from their demise.

Thanks for telling me their value is from an underlying asset. I had no idea.

Your "securitization of mortgages drove the housing monster not derivatives" is quite confusing. A "securitization" is not an island, it's bundled.

You don't understand derivatives at all. Pete and I corrected you on futures. You somehow seem to think that derivatives drove the housing collapse. Just face it, you don't understand them.

As far as your remarks about securitization which you apparently don't understand either, you are aware that there are different types of securitized products right?

Stewie
08-25-2009, 05:41 PM
You don't understand derivatives at all. Pete and I corrected you on futures. You somehow seem to think that derivatives drove the housing collapse. Just face it, you don't understand them.

As far as your remarks about securitization which you apparently don't understand either, you are aware that there are different types of securitized products right?

Whew! I thought I lost money in gold. Man, I'm glad you straightened me out on futures! Yeah, derivatives are futures, who knew? And Pete, too? You're looking for backup?

***SPRAYER
08-25-2009, 06:30 PM
Bernanke did an awesome job when gasoline was $4.oo a gallon.

wild1
08-26-2009, 10:13 AM
Kerb?

old habits die hard.