How many people agree with MR/MT theory described on the forum

[moda0306]

Ok so we can agree he says very high inflation is inevitable.

And he's been saying this since 2008.

Oh, and his "if they keep on printing" comment was from 2009...4 years ago.

[Gumby]

KShartle, he was extraordinarily clear that continuing QE (an asset swap) will eventually cause hyperinflation.

He said...

The Fed printing money, and government growing, and trying to keep interest rates at zero, if we keep doing this we will eventually have hyperinflation.

Source: http://youtu.be/HEzZGsrm9Ic

And that was just one example.

This is what gurus do. They say one thing and then try to claim otherwise in the next sentence. It's pathetic. Harry Browne warned us against clowns like him and his slimy tactics. Gurus make wild predictions and then they backpedal on those predictions when they don't come true. You don't need to be a Schiff-apologist — it's just embarrassing. He's literally the laughing stock of financial punditry.

[Gumby]

I would encourage everyone to take a look at them.[/u] You will hopefully learn something from them.

They will learn that he is a fool who dabbles in myths to sell a fear trade and politically charged books masquerading as investment advice. Looks like you fell for it.

Obviously he's said in these that it's only if they keep printing without end there will be hyperinflation. Everyone knows this already so it's not exactly an impressive claim.

But he gets it all wrong. The Fed isn't printing any new net financial assets in the private sector. It doesn't even have the authority to! Net financial assets within the private sector don't change during POMO or QE transactions.

A few years ago Schiff predicted a Treasury collapse that never materialized.

http://www.forbes.com/sites/afontevecch ... ound-2013/

And before that he recommended foreign stocks and commodities to deal with the crisis and those positions got killed. He didn't understand that Treasuries would offer safety during a private credit crunch (as HB properly understood).

He's just making things up, all based on a highly politicized world view, to scare you into the fear trade.

He said he expects them to stop because hyperinflation is something they won't want to deal with.

So, first you tell us that they will never stop QE because the market will crash. And now you're saying that they will stop QE because QE will cause hyperinflation? You gotta be kidding me. Which is it? Net financial assets aren't changing in the private sector when QE or POMO happens! Nobody gets any richer from QE (just more liquid). The only arm of the government that can create new net financial assets in the private sector is the Treasury, as instructed by Congress.

[Kshartle]

So, first you tell us that they will never stop QE because the market will crash. And now you're saying that they will stop QE because QE will cause hyperinflation? You gotta be kidding me. Which is it? Net financial assets aren't changing in the private sector when QE or POMO happens! Nobody gets any richer from QE (just more liquid). The only arm of the government that can create new net financial assets in the private sector is the Treasury, as instructed by Congress.

Evidently you haven't been reading my posts either. I've always said I don't think hyperinflation will occur because the market will force the FED and government to stop the printing before that point.

[Kshartle]

We aren't in a recovery?

Are you serious?

I never said the economy is doing "great", but the data is certainly showing some improvement (i.e. good industrial production numbers, but sluggish Total industry capacity utilization). That's what a recovery looks like (albeit a really slow one).

It's five years into a jobless recovery where the participation rate and real wages are falling despite the government borrowing another 8 trillion and the FED printing 3 trillion.

The economy is so bad and looking like it's headed back into recession that the FED is now printing more annually than it was with QE1 with no end in sight.

Listen if QE works and the FED turns the economy and the effects of inflation do not result in very high price appreciation then Schiff's entire premise will be proven false (printing money causes higher prices and harms the economy).

That would be the best case scenario because I don't think anybody wants a repeat of 2008. I suppose we can hope.

The dollar has shrugged off a lot and foriegn governments have been propping it. Not to mention the belief that the economy is recovering and the FED is going to end the QE. How long can this last? Can it last through Yellen? She said in 2009 I believe she wants negative "nominal" interest rates for deposits in banks. That's gonna be tough but negative real rates should be a cinch.


Here's a Yellen quote from a speech at Berkley in Nov '12:

"Given that the rate of inflation over the longer run is determined solely by monetary policy, central banks can, and indeed must, determine the long-run level of inflation. In contrast, they cannot do much to affect the maximum sustainable level of employment. That level is determined by factors affecting the structure and dynamics of the labor market that are almost completely outside the control of the central bank. Nonetheless, the Committee felt strongly that it should provide some quantitative interpretation of economic conditions consistent with the maximum employment portion of the Fed's mandate. Failure to do so might be seen as elevating the inflation side of the dual mandate above the employment side."

Full text here: http://www.federalreserve.gov/newsevent ... 21113a.htm

She correctly states that inflation over the long run is determined by monetary policy and the central bank can't do much to affect the max sustainable level of employment. This is spot on. They can only create temporary inflation driven boosts. She then goes on to say to the bank needs to do something to increase employment and not focus on inflation (the thing it really can control).

This should be telling. If in fact she is the next FED chair expect negative real interest rates for at least several more years.

One more quote:

"First, any rate of price inflation, whether positive or negative, imposes some costs on society, making planning more difficult and creating distortions in the economy. Second, were the FOMC to aim for zero inflation to eliminate these costs, it would face greater difficulty in providing sufficient monetary accommodation in response to large negative shocks. With inflation at zero, the zero lower bound on nominal interest rates implies that real short-term interest rates cannot be reduced below zero. In contrast, with low but positive inflation, they can be."

So she understands that price inflation (neg or pos) harms the economy. Anyone who's studied this stuff even a little understands that. Nevertheless, the following sentences display her desire for negative real interest rates...that is, a price inflation rate higher than short-term interest rates.

So price inflation hurts the economy but we need to do it to help the economy. Ohhh boy. Do you think she'll ever stop trying until the market forces her hand with price inflation that is out of control?

Guys.....good luck with bonds and cash if this woman gets in. She said long-term the FED controls inflation. Which way do you think she wants it?

[doodle]

She correctly states that inflation over the long run is determined by monetary policy and the central bank can't do much to affect the max sustainable level of employment. This is spot on. They can only create temporary inflation driven boosts. She then goes on to say to the bank needs to do something to increase employment and not focus on inflation (the thing it really can control).

That's sad. I would have thought that Yellen could see that unemployment is the natural effect of an advanced technological society. It seems like people are still refusing to recognize that the breakdown of our capitalist system requires a philosophical solution. We need to figure out the purpose of man in a world where full time labor isn't necessary for production of the basic necessities of life.

[Kshartle]

She correctly states that inflation over the long run is determined by monetary policy and the central bank can't do much to affect the max sustainable level of employment. This is spot on. They can only create temporary inflation driven boosts. She then goes on to say to the bank needs to do something to increase employment and not focus on inflation (the thing it really can control).

That's sad. I would have thought that Yellen could see that unemployment is the natural effect of an advanced technological society. It seems like people are still refusing to recognize that the breakdown of our capitalist system requires a philosophical solution. We need to figure out the purpose of man in a world where full time labor isn't necessary for production of the basic necessities of life.

Having never done dull manual labor most likely she cannot appreciate how rewarding toiling away everyday scratching out a meager existance can be.

[Gumby]

So, first you tell us that they will never stop QE because the market will crash. And now you're saying that they will stop QE because QE will cause hyperinflation? You gotta be kidding me. Which is it? Net financial assets aren't changing in the private sector when QE or POMO happens! Nobody gets any richer from QE (just more liquid). The only arm of the government that can create new net financial assets in the private sector is the Treasury, as instructed by Congress.

Evidently you haven't been reading my posts either. I've always said I don't think hyperinflation will occur because the market will force the FED and government to stop the printing before that point.

You don't get it. There's no evidence that hyperinflation would ensue if we do another $5 trillion $10 trillion of existing bonds in the secondary market. No new net financial assets would be created. None. Zip. Nada.

[Gumby]

And by the way. I don't think QE helps the economy all that much. It's just an asset swap. It doesn't do all that much beyond bid up FIRE sector assets, lower interest rates and cause a lot of confusion for people think it's somehow more than that. It's mostly a non-event in my book. The data agrees (i.e. Sluggish economy and weak recovery). Same thing happened after multiple QEs in Japan. Not much.

[Kshartle]

So, first you tell us that they will never stop QE because the market will crash. And now you're saying that they will stop QE because QE will cause hyperinflation? You gotta be kidding me. Which is it? Net financial assets aren't changing in the private sector when QE or POMO happens! Nobody gets any richer from QE (just more liquid). The only arm of the government that can create new net financial assets in the private sector is the Treasury, as instructed by Congress.

Evidently you haven't been reading my posts either. I've always said I don't think hyperinflation will occur because the market will force the FED and government to stop the printing before that point.

You don't get it. There's no evidence that hyperinflation would ensue if we do another $5 trillion $10 trillion of existing bonds in the secondary market. No new net financial assets would be created. None. Zip. Nada.

If the FED printed 50 trillion (or whatever) and bought the entire US bond market you don't think prices would rise? Ok this is done. I'm not talking this magical nonsense today. It's been disproven here a couple dozen times already, usually weekly.

[Gumby]

Seriously Kshartle. You're just talk. Political talk at that. You don't have any data to refute what I'm saying. See QE in Japan. See QE in the US. Neither creates a lick of inflation beyond a few FIRE sector assets being temporarily bid up from negative real interest rates and excess reserves moving around, while artificially crowding out Treasuries. Other than that it's a non-event. Zero chance of hyperinflation from POMO swaps.

[Kshartle]

Seriously Kshartle. You're just talk. Political talk at that. You don't have any data to refute what I'm saying. See QE in Japan. See QE in the US. Neither creates a lick of inflation beyond a few FIRE sector assets being temporarily bid up from negative real interest rates and excess reserves moving around, while artificially crowding out Treasuries. Other than that it's a non-event. Zero chance of hyperinflation from POMO swaps.

Yes I know now prices rise due to magic not money printing.

[Pointedstick]

Yes I know now prices rise due to magic not money printing.

What you don't seem to be getting is that QE isn't money printing. It's just rejiggering the form of people's assets. "Money printing" happens when Congress authorizes new deficit spending or when private banks make loans, not when the Fed swaps a bond for cash. These are assets that regardless of their form, are not going to be bidding up prices for T-shirts and iPhones and barbecue grills. When the banks get that new cash, they don't spend it into the economy, which would cause additional inflation; they try to use it to buy financial assets that give them a greater rate of return than the Fed's interbank lending rate. The "inflation" caused by QE is not in consumer prices but in the prices of FIRE assets.

[doodle]

Yes I know now prices rise due to magic not money printing.

What you don't seem to be getting is that QE isn't money printing. It's just rejiggering the form of people's assets. "Money printing" happens when Congress authorizes new deficit spending or when private banks make loans, not when the Fed swaps a bond for cash. These are assets that regardless of their form, are not going to be bidding up prices for T-shirts and iPhones and barbecue grills. When the banks get that new cash, they don't spend it into the economy, which would cause additional inflation; they try to use it to buy financial assets that give them a greater rate of return than the Fed's interbank lending rate. The "inflation" caused by QE is not in consumer prices but in the prices of FIRE assets.

Exactly!! Very clear explanation.

[MediumTex]

I'm trying to think of something that the government could do right now that would be 100% sure to generate inflation.

What I'm thinking is vouchers for certain items with expiration dates.  That would generate immediate inflation.

For example, if the U.S. government started sending out $1,000 Walmart gift cards to every household in the country with a 30 day expiration date, I'll bet THAT would get us some inflation pretty quickly.

[Gumby]

Yes I know now prices rise due to magic not money printing.

What you don't seem to be getting is that QE isn't money printing. It's just rejiggering the form of people's assets. "Money printing" happens when Congress authorizes new deficit spending or when private banks make loans, not when the Fed swaps a bond for cash. These are assets that regardless of their form, are not going to be bidding up prices for T-shirts and iPhones and barbecue grills. When the banks get that new cash, they don't spend it into the economy, which would cause additional inflation; they try to use it to buy financial assets that give them a greater rate of return than the Fed's interbank lending rate. The "inflation" caused by QE is not in consumer prices but in the prices of FIRE assets.

Exactly!! Very clear explanation.

That may be the best explanation of QE that I've seen. Well done, PS.

It's worth noting that Pointedstick's explanation matches up perfectly with Bernanke's own explanation of QE...

“What the purchases do… is… if you think of the Fed’s balance sheet, when we buy securities, on the asset side of the balance sheet, we get the Treasury securities... On the liability side of the balance sheet, to balance that, we create reserves in the banking system. Now, what these reserves are is essentially deposits that commercial banks hold with the Fed, so sometimes you hear the Fed is printing money, that’s not really happening, the amount of cash in circulation is not changing. What’s happening is that banks are holding more and more reserves with the Fed.

Source: http://www.c-spanvideo.org/program/296446-1

[Kshartle]

I'm trying to think of something that the government could do right now that would be 100% sure to generate inflation.

What I'm thinking is vouchers for certain items with expiration dates.  That would generate immediate inflation.

For example, if the U.S. government started sending out $1,000 Walmart gift cards to every household in the country with a 30 day expiration date, I'll bet THAT would get us some inflation pretty quickly.

Do you think prices are higher than they were 50 years ago? How has this happened? Why has this happened?

Did you see Yellen's quote? Do you think she understands where inflation comes from?

"Given that the rate of inflation over the longer run is determined solely by monetary policy, central banks can, and indeed must, determine the long-run level of inflation."

Do you guys think she's mistaken?

[doodle]

What you don't seem to be getting is that QE isn't money printing. It's just rejiggering the form of people's assets. "Money printing" happens when Congress authorizes new deficit spending or when private banks make loans, not when the Fed swaps a bond for cash. These are assets that regardless of their form, are not going to be bidding up prices for T-shirts and iPhones and barbecue grills. When the banks get that new cash, they don't spend it into the economy, which would cause additional inflation; they try to use it to buy financial assets that give them a greater rate of return than the Fed's interbank lending rate. The "inflation" caused by QE is not in consumer prices but in the prices of FIRE assets.

Exactly!! Very clear explanation.

That may be the best explanation of QE that I've seen. Well done, PS.

It's worth noting that Pointedstick's explanation matches up perfectly with Bernanke's own explanation of QE...

“What the purchases do… is… if you think of the Fed’s balance sheet, when we buy securities, on the asset side of the balance sheet, we get the Treasury securities... On the liability side of the balance sheet, to balance that, we create reserves in the banking system. Now, what these reserves are is essentially deposits that commercial banks hold with the Fed, so sometimes you hear the Fed is printing money, that’s not really happening, the amount of cash in circulation is not changing. What’s happening is that banks are holding more and more reserves with the Fed.

Source: http://www.c-spanvideo.org/program/296446-1

PS for next Fed president? He is certainly better at explaining QE in layman's terms than Bernanke.

[doodle]

"Given that the rate of inflation over the longer run is determined solely by monetary policy, central banks can, and indeed must, determine the long-run level of inflation."

I disagree with the solely part. There are other factors than monetary policy that can lead to inflation. The money supply could remain constant and we could have an enormous energy supply shock for example.

[MediumTex]

I'm trying to think of something that the government could do right now that would be 100% sure to generate inflation.

What I'm thinking is vouchers for certain items with expiration dates.  That would generate immediate inflation.

For example, if the U.S. government started sending out $1,000 Walmart gift cards to every household in the country with a 30 day expiration date, I'll bet THAT would get us some inflation pretty quickly.

Do you think prices are higher than they were 50 years ago? How has this happened? Why has this happened?

Did you see Yellen's quote? Do you think she understands where inflation comes from?

"Given that the rate of inflation over the longer run is determined [b]solely[/b] by monetary policy, central banks can, and indeed must, determine the long-run level of inflation."

Do you guys think she's mistaken?

No, not at all, but it's easier to create inflation in some economic environments than others.  Right now, it's pretty hard because there is high unemployment, contracting private sector credit and excess productive capacity.

With the Fed's 3-4% inflation target, over time there will be a lot of inflation, it just won't be in the form of a sudden devaluation and financial TEOTWAWKI-type event.

[Kshartle]

I'm trying to think of something that the government could do right now that would be 100% sure to generate inflation.

What I'm thinking is vouchers for certain items with expiration dates.  That would generate immediate inflation.

For example, if the U.S. government started sending out $1,000 Walmart gift cards to every household in the country with a 30 day expiration date, I'll bet THAT would get us some inflation pretty quickly.

Do you think prices are higher than they were 50 years ago? How has this happened? Why has this happened?

Did you see Yellen's quote? Do you think she understands where inflation comes from?

"Given that the rate of inflation over the longer run is determined [b]solely[/b] by monetary policy, central banks can, and indeed must, determine the long-run level of inflation."

Do you guys think she's mistaken?

No, not at all, but it's easier to create inflation in some economic environments than others.  Right now, it's pretty hard because there is high unemployment, contracting private sector credit and excess productive capacity.

With the Fed's 3-4% inflation target, over time there will be a lot of inflation, it just won't be in the form of a sudden devaluation and financial TEOTWAWKI-type event.

Do hyperinflations occur during times of high unemployment and poor economic conditions or good ones?

[MediumTex]

Kshartle,

How long do you think that it will take for the conclusions from your logic and reason to start manifesting in the real world?

For example, when do you think that inflation is going to really take off?

Do you think it will be within the next five years?  Ten years?  Twenty years?

The reason I ask is if it takes too long it's not really a helpful analysis since as investors we need to decide how to invest TODAY.  We don't necessarily have twenty years to sit around waiting for an investment thesis to play out.

A lot of the argument you are making today were being made in the early 1980s as well, and they turned out to be almost precisely wrong, even though the logic and reason behind them were very sound.

[Pointedstick]

Thanks guys.

One caveat is that the "RE" of FIRE stands for Real Estate, which most certainly does boil over into the real economy. People need shelter to live; they don't inherently need stocks or bonds. So when banks get this money and buy up distressed properties for cash and flip them for a huge profit, that does hurt average people by inflating yet another real estate bubble. So in that sense, the inflation in the financial markets is boiling over into the real economy because one of the financial assets that's getting swept up in this mania actually happens to be a real asset with tangible value to everybody and not just a piece of paper.

[Kshartle]

"Given that the rate of inflation over the longer run is determined solely by monetary policy, central banks can, and indeed must, determine the long-run level of inflation."

I disagree with the solely part. There are other factors than monetary policy that can lead to inflation. The money supply could remain constant and we could have an enormous energy supply shock for example.

You're talking about an event and she's talking about long-term, this is not the same thing. Granted, long-term is vague. How does an energy shock create inflation over 10 years? Will people not adjust consumption to the new price of energy and it will stabalize at some point absent an increasing money supply?

[Mdraf]

It's just an asset swap.

LOL. I would like to "swap" back my TLT for the cash I paid for it last May. Can you do that for me Gumby ? No loss to you right? It's just a swap!