inflation confusion

This is a discussion on inflation confusion within the Economic & Fundamental Analysis forums, part of the Methods category; This indirectly relates to equities. I understand that just because the fed is pumping money into the economy that this ...

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Old Sep 6, 2013, 4:46pm   #1
 
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inflation confusion

This indirectly relates to equities.

I understand that just because the fed is pumping money into the economy that this will not cause inflation unless that money flows through the economy at a faster rate i.e. velocity. But hasnít the fed been pumping stale money in the economy for a while? And, when the economy starts heating up, wont there be a ton of money just sitting there waiting to be moved? Wont this cause crazy inflation?
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Old Sep 6, 2013, 5:17pm   #2
 
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Originally Posted by bezzer11 View Post
This indirectly relates to equities.

I understand that just because the fed is pumping money into the economy that this will not cause inflation unless that money flows through the economy at a faster rate i.e. velocity. But hasnít the fed been pumping stale money in the economy for a while? And, when the economy starts heating up, wont there be a ton of money just sitting there waiting to be moved? Wont this cause crazy inflation?
Nobody knows.

You could just as easily argue that they have been pumping money in for so long and inflation hasn't really taken off suggesting that deflationary forces are incredibly strong.
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Old Sep 6, 2013, 8:08pm   #3
 
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Nobody knows.

You could just as easily argue that they have been pumping money in for so long and inflation hasn't really taken off suggesting that deflationary forces are incredibly strong.
Yah I agree that it is tough to predict. But IF the economy really heats up will the currently immobile cash be a large catalyst for inflation? I guess if this becomes a problem the fed will start selling bonds?
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Old Sep 6, 2013, 9:46pm   #4
 
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Yah I agree that it is tough to predict. But IF the economy really heats up will the currently immobile cash be a large catalyst for inflation? I guess if this becomes a problem the fed will start selling bonds?
There's a variety of ways which the Fed can use to "slow down" the cash if it starts moving too fast. Selling bonds is just one such method.
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Old Sep 7, 2013, 1:06am   #5
 
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Nobody knows.
wtf?

er yes they do know, theres official figs of how much money the banks are sitting on eg M1 figs.

cos you clearly fail to read up on a subject you are happily keen to comment on, heres a link re deposits vs investment (loans) & whats happening to QE cash:

Thank You CTRL-P: Deposits Rise To Record $2.1 Trillion Over Bank Loans | Zero Hedge

theres a million more articles if you decided to google before answering.
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Old Sep 7, 2013, 1:57am   #6
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Nobody knows.

You could just as easily argue that they have been pumping money in for so long and inflation hasn't really taken off suggesting that deflationary forces are incredibly strong.
I agree with this 100%, but it doesn't really affect my trading style, so I don't worry about it....

However I think we are heading more towards deflation, rather than inflation. Interest rates have to rise, and the 10 yr yield has been rising, and rising quickly lately so who knows... bottom line is have cash on hand and don't finance anything thing and you will be good.
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Old Sep 7, 2013, 8:17am   #7
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Originally Posted by bezzer11 View Post
This indirectly relates to equities.

I understand that just because the fed is pumping money into the economy that this will not cause inflation unless that money flows through the economy at a faster rate i.e. velocity. But hasnít the fed been pumping stale money in the economy for a while? And, when the economy starts heating up, wont there be a ton of money just sitting there waiting to be moved? Wont this cause crazy inflation?
You mention velocity of money. Interesting point. My very basic understanding is that you donít need to create or inject new money to create inflationary pressure. Just moving what there is around a bit faster has a similar effect.

Case-1: HS2. Regardless of the eventual cost, due to what is termed the multiplier effect, virtually all that government spend comes back as increased GDP. The workers and contractors and service companies involved in HS2 will get paid, and pay their workers and their suppliers and so on down the chain. Those people go out and buy good and products and services. All comes back into increased GDP.

Case-2:UK has a great summer. You can apparently largely discount tourists to the UK (exports) as they come/donít come regardless of the weather. Sales in the leisure and tourism sectors in the 3 months of summer equalled last yearís annual sales. The money that would have just been sitting in peopleís banks got spent. Same amount of money sloshing around an effectively closed system, but itís sloshing Ė not sitting. This will filter through to an increase, albeit minor, in GDP. Have I got that right? Seems like smoke and mirrors.
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Old Sep 7, 2013, 9:50am   #8
 
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wtf?

er yes they do know, theres official figs of how much money the banks are sitting on eg M1 figs.

cos you clearly fail to read up on a subject you are happily keen to comment on, heres a link re deposits vs investment (loans) & whats happening to QE cash:

Thank You CTRL-P: Deposits Rise To Record $2.1 Trillion Over Bank Loans | Zero Hedge

theres a million more articles if you decided to google before answering.
So from those two words you have concluded that I haven't read up on a subject. Didn't the following sentence suggesting a counter argument even plant the smallest seed of an idea that I might have done?

I was also answering the final question posed - which was along of the lines of won't all this money cause crazy inflation. I still contend that nobody knows for certain. There are arguments for both inflation and deflation from here and indeed deflation followed by inflation. But as I clearly haven't read anything on this I must just be guessing
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Old Sep 7, 2013, 11:17am   #9
 
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So from those two words
yes, those 2 words which made up the whole sentence you wrote & underlined your point.

sometimes i wonder if ppl try to be as ignorant as possible just to troll.
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Old Sep 7, 2013, 11:24am   #10
 
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"nobody knows".....says who? please quote your sources.....er let me guess, you are the source? so you dont know.....thats effectively what your saying.

got it.
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Old Sep 7, 2013, 1:52pm   #11
 
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yes, those 2 words which made up the whole sentence you wrote & underlined your point.

sometimes i wonder if ppl try to be as ignorant as possible just to troll.
The second time you have partially quoted me and jumped to a conclusion.

My point, perhaps expressed little too succinctly for some, was simply that there is more than one view on inflation/deflation. And as a result of these multiple differing opinions nobody can claim they know for certain.

I can only apologise for not quoting my sources, I failed to recognise the academic nature of the exercise and the need for a detailed bibliography of my recent reading along with my post.
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Old Sep 7, 2013, 2:15pm   #12
 
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Nobody knows.

You could just as easily argue that they have been pumping money in for so long and inflation hasn't really taken off suggesting that deflationary forces are incredibly strong.
This is 100% correct. Nobody knows with any degree of confidence of what the future holds.
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Old Sep 7, 2013, 2:19pm   #13
 
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that there is more than one view on inflation/deflation. And as a result of these multiple differing opinions nobody can claim they know for certain.
...ignoring the fact that i 'partially' quoted a whole sentence of yours which opened your post.....

....is there more than one view on inflation? what do you mean by this? what are the various views?

fwiw inflation hasnt happened, if you are to believe the official gvt inflation BS stats, cos the banks are sitting on the cash. there has been little trickle down (in uk & the us).

thats not a view, thats a fact. & is in part why companies such as zopa, wonga & the like have prospered.

though from my anecdotal experience inflation is happening, cos almost everything i buy (bar flat screen tvs - & i buy them weekly), has gone up. so if & when the cash does filter down, what you reckon will happen then?

apology accepted.
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Old Sep 7, 2013, 2:26pm   #14
 
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...ignoring the fact that i 'partially' quoted a whole sentence of yours which opened your post.....

....is there more than one view on inflation? what do you mean by this? what are the various views?

fwiw inflation hasnt happened, if you are to believe the official gvt inflation BS stats, cos the banks are sitting on the cash. there has been little trickle down (in uk & the us).

thats not a view, thats a fact. & is in part why companies such as zopa, wonga & the like have prospered.


though from my anecdotal experience inflation is happening, cos almost everything i buy (bar flat screen tvs - & i buy them weekly), has gone up. so if & when the cash does filter down, what you reckon will happen then?

apology accepted.
I tend to agree with much of what you say, however, this is opinion on both our parts. I cannot prove the Govt. stats are BS, your anecdotal experience is also not verifiable proof.

You also make the assumption that the cash will filter down. I am not convinced that it will. Surely the Govt. lending directly to home buyers is a clear sign that the cash is unlikely to filter down if left to the banks? Partly because the Govt. itself is compelling the banks to hold greater reserves.

I also note the lack of sources quoted. Very disappointing after your earlier castigation.
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