Can you guys clear up some some confusion?

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FSBS

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There have been many threads on the imminent threat of inflation looming in the US due to Bernanke's game of "test your might" with the USD digital printing press but what I don't understand is if:

a) Doesn't repaid TARP instantly come off of the M3 and return to the nothingness from whence it came? If so, the the only money really created/given to banks in the bail out is the yield on the treasury bonds the banks bought up...*headache*

b) Wouldn't the whole sub prime mess mean HUGE write downs and again decrease the M3 from 2007-8 levels

c) Unemployment should erode savings...

d) Hasn't a significant portion of US GDP been destroyed through collapsed banks and sell-offs to other countries etc... (5.7% lol)

e) Interest rates have nowhere to go but up

:confused:

Where does inflation fit in to all of this?

I know I don't really know my stuff here but I'm still interested
 
You're points are all correct, and M3 has already turned lower. The thing people cite as the reason inflation is on the horizon is the massive amount of excess reserves in the banking system - money just sitting there not yet lent against.
 
Rhody Trader said:
You're points are all correct, and M3 has already turned lower. The thing people cite as the reason inflation is on the horizon is the massive amount of excess reserves in the banking system - money just sitting there not yet lent against.
Click to expand...

But aren't the reserves irrelevant if AD and GDP are shot to sh*t? Who's taking out the loan?

Also, I read a good point somewhere recently that these banking reserves are not subjected to any multipliers...

I was under the impression that these reserves would not likely be lent against unless:
i) commercial property doesn't flop in a big way
ii) the housing market picks up (lol)
iii) developed economies start to look more attractive for investment than the BIC

and if the reserve requirement is raised as per all this reform talk how much of that inflation threat will be eroded? Maybe the prop split can take the loans lol.
 
how can this dooming inflation initiated by the bail out occur given a to e in the op.
I'm new to this stuff and just chatting a bit for my own understanding. I know there'll be a ton of stuff I'm overlooking so bear with me if you can.
 
Well, for the UK situation, you might have a look at the BoE website.
There are some Q and As there about QE.

Kind of explains what they think it's all about, and why inflation shouldn't happen, although they don't deny (I don't think) that there is a theoretical risk of it.


One of my arguments has always been and continues to be that whatever the official measure of inflation may be (and even that's up - supposedly temporarily - in the UK) inflation in real terms as perceived by the man on the Clapham omnibus will always be much higher. Easy to see on the high street or at your petrol pump.
 
FSBS said:
how can this dooming inflation initiated by the bail out occur given a to e in the op.
I'm new to this stuff and just chatting a bit for my own understanding. I know there'll be a ton of stuff I'm overlooking so bear with me if you can.
Click to expand...
I personally would doubt that there's any sort of dooming inflation in the pipeline. The theory that the increase in raw money supply translates straightaway into inflation is just not what's observed in reality.
 
Martinghoul said:
I personally would doubt that there's any sort of dooming inflation in the pipeline. The theory that the increase in raw money supply translates straightaway into inflation is just not what's observed in reality.
Click to expand...

That's what I was thinking but I don't really hold much value in my own opinion as of yet... care to whack out a quick outline on why you don't think QE will cause inflation?
 
FSBS said:
That's what I was thinking but I don't really hold much value in my own opinion as of yet... care to whack out a quick outline on why you don't think QE will cause inflation?
Click to expand...
Well, my main point isn't really that it won't cause inflation. I don't really know whether it will or it won't, as it's a function of behavior, nothing else. I just really have a lot of issues with people offering an extremely simplistic view of "more money supply = inflation". At the most trivial level, we have a very obvious counterexample, namely, Japan. For many years they have been trying to induce inflation by resorting to every trick in the "Central Banker's Money Printing for Dummies" manual. Where has it gotten them?

In my view, what is quite obvious is that the CBs/govts across the world are walking a very fine line between inflating a mother of all bubbles, on the one hand, and driving their economies off a cliff, on the other. How all of this plays out is anyone's guess, but I just don't see runaway inflation that some commentators like to rant about as a foregone conclusion.
 
I'm not an economist, I'm a trader, but I suspect that as long as interest rates are low, banks' balance sheets are being repaired and confidence remains muted and unemployment relatively high, and no asset class is over-inflating, and individuals continue to pay down debt, then inflation will remain muted.
Once those factors start changing - and of course several are inter-related anyway - then inflation is going to creep up. Governments might be tempted not to try and restrain it as this will reduce their debt. Central banks, however, will (or should) tighten slowly and gradually to maintain some control.
But, hey, what do I know, my opinion is of zero value, I'm only a trader.
Richard
 
Also bear in mind the slack that exists in the US economy - we will probably see productivity / utilization squeezed before wage inflation starts to manifest itself (the Fed have said something very similar to this). As for money supply, they can always pull some out.

As per Mr. Charts - not an economist. At all, whatsover.
 
Yeh I've been reading up on Japan a bit. Seems to be used as the model... for some reason.:confused:

I know you guys aren't economists. Just think it's important to have a bit of an understanding of the basics.
 
Mr. Charts said:
I'm not an economist, I'm a trader, but I suspect that as long as interest rates are low, banks' balance sheets are being repaired and confidence remains muted and unemployment relatively high, and no asset class is over-inflating, and individuals continue to pay down debt, then inflation will remain muted.
Once those factors start changing - and of course several are inter-related anyway - then inflation is going to creep up. Governments might be tempted not to try and restrain it as this will reduce their debt. Central banks, however, will (or should) tighten slowly and gradually to maintain some control.
But, hey, what do I know, my opinion is of zero value, I'm only a trader.
Richard
Click to expand...

Do you no think stocks are over inflated chartsy?
 
I don't think they are over-inflated as an asset class at the moment, but that view is value-less......:)
BTW, FSBS, or you a new member here or a re-incarnation? :)
Loved that post of yours on the Beastie thread lol
 
As far as I can see Technically, the Fundamental reason for reincarnation seems to be a lack of legends on T2W

*cough cough*:rolleyes:
 
FSBS said:
As far as I can see Technically, the Fundamental reason for reincarnation seems to be a lack of legends on T2W

*cough cough*:rolleyes:
Click to expand...

So FSBS, are you saying you're aaronmalins aka TechnicallyFundamental ?
BTW, Aaron, sorry to disappoint you but I'm still alive despite all your frequently expressed fervent wishes for an early death for me.
 
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