"Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally," the report read.My husband adds: "It is almost as if the true price of money has been obscured, but that's crazy talk."
Iss a puzzlement
The central banks try to figure it out:
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8 comments:
Frankly, IMNSHO, it's the government financial institutions and gangs like the BIS and IMF that are experiencing a puzzling disconnect--between underlying economic developments globally and their own...policies.
Eric Hines
My husband adds: "It is almost as if the true price of money has been obscured, but that's crazy talk."
I'm no expert in economics, but think I have a basic sense about such things. Like, for instance, you cannot just create trillions more dollars from thin air and not eventually dilute the value of the dollars in my checking account.
Yet they keep telling us the inflation rate is something like 3% or 4%. I read somewhere that if you compute inflation the way they did back in the bad old 70s and early 80s (when the rates were somewhere around 8% - 12% or more), you'd get a result around 8% - 10%. This comports with my personal experience, especially at the grocery store.
Perhaps you could confirm or refute this conjecture. Much obliged!
Inflation is an invisible taxation. In fact, the fairest tax. Much fairer than income taxes. Print 5 trillion money, everybody is taxed if they use US dollars.
A relevant post by John Hussman of Hussman Funds--The Delusion of Perpetual Motion:
http://www.hussmanfunds.com/wmc/wmc140630.htm
See also Dr Hussman's critique of the common and simplistic practice of looking at market valuations in relation to the 10-year Treasury yield...
"Wall Street is presently managing trillions of dollars of other people's money on the basis of a single toy model, originally discovered in a packet at the bottom of a Cracker Jack box."
http://www.hussmanfunds.com/wmc/wmc070521.htm
Yet they keep telling us the inflation rate is something like 3% or 4%.
This actually isn't far wrong. For now. It also comports with my experience, which clearly differs from yours, which in turn suggests a measure of regionality to the thing. That plays into my rationale for accepting the low(er) current inflation rate.
All those dollars that are being printed are, in the main, remaining sequestered in Fed accounts and in bank accounts. For instance, no one is lending all that much, even though standards are beginning to loosen (too much in my opinion), and no one is looking to borrow much. Businesses are just too uncertain about their (and national) economic futures to be willing to take significant risk in expanding their businesses and so in borrowing to do so. Such business borrowing as is going on is centered on covering current debts: rolling current debt, covering the time gap between collecting payments due them and making payments they owe others, and so on. And some areas have more economic activity than others; I suspect those are the regions with the increasing inflation rates.
Just wait until all those dollars start to leak into the economy(s) in significant numbers.
Eric Hines
This [3% or 4% inflation] actually isn't far wrong. For now. It also comports with my experience, which clearly differs from yours, which in turn suggests a measure of regionality to the thing. That plays into my rationale for accepting the low(er) current inflation rate.
Well, I'm just going on my (regional) impressions, and I haven't done much travelling lately. But I notice prices creeping--and sometimes bounding--foward continually, often in sneaky ways, like the bag of sugar that's still about the same price, but it's only 4 lbs now, not the 5 like it's been ... forever. Or the jar of mayo, which was 32 oz is now only 30 or 28 oz, etc.
Anyway, I'm in agreement with you on the larger point, that the real inflation is yet to come, and once those $trillions really start circulating, watch out!
BTW, if anyone has any suggestions about how to protect yourself against the coming storm (10% - 30% inflation rates, perhaps), I'd be grateful to hear them. I hope Mr Hines and I are wrong, but I just don't see how they're going to soak up all those excess dollars before they wreak some serious inflationary havoc.
"Inflation is the fairest tax?"
Inflation is the cruelest tax, as it is hidden from most , rewards the speculators and the connected, first in line for the new dollars, and hits the hardest on the frugal savers who cannot afford to gable in the market. It is the surest way to defraud the weakest, who have worked the hardest to put some money away for the future.
if anyone has any suggestions about how to protect yourself against the coming storm (10% - 30% inflation rates, perhaps)
"Precious" metals, IMNSHO, are not the way to go. What good will they do, even assuming their prices will spike with/usefully ahead of inflation? They're not food, or shelter, or transportation. They can't be sold and turned into food, shelter, or transportation: who has, in that inflationary environment, the scratch to buy them from you?
I'm fully invested in stocks and plan to be for the nearby future (which is all the farther my crystal ball sees). Scaling into bonds would be good, too, if you plan to hold them to maturity--their market prices will fall through the floor as inflation, driven by and fed by interest rates, spikes. That means that selling bonds for food, etc will be as useful as selling precious metals.
The inflation spike will run until the excess dollars are substantially absorbed, which will be several months, not years, so long as the printing has stopped, which the Fed currently is at least slowing. Thus, buy bulk goods, keep your fuel tank(s) full. If you own your shelter, you should be in good shape, even if you own it through a mortgage, just keep the mortgage current. It's nearly impossible to alter the terms of a mortgage, so as inflation/interest rates spike, you'll still be paying on your 4.5% mortgage, even as mortgage rates run to 8%, 10%, worse. And you'll be paying that loan with steadily, if not rapidly, depreciating dollars. Good for you, if not for your lender. Don't pay off the mortgage early, say I.
Eric Hines
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