You're now on the archive server. Commenting has been disabled.
Michael Pento Lays The Smack Down On The Administration's Favorite Talking Head
It is not a good day for Steve Liesman. First the market dropped after what everyone at propaganda central thought would make the crew at the soon to be Comcast subsidiary wear their "Dow 10,000 (not adjusted for dollar devaluation)" hat courtesy of yet more massaged Case-Shiller data. But then Tim Geithner's favorite mouthpiece made the horrible mistake of engaging in a factually-backed and reasoned debate with Michael Pento. Alas, unlike the traditional monologues in which Mr. Liesman excels in dogmatic and reasonless argumentation, when facts are needed to justify claims, propaganda houses of cards tend to collapse with a bang, not a whimper. The same happened earlier today when Liesman proved to his producer what an epic fail it is to engage GE cheerleader #1 in anything more than monologues for the conceivable future.
Full highly entertaining clip below.
»
- 7289 reads
- Printer-friendly version
- Send to friend
Similar Articles You Might Enjoy:
- "What Looks Like A Rally May Just Be The Elites Passing Money Among Themselves"
- Guest Post: The Breakdown Draws Near
- Guest Post: Why QE3 Won't Help "Average Joe"
- Guest Post: Why The Government Is Desperately Trying To Inflate A New Housing Bubble
- Rosie's Must Read On A Hope-Based Rally Now, Followed By Shock Therapy Later
Pento was on Bloomberg Asia - this is a great clip from earlier today
http://www.bloomberg.com/avp/avp.htm?N=video&T=Delta%27s%20Pento%20Inter...
completely off topic but relevant just the same:
the resignation letter of Matthew P. Hoh
Senior Civilian Representative
Zabul Province, Afghanistan
PDF warning
http://www.washingtonpost.com/wp-srv/hp/ssi/wpc/ResignationLetter.pdf?si...
(it almost seems like it's a hoax planted by a political operative - I assume WAPO did their due diligence)
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR200910...
thanks, nice post. having served in the military, it would very much surprise me if that is a hoax. that is the letter a disillusioned civil servant writes on the way out.
The funny thing is that there is a producer in his ear ...telling him what to say
"What do you mean he's right? We're PAYING YOU TO DISAGREE WITH HIM." right out of Haynes mouth after Pinto begins to speak. TD, stick that one in the BS files.
What does it say when point and counter-point concur? thats funny
Chief economic athletic supporter Lie-man needs to sprinkle some sugar next time he tries to eat gold or oil. idiot
Liesman reminds me of someone who's learned everything they know from a textbook. When they're told something that conflicts with their bible... er... textbook, they're reduced to quoting the textbook in a desperate attempt to instruct the idiots they're talking to that the textbook is never wrong.
NEVER!
It really is pathetic because they really honest-to-goodness don't see how they're wrong. It's usually genuine belief that whomever they're talking to is the one who is clueless. This belief is heightened when they actually meet the holy being who wrote the textbook, in this case Bubble Ben and his 7 magic dwarfs.
Liesman is clueless stupidity of the most honest kind. He's too stupid to be doing this on purpose.
I heard that too Shanky... unbelievable. Skip to 1:20 and you'll hear Haynes say it: "What do you mean he's right? We're paying you to disagree with him!"
And there you have it... TV journalism today...
I believe it was a joke, guys. Haines does make jokes, and this one was a reference to having two guests agreeing, when it's better for the show to have them disagree.
Boy, when you have to explain the jokes, people are really getting a little weird. It's the same thing you see on the wackjob right and left wing blogs when someone from the other side makes a joke of any kind whatsoever.
Leisman does bring up an interesting point though (i say while gagging myself with a spoon). Wages falling is just about the most deflationary thing that can happen. Inflation needs a transmission mechanism to filter out to the masses.
Modern economic models do not allow for asset bubbles and currency collapse. I would argue that those are the transmission mechanisms of inflation to the masses, and that is why its a blind spot for the Fed.
But intuitively this does not seem to be the road to wheelbarrowing fiatcos around, as wages almost certainly will not rise to a level that precludes zimbabwe-weimar style spirals. Instead it seems like we're headed for stagflation where the cost of anything purchased with debt (houses, education, medical care) spiral to the moon while the cost of goods we pay cash for stay too subdued for any business to withstand the margin compression.
Check your history - wages did not rise in Zimbabwe, except for government workers and troops who either had indexed pay agreements or had guns to demand higher wages.
Hyperinflation never happens in a healthy economy with capacity constraints, that is confusing capacity-driven inflation with hyperinflation. It happens in dying economies where tax revenue is insufficient to pay for government costs, so the central bank prints to pay for those costs.
Exactly what we are getting here. Although the central bank is not printing and giving the money directly to the government in all cases; in some cases, it is printing as a substitute for the government.
Bailing out Bear Stearns, AIG, Citi through loan guarantees, Fannie/Freddie through MBS purchases, should be the job of Treasury, but since they don't have the money, the Fed prints it and steps in.
Either way it amounts to the same thing - money printing to support what should be government obligations.
It has been tried before, and has never succeeded.
Thank you Ghost for the additional insight, especially re: Zimbabwe. But key questions remain. Who can raise prices when society as a whole is getting poorer, and how will inflation be transmitted through the broader economy? I'm very familiar with the monetary base - velocity elements of this debate, but if folk are getting poorer how can velocity of money increase?
I asked a former Fed official once (who appears regularly on CNBC) whether it was possible for a collapsing currency to precipitate inflation in an economy. His answer was an emphatic NO. Intuitively I know he is wrong, but I am having trouble conceptualizing how a falling currency impacts prices of things that are not imported. Hence my (incorrect as you pointed out) assumption that wages went up in Zimbabwe during their hyperinflation.
Prices will rise when the savers realize that US dollars are no longer a store of value.
Just imagine a store where there is only a finite amount of milk remaining on the shelves. But there are 10 times as many people as the supply. A bidding war will ensue and milk will quite simply go to the highest bidder. If the people are convinced the money will be no good in a few weeks/months, they will disregard what prices used to be.
So who will raise prices???
The savers and consumers who will have no confidence in what the US dollar will buy them tomorrow.
In addition, I expect a run on the banks in the very near future, for exactly the reasons you cite.
Not because people fear bank collapses, but because people fear a dollar collapse, and pull dollars out of banks to exchange for something, anything, that has tangible value.
From the point of view of the producers/sellers, why should they take infinitely more of a depreciating currency for a valuable commodity rather than a (perceived) better currency. That's the idea behind Iran's oil bourse that will sell oil for anything but dollars. If the rest of OPEC took the same step, the price of oil would be, effectively, infinity in terms of dollars, because they wouldn't accept dollars in any quantity. The coming inflation has nothing to do with wages and the ability to keep up with the rapidly escalating prices. It will be caused by a loss of confidence in the dollar and the feeling that any other currency would be better.
Got gold?
That's the same as run on the banks, just on a scale of the whole economy (currency). Remember, with fiat money the value of it is backed by nothing, but trust.
We've seen how markets 'built on trust' can halt overnight when trust is gone, just frozen. Inflation itself is created at the moment when central bank creates new money, the visible effects of inflation - price increases emerge, when everyone understands that money are increasingly worthless and start flipping it for something 'real'. People getting poorer can actually exacerbate this problem, 'cause once they lost some of their purchasing power and wealth, they are less willing to risk the remainders of it.
You don't need to go to Zimbabwe experience to understand the inflation - study the FSU back in the 90s and you'll get a pretty good insight on how that happens. One of course can argue that FSU had much less adaptable and diversified economy than the US, but I wonder if that's so important. And yes, all Former Soviet Union went through the same pattern: rising and then constantly high unemployment, stagnating GDP and high inflation, for a couple of years it was even a hyperinflation (not a zillion pecent like in former Rhodesia, but more than 1000%, which is already painful enough).
it is possible for wages to fall and inflation to rise. It is also possible for unemployment to rise and inflation to rise. Liesman is wrong.
People forget the 1970s.
What is happening today is very similar to 1972/1973 - government intervention as the economy became stagflationary. Only this time the government intervention is massive and overwhelming.
It cannot induce the kind of growth that is "good" - meaning entrepreneurial behavior leading to organic growth. Of course, neither could the debt fueled orgy of the last 7 years. But who are government nitwits but those who only see what they can see and not beyond? They see debt fueled growth and envision it as "the only way" without realizing that some pain must be realized on our way to healthy, organic, growth.
Instead, inflate the economy, boost the debt, neuter the dollar and hope for the best.
"They see debt fueled growth and envision it as "the only way" without realizing that some pain must be realized on our way to healthy, organic, growth."
Sorry, but they see that those bribes they were paid must be honored -- ergo, they must do the bidding of those debt-financed billionaires from whence those bribes originated.
I think there will be a major difference between average wage and segmented wages. Recall: the contributor article on net worth, disposable income, and wage stratus. While I've kept from believing in any one predominant long(ish)-term projection, I'm starting to firm up around the US looking like parts of Africa where you have a small class of wealthy and educated citizens that subsidize the much, much larger population of poor and uneducated that have been driven into gov't housing and shanty-towns. I'd love to hang my hat on something like economic apartheid, but in reality I'm thinking more along the lines of Neil Stephenson's "Snow Crash" as a proxy for our future.
Another man duck-walks across the flight deck.... He's about sixty, with a dirigible of white hair that was not ruffled in any way by the downdraft.
"Hello, everyone," he says cheerfully.
"Who are you?" Tony says.
The new guy looks crestfallen. "Greg Ritchie," he says.
Then, when no one seems to react, he jogs their memory. "President of the United States."
"Oh! Sorry. Nice to meet you, Mr. President," Tony says, extending his hand....
"Frank Frost," Frank says, extending his hand and looking bored.
Transmission mechanism...vomit.
Employment a nexessity for inflation....vomit.
Anyone been to Zimbabwee lately?
I'm sure they returned to their hebephrenic giggling after the almighty DOW miraculously shot back up into positive territory. That's all these scumbags care about. Forget everything else. "What's the DOW say?" If you listen to Becky Quick in the morning, she must say "we're keeping an eye on those futures" at least a couple dozen times.
I'm secure enough to admit in public that I had to look up the word 'hebephrenic'.
I didn't bother to look up hebephrenic.
What annoys me is how she always says "you're talking about the futures being down/up in the area of X points"
I think they should be required to put up the dollar index chart every time they put up the DJIA/SP500 Index charts.
Hebephrenic
a type of schizophrenia characterized by emotionless, incongruous, or silly behavior, intellectual deterioration, and hallucinations, frequently beginning insidiously during adolescence.
Thank you dictionary.com
Can we just get on with revisiting dow 9500 this afternoon.
Whether or not Liesman is right or wrong (ever), the way he argues with "guests" is hilarious. It's as if he were a CEO and every piece of economic data released was off his company's balance sheet, he feels he MUST defend the data at all costs. What a tool.
Pento RULES!!!!
Morici and Pento are right about bringing up commodity prices. This is the secret way Bernanke is getting the working class to bail out the banks. Bernanke prints dollars to buy UST and MBS. this drives down the value of the dollar, and drives up the price of commodities.
The working class pays more for those commodities. And it ain't just the price of gas - our entire economy is run on energy. It takes energy to grow and harvest food. It takes energy to ship junk from China. It takes energy to distribute food and consumer products.
Inflation, especially commodity inflation in the absence of wage inflation, is a hidden tax on workers.
Just like Bernanke planned. That is the part he DIDN'T mention in his infamous deflation speech - someone has to pay for his money printing. By dispersing the cost across anyone who owns dollars, he robs everyone to benefit a few.
And thats not me. Its fun to stand from the sidelines (financially) and watch the whole country get raped.
99% of people dont understand how the govt is taking their wealth away from them without taking any dollars.
I didn't pay much attention when Bernanke was first appointed, and at first he just followed the Greenspan script anyway.
But after March 18th, anyone who didn't see where this was going was not paying attention.
Bernanke will kill the middle class to bail out his owners.
What is truly scary is, when he realizes his money printing isn't working, he will probably just print more. The guy is maniacal.
Several months ago I noted the most horrendous negative economic indicator yet -- the closing of two local "chop shops" (for the uninitiated, these are the prime base and distributorships of stolen autos and auto parts).
I mentioned to a bud that we should be reading something in the news over the next several months that car thievery was down --- since the market for stolen autos and auto parts (i.e., shrinking number of customers with the money to purchase) was down.
The other week such an article appeared in USA Today rag.....
Overheard at a local yard-
New to 2 yr luxury were 5k and up with a 1 week promise of no report. Now free.
5yr to 15 yr drivetrain and trim, sheetmetal strong for mid quality. Camry, Accord, ect.
High end appliances and fittings volume strong. Prices dropping.
Look like it's getting harder to dump a leased car at a profit. People trying to get a $ out of the house before forclosure. How are McMansion fires? Up?
ummm ... cash for clunkers
Rising commodity prices and thumbscrews for the working stiffs, and fat spreads for the banksters. It's a double whammy.
and that is precisely why i despise central banking -
it favors those who have pricing power but
fucks those who are weak...that is tyranny...
Brilliant, and completely on target points, Herr ghostfaceinvestah.
One of the many unfortunate aspects of Bernanke (and far too many to list) is his complete technical ignorance of the actual causes behind the Great Depression.
He is that scariest of people: the completely wrong "expert"....
And, of course, former Trade Rep Morici helped to bring us to this brink...
..."unlike the traditional monologues in which Mr. Liesman excels in dogmatic and reasonless argumentation, when facts are needed to justify claims, propaganda houses of cards tend to collapse with a bang, not a whimper."
This is actually too kind to Liesman. His comments are useless at best.
How can this network possible still be on air. In all seriousness, how? Anyone? Who watches this shit.
Its absurd. Do your job and report the facts CNBC.
The Depression is coming. (except for the bankstas)
"It was the best of times, it was the worst of times." h/t CD
Only recently, and only after some serious thought has it become clearly obvious to me that Steve Liesman and Dennis Kneale are employed for their comedic talents and not their opinions.
Steve Liesman is beyond worthless. He is a shameless shill and he doesn't have tits, at least I don't think he has tits.
Why does Imelt keep him there? If I have to look at some shameless shill, please let it be Michelle C-C!
Liesman with tits??? Don't think it would help...
I noticed the "Dow 10" tag
is that an ultimate target by the brokerage firm Zero & Hedge Associates? ;)
I noticed the "Dow 10" tag
is that an ultimate target by the brokerage firm Zero & Hedge Associates? ;)
I noticed the "Dow 10" tag
is that an ultimate target by the brokerage firm Zero & Hedge Associates? ;)
holy multiple postings batman.
CNBC is the Pravda of the oligarchy now. Liesman's "sources" are senior Fed officials and big retail portfolio managers. They are doing their best to prop up this shaky system. He needs them and will defend them to his last breath, which in my view cannot come soon enough.
Ghostface and Steak have it right. The average slob has his purchasing power eroded while the bankers tax the system via cheap money and inflation. Senior citizens get and extra $250 for Bingo Night.
Liesman is trying to act like the whole money-supply argument is made up. What planet does he live on?
The same one that Bernanke, Geithner, Paulson, Krugman, Summers, Greenspan live on.
The velocity of money indicates that Lies-man is the correct side of the arguement.....FOR NOW.
The next planet over from Planet Money....Planet Debt!
Sorry, I have to agree with LIESman here. I agree we need rising wages in order to have any kind of inflation. In my view, inflation without rising prices will just lead to higher inventory levels until prices come down. The problem here is one side is arguing service pricing, while Liesman is arguing hard assets.
Just my opinion. To meet it means painful stagflation.
"What people today call inflation is not inflation, i.e., the increase in the quantity of money and money substitutes, but the general rise in commodity prices and wage rates which is the inevitable consequence of inflation."
Ludwig von Mises
Velocity of money does not agree.
I hate Liesman...don't get me wrong. I have read Von Mises.
This is my opinion. I view the idea of money a bit different from everyone else. For years, we have been under estimating what money is. We have not been including available credit, amounts out on credit, and debt as MONEY. If we add all of these things into the definition of what money is, we are starting at a much higher level of money in existence. NOW....a lot of the credit has been pulled...hence reduction in available money. Most people were using the vaue of certain assets to measure ones wealth....real estate. This is also gone. People were also using their 401K's and investments as a measure of one's wealth. Since available credit is based on such "assets" this too should be factored in. People have lost a lot of "wealth" as the asset prices of these have decline. People have lost a lot of "wealth" when the markets tanked....also lost "money available". This was available money....but money NOT in use. The rise in the amount of PRINTED money is there, but has not been put to use.....SEE THE VELOCITY OF MONEY. What is the difference between all the LOST Wealth (money) and the amount of Money printed???? To me.....it is a replacement. And since neither have/were or are being put to use.....We WILL NOT see hyper inflation. In fact....I believe that once the banks start collapsing again, you will see a rally in the USD again. Once that happens, hard asset commodities will once again decline.
Everything depends on ones definition of money. I like to include wealth in my definition, as ones available money includes that. You can liquidate your holdings and turn them to cash if necessary. You can sell your house if necessary (even at a loss). lost value in such assets need to be looked at and considered when defining the increase of money in the system.
Thought provoking. Someone more knowledgeable than I (probably 85% of ZH readers) needs to respond.
This is a very interesting take, to me. I'm not going to pretend to be an economist or an expert on currency theory, so I could be missing something. That having been said, I've wondered about the deflationary effect of the wholesale and very rapid slaughter of the American consumer's purchasing power over the last 12 months due to the implosion of their real estate and investment account values.
Nowadays a dollar will sure buy a lot more home or office building than it would two years ago, after all. I know it's probably an oversimplification, but it still seems like an overall strengthening trend for the greenback to me.
We have included credit, all one has to do is look at the housing crises to see the terrible effects of credit expansion. The consequences of expanding credit and the increase in the money supply won't always be seen in the final price of goods immediately, but asset prices (houses, stocks, commodities etc. ) will be affected. The CPI is not the final arbiter of inflation.
I do not see anywhere that they include available credit. That is what I am talking about. We measure our wealth (which is wrong to do) by how much we have and what is available to us. All that printed money is a replacement for what credit has been pulled, or cancelled by the banks. What they have done is transfer that avaialbe credit to us...and given it to themselves in the form of all that printed money from the FED/Treasury. That money is clearly not making its way into the system....IT also was not in the system when it was available to us. How many people have seen $50,000 credit lines turned itno what ever was outstanding. Or how many people have seen $50K creit lines turned into $3,000 credit lines? That is how most Americans see their spending power (read money). This is one time.....when everyone is arguing the right direction but coming from 2 different sides. If we meet in the middle and agree on the definitons of everything, i bet we come to similar conclusions. Continued asset deflation, continued service inflation. A big fat STAGFLATION...some where in the middle.
I'm pretty sure they don't count available credit because it is not considered money until it hits the banks balance sheet as a loan. That is when the money is actually in circulation.
Here is a link from answers.com on different levels of money supply. M3 is no longer calculated by the Fed because it got extremely hard and cost effective to calculate.
http://www.answers.com/topic/money-supply
Money is not in circulation when it hits the banks balance sheets if they are not making loans against it. Come on....must be a better answer out there than that. My arguement is the definition of money is incorrect.....so don;t just spit back money-supply definitons. I am not saing I am right...this is just an opinion.
Sorry, should have explained better. Loans show up on a bank balance sheet as an asset. So if you borrow from them they put money in circulation when they give it to you or you charge something or whatever.
Maybe a better way of saying it is your credit limit is the amount of money the bank will print for you. The Fed basically rubber stamps their printing and starts counting it as money supply.
Apologies for the bad explaination before.
Right...but look at what I was saying. The credit limits have been greatly reduced, so they have been replaced with the government printed money. I still don't see where the velocity of money changes when we look at this. Until the velocity of money turns up.....inflation will not be a problem. NOW...we can go from a deflationary state to a hyper inflationary period over night. BUT that is purely a currency issue. Inflation is not a currency issue.....HYPER inflation is. Like Mr. LIESman said. I measure inflation as rising wages. Without higher wages people can not pay more for goods. If they do not pay higher prices, inventories will build and prices will come down. That is the power of a free market, something we have not had for some time now.
Another take:
Think of the bubble as a bumper crop of rice. When the supply hits the market, prices drop and cupboards become saturated. Farmers stop planting, and Village Elder Bernanke begins buying up huge quantities of rice which he stores in a huge central silo.
Rice eventually becomes scarce, and the price rises. Pantries are emptied, and hunger grips the country. Bernanke monitors the hunger of the masses and slowly begins distributing rice from the silo. Bellies full of rice, farmers return to their fields and sow the seeds for the next harvest. In a perfect world, the freshly harvested rice hits the markets just as the last of the stored rice is consumed.
Bernanke controls a limitless balance sheet and ultimately has the power to affect inflation. However, every other grain of rice in Ben's silo is actually a tiny piece of white paper with no nutritional value. If Ben holds the rice too long in an attempt to hide the problem, the rice merchants will hoard their rice stashes to stave off starvation, and the people will all starve. If he forces the merchants to distribute the rice, he risks a knife in the back, but saves the lives of millions of people. If he is honest with the people but does not force the merchants to part with their rice, he risks anarchy, starvation and pestilence.
What to do...
I think curbyourrisk's point would take the next step and assume rice is also the currency in that idyllic utopia. You have to ask "what happens to the prices of stuff everyone was buying with the rice if everybody has easy-peasy access to all the rice they want (because bumper crop plus loose rice policy, for example)?" It seems like common sense would dictate prices would be forced upwards quickly if the populace can get as much rice as they need to buy whatever luxury strikes their fancy. As soon as the spigots are cut off, though, prices have to deflate sharply until they meet a more sustainable level of true long-term rice availability.
I forgot to mention that Bernanke bought the rice back from enterprising merchants that substituted a piece of paper for every other grain of rice and kept 50% of the rice for themselves.
There's currently too much stuff and too little purchasing power in the US economy. If 0% interest rates and QE don't work, the Fed can hoard trillions of dollars of assets in a colossal attempt to tip the economy out of its deflationary spiral. It's my opinion Bernanke won't be able to pull this off simply because the middle class is being systematically robbed and therefore cannot help spend the economy out of this mess. If I'm wrong, Ben will still be stuck with an unwind that will make his current economic balancing act look like a sideshow.
ok I think I might be starting to see what you're saying. Economics is not a first language to me so I'm slow. The 'available credit' concept...it's not actual individual debt, but potential debt. I can see how that might figure into consumer confidence, or levels of consumption versus savings, and I can see how credit constriction is a good and natural market correction to a credit bubble.
I guess the question for me is, did the tightening of all that credit fill up the hole in the banks' money multiplier that was created by all the defaults that happened around the country? Or did the banks just shrink their multiplier? Either way, with bailout money injected into the banks, what's to keep them from going back to the old multiplier eventually? Just add water, and instant credit supply increase. Not to mention the stuff that was purchased originally by the defaulted loans.
And then in terms of adding assets as 'potential money' or 'available money', I'm not sure I'm following...that's kindof what the gold people are talking about, right? I mean, you use 'stuff' as a means of preserving purchasing power...if your 'stuff' gains value relative to the rest of the world of 'stuff', well then you're doing all right. Gold happens to be a commodity that can in theory also be used as currency.
But I get the feeling you can't use something as illiquid as a house and define it as money. It can be a store of value, but you can't really buy stuff with it...unless you're bartering. I'm really in over my head here, I don't know how you would define inflation in a barter system.
Maybe I've gone way off track...
I think that they did shrink the multiplier. In fact there was a story flying around some econ prof blogs last year that said the multiplier at one point was zero and that everyone that is against fractional reserve lending could finally relax.
The Fed now pays them interest on their reserves so they aren't lending, just earning interest from the Fed. They are also using the cheap money from the Fed to buy gov't bonds that pay a higher than fed funds rate (according to some people).
You can actually use an illiquid asset like a house as money though. It is called a home equity loan. Part of the recent problem.
I am not saying the value of the house is liquid.....but PEOPLE VIEW IT AS PART OF THEIR NET WORTH. People then live the life of someone who has added wealth. They then proceed to live aboove their means and incur debts. Once the value of the assets disappear, now they are just stuck with additional debt and now beans to borrow against it. Life sucks....
Since poeple live like this, we need to create a new definition of what is perceived as money. That's all I am saying. If we can create a new definition of money, we have to change our definiton of everything. Half the people live with one outlook...whther it be right or wrong, while the half live with another view. It is debateable.....but probably not agreeable.
OK...now I feel like I am talking in circles and it has been a long day.
Sounds about right. I don't think we have to argue definitons here either. Just to get it out of the way, I believe money is anything which can be used as a medium of exchange. This is why I consider certain things besides FRNs "as good as gold". But even if we see the end result being the continued credit dependent asset price drops (houses, cars, etc) I would still characterize the overall process as inflation since I see exchange rates being less favorable for the ollar in the future. Because the balance of price movements on the liquidity pyramid is so volatile, I believe that when you measure the inflation/deflation of a currency, it is best done through exchange rates. We're simply printing (or pixelating if you'd like) money faster than the other CB and they have made peace with this arrangement because of the MAD option we hold over them, that they still haven't figured out how to get around.
It seems to me like you're basically paraphrasing Mises. Wether the amount of dollars chasing available goods came from the printing press or leverage isn't really relevant. It's enough that they are capable of purchasing things and thus influencing price levels. What matters is that the price levels don't reflect the real economy.
That said, I agree, replacement of the vanished "wealth" is exactly the point of running the presses because it was that "wealth" that supposedly capitalized the banks and allowed them to lend in the first place. When the rug supporting price levels (in the case of housing: easy credit, Fannie Mae, Freddy Mac) gets pulled out from under highly leveraged derivatives...well you guys know the score better than most. So you're right, all this money is just filling a black hole recently vacated by leverage.
In that scenario it does seem like stagflation is nigh, but then what happens when faith in the USD finally breaks and those trillions of dollars Bernanke Helicoptered abroad come home to roost?
*Disclaimer: The preceding are the musings of a stoned college student. I request your criticisms, I'm here to learn.
Good summation. But, velocity is also hard to anticipate. Velocity can be viewed like a slow leak from a can, or compressed spring ready to pop. History tells us that controlling velocity with monetary policy is next to impossible, and the eventual result of velocity runaway is price inflation.
"we need rising wages in order to have any kind of inflation"
Is that how it happened in Zimbabwe?
You're completely missing the previous energy remark and argument. Read Joseph Tainter's work on complex societal collapse, etc., and then you'll get it. Follows the exact recipe for the collapse of that Roman Empire bunch.
Also, review what happened to Hong Kong in the '90s after the Chinese regained control.
Zimbabwe didn't experience hyperinflation because of an increase in the money supply, the instead experienced a currency crisis. This is the type of inflation we are experiencing and which we will experience going forward.
Correct, the money supply is a side effect. This is a currency crisis, which will only get worse as alternatives to the dollar are developed for global trade.
Exactly, Oh Maestro ghostfaceinvestah.
Too many have completely ignored this most crucial of variables, basing all their faulty prognostications on the continuance of the petrodollar as the world's reserve currency, as is Bernanke & gang.
Incorrect. Mugabe printed money to pay for war. Countries often do this. It is why history is full of examples of post-war inflation. Their money supply growth matches their inflation rate. Money printing is what caused the currency crisis.
Zimbabwe has abandoned its currency and now pegs to the dollar.
http://www.thezimbabwean.co.uk/2009081823702/finance/banks-start-issuing-chequebooks-again.html
http://www.thezimbabwean.co.uk/2009082023775/economy/zimbabwes-inflation-now-1-percent.html
LiesMan makes my blood boil
such a douche
Banana Contained Ben is going to drain the excess liquidity right on time. Or please, please let me believe in Deflation Mish. I don't want to relive the horrors of hyperinflation.
PS. Hyperinflation would be the end of this country as we know it. I have seen some ugly things in my life but I don't even want to imagine what that would do to this country. May God help us!
Benny ( or his masters) is probably good enough to stop
hyperinflation. A possible outcome is an Eastern Europe stagnation. Low wages, declining employment. Hard assets driven up by foreign purchasers. Local prices going to world prices. Pensions holding steady to slight rise but sinking by 50 - 75% in real value. Political upheaval. Depends if world can get new base currency other than dollar. Also if China can hold long enough to use internal consumption. Based on British experience should result in a ~200% rise in import prices. Hopefully a 10 to 15 yr. rise in domestic manufacturing. Then perhaps stability. Low cost immigration must stop. Probably cutbacks in Eco movement.
Atilla
Not a Liesman fan, but he is suprisingly less annoying than Pento.
He is also correct in the argument. The CNBC "Chief Economist" is correct...WTF
He's an obsequious fool. He's not worth electricity he could produce if he was burned to power a steam engine.
no...no he doesn't... your understanding of economics is incredibly poor if you think he laid any sort of smackdown on anyone...
can someone explain why no one here understands the purpose of a floating exchange rate? It's willful ignorance. The whole point of a floating exchange rate is to correct imbalances in trade that arise such as with the US and China (and everyone else and China).
Exchange rates are a function of savings, investment, and spending. However, China purposely devalues it's currency against the USD, artificially distorting international trade. It is much of the reason for our low savings rate and high debt burden.
A dollar with less value means a US with more attractive exports. It increases savings as goods become more expensive to import and we don't need to finance a trade deficit.
You can't have your cake and eat it too. You can't have a lower trade deficit, lower debt, high savings, and a strong dollar. It's not possible.
Lets not even get into the fact that the dollar is not as weak as it was before the recession.
right on, daddy-o.
and words of wisdom from Kevin Depew today:
'Be careful which scenario you're preparing for because those who anticipate inflation before the debt-deflation has fully run its course will find themselves digging out of a deep and painful hole.'
Wow. Sounds like something Krugman would write. Short, sweet, factual with a little jab added.
Agreed on your points, generally speaking, but one has to have exports for any real particular value to be realized.
Where are the exports? Chief exports of Ameria is junk paper! Actual exports has been highly inflated with American-based multinationals, and American corporations, claiming every shipment to an offshore factory or production facility to be a (paid-for) export.
Complete fraud which may affect the macro picture.
You can start with Boeing and Catapillar. Our defense industry exports are the largest in the world SGT.
propped up by the taxpayer and moneyprinting.
hahaha, what about when the US was the biggest creditor export nation on earth ?
MICHAEL PENTO ........ MY HERO !!
Liesman is an idiot. It is absolutely appalling that people may actually believe what he said. To argue that a decline in the value of the dollar is not inflationary is highly ignorant.
A decline in the value of the dollar is only inflationary regarding commodities that are dollar based.
As others have pointed out, we have had tens of trillions of dollars wiped out in devalued portfolios, devalued real estate, discontinued credit availability and lost wages. Even Ben's printing press could never match it or keep up with it. This is why deflation is more the issue, not inflation (which is not a measure of consumer prices paid, for heaven's sake--read yourself some Mish).
The major error made by all of the dollar-is-dead fanatics is that the all other fiat currencies around the world are equally pathetic, or worse. The dollar may go through some lousy times but so will the yen, the euro, and everything else. Relative to other currencies, we may actually make out somewhat better, as long as our missiles hold out and give us special status.
"Even Ben's printing press could never match it or keep up with it."
Please explain how a human finger hitting the "0" key repeatedly can't keep up with any amount of money or credit destruction.
Yes sir, $1 Billion it is.
1-0-0-0-0-0-0-0-0-0
Oh wait, you meant $1 Trillion. I see.
0-0-0
Thank you! Come again!
"A decline in the value of the dollar is only inflationary regarding commodities that are dollar based."
Negative! You are going by neoclassical economics which don't fit a situation as unique as this: debt-financed billionaires who have socialized that debt on society (or the American non-culture), while the Bernanke-led fed choses to eradicate such debt by devaluing the USD.
Hyperinflation, along with deflation of specific sectors, is a serious probable outcome.
1998-99: 'It's different this time.'
2000: 'It's different this time.'
2009: 'It's different this time.'
Guess what? It's not. Never is, not for long.
Words of wisdom from Kevin Depew today:
'Be careful which scenario you're preparing for because those who anticipate inflation before the debt-deflation has fully run its course will find themselves digging out of a deep and painful hole.'
"...Immaculate conception concept..."
What a dumb idiot...
The directive "...Liesman, tell them why they're wrong..." tells me what's wrong with CNBC. They're such idiots over there. Anyone with any sense would get their ass off the CNBC payroll.
also, it's interesting how there's little consensus on the definitions of inflation and deflation. i've been looking at it in terms of money supply. then the value of the dollar as an effect of money supply.
supply of money relative to the supply of goods and services...if production goes down, you also get inflation.
My two cents is basically be wary of people screaming at banks to lend. The fed bought crap assets from banks for cash. The banks have that cash on deposit with the fed. When they start lending the cash starts chasing goods. The size and speed of that flow will determine the inflation rate.
I get the feeling that most people (not ZH readers, of course) think of it only in terms of the prices of goods & services.
I think you're right.
Not necessarily...If over production was the problem, during an easy credit (as it often is (just ask Georgia Gulf)......and the credit crisis brings out people who will not spend........and you cut production for a lack of demand.....You can still see declinging prices because the producer needs to sell the items. Again....here it is all about supply and demand. Without rising demand.....regardless of production...inflation is not a gaurantee.
Liesman is a journalist, not an economist. Look at his bio "Liesman holds a Masters of Science from Columbia University Graduate School of Journalism and a B.A. in English from the State University of New York, Buffalo." (taken from CNBC website).
I have a friend at one of the top economic forecasting firms, and he told me Liesman didn't even know which was supply and which was demand on the supply-demand curve when they provided him data for some speech he gave at a conference.
Liesman is a journalist, not an economist. Look at his bio "Liesman holds a Masters of Science from Columbia University Graduate School of Journalism and a B.A. in English from the State University of New York, Buffalo." (taken from CNBC website).
I have a friend at one of the top economic forecasting firms, and he told me Liesman didn't even know which was supply and which was demand on the supply-demand curve when they provided him data for some speech he gave at a conference.
We can have selective inflation segmented by global demand. Oil, Gold and other raw commodities are prices in US Dollars, as the dollar weakens the price of the global material rises, while other raw materials priced in local demand declines. Housing prices will eventually go to historic (1940-1999) growth rate, and thus will come to levels in congruence with income.
Furthermore, inflation can occur when banks hold money and bid up prices. Currently banks hold high levels of cash to prevent further erosion of their balance sheets. Home prices will come down, especially if we have 7 million homes in shadow inventory. Prices for raw materials will go up because of dollar weakness. We could experience a domestic monetary crisis in the coming years a la Asia 1999 or Argentina.
I know inflation is all the rage in these parts, but Liesman was pretty much right. Unless the liquidity bleeds through into real wages even the speculative bubble forming in the commodity markets won't last. That's not inflation when the amount of credit is declining.
Excellent discussion everyone.
Large doff of the Kapitanleutnant's cap to curbyourrisk, Ducky, Sancho Ponzi, sgt_doom and all the others, including the many anonymous contributors.
We need more adult discussion like this. Discussion of contemporary topics of an intellectual nature among the officers is to be encouraged in the wardroom.
On the topic at hand - I pretty much agree with c.y.r. The macro effects of the Fed printing press have been, if anything, more than offset by credit constriction by the banks and the fall in asset prices that have been typically regarded as "stores of value".
Value stored that is not easily or conveniently made liquid is not value - it's an artifact.
Housing's a perfect example. If the "stored value" of my home (Market value - (motrgage debt) is not easily accessible -i.e. the banks are no longer doing home equity loans, then the only way I can access this "stored value" is to sell. And since I need a place to live, I have to immediately turn around and take my now-liquid stored value and buy another house, thus taking the liquid value and "storing" it once again.
Thus, once an asset with stored value can no longer be made liquid, to me it loses monetary value and has only artifactual or sentimental value.
To my mind, the added liquidity created by the printing press=nominal fall in money supply created by credit contraction and loss of "value" stored in now less-liquid hard assets.
Ergo, no inflation. At least not now. But that won't be the case if direct transfer payments from government to individuals increases dramatically. Then, we'll get stagflation.
IMHO, what we're headed for is a repeat of the 70's ..
Kptlt. laughing swordfish
9er Unterseeboote Flotille
With respect to those saying the printed money is being used to replaced 'lost wealth,' and so we aren't facing inflation, I would disagree.
If you buy a car for 30k and sell it later for 20k, wealth hasn't been lost, because the 30k you spent was used by the dealership to do something else. So it is still in the system. Just because you only got 20k for the car later doesn't mean anything. Similarly, the money you spend on a house, stocks, etc isn't 'lost' when it declines in value unless whoever you paid the money to decides to use the cash to start a bonfire.
A real 'loss of wealth' would mean that houses were physically destroyed, or the companies in which you held stock disappeared. What has happened is a revaluation of these assets. They were artificially high in the first place, and the fact that people based their net worth and spending habits on these levels doesn't mean it was a legit evaluation. For example, say an ignorant rich guy sees your Timex wristwatch, likes it, and says he'll give you $10k for it tomorrow. You then go and max your credit card, knowing you're about to get $10k in cash. Then the rich guy comes back the next day, after doing some research about watches and informs you that it's only worth $50 so that is all he'll pay. Applying the general line of thinking, you have just 'lost' $10k and your credit card bills aren't going away.
Therein lies the issue. The money that the Fed is printing is 'replacing' money that was never there in the first place. This is why inflation is going to be the issue we end up dealing with.