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Why QE May Lead to DEFLATION In the Long Run
Preface: Financial experts have been debating since the start of the 2008 financial crisis whether inflation or deflation is the bigger risk. That debate is beyond the scope of this essay. However, it might not be either/or. We might instead have "MixedFlation" ... inflation is some asset classes and deflation in others.
Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation.
But the third round of quantitative easing (“QE3″) in the U.S. failed to raise inflation expectations.
And QE hasn’t worked in Japan, either. The Wall Street Journal noted in 2010:
Nearly a decade after Japan’s central bank first experimented with the policy, the country remains mired in deflation, a general decline in wages and prices that has crippled its economy.
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The BOJ began doing quantitative easing in 2001. It had become clear that pushing interest rates down near zero for an extended period had failed to get the economy moving. After five years of gradually expanding its bond purchases, the bank dropped the effort in 2006.
At first, it appeared the program had succeeded in stabilizing the economy and halting the slide in prices. But deflation returned with a vengeance over the past two years, putting the Bank of Japan back on the spot.
So why didn’t quantitative easing work in Japan? Critics say the Japanese central bank wasn’t aggressive enough in launching and expanding its bond-buying program—then dropped it too soon.
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Others say Japan simply waited too long to resort to the policy.
But japan has since gone “all in” on staggering levels of quantitative easing … and yet is still mired in deflation.
The UK engaged in substantial QE. But inflation rates are falling there as well.
And China engaged in massive amounts of QE. But it’s also falling into deflation.
Indeed, despite massive QE by the U.S., Japan and China, there is now a worldwide risk of deflation.
So why hasn’t it worked?
The Telegraph noted in June:
The question is why the world economy cannot seem to shake off this “lowflation” malaise, even after QE on unprecedented scale by the US, Britain, Japan and in its own way Switzerland.
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Narayana Kocherlakota, the Minneapolis Fed chief, suggested as far back as 2011 that zero rates and QE may perversely be the cause of deflation, not the cure that everybody thought. This caused consternation, and he quickly retreated.
Stephen Williamson, from the St Louis Fed, picked up the refrain last November in a paper entitled “Liquidity Premia and the Monetary Policy Trap”, arguing that that the Fed’s actions are pulling down the “liquidity premium” on government bonds (by buying so many). This in turn is pulling down inflation. The more the policy fails – he argues – the more the Fed doubles down, thinking it must do more. That too caused a storm.
The theme refuses to go away. India’s central bank chief, Raghuram Rajan, says QE is a beggar-thy-neighbour devaluation policy in thin disguise. The West’s QE caused a flood of hot capital into emerging markets hunting for yield, stoking destructive booms that these countries could not easily control. The result was an interest rate regime that was too lax for the world as a whole, leaving even more economies in a mess than before as they too have to cope with post-bubble hangovers.
The West ignored pleas for restraint at the time, then left these countries to fend for themselves. The lesson they have drawn is to tighten policy, hoard demand, hold down their currencies and keep building up foreign reserves as a safety buffer. The net effect is to perpetuate the “global savings glut” that has starved the world of demand, and that some say is the underlying of the cause of the long slump. “I fear that in a world with weak aggregate demand, we may be engaged in a futile competition for a greater share of it,” he said.
The Bank for International Settlements [the "central banks' central bank"] says the world is suffering from addiction to stimulus. “The result is expansionary in the short run but contractionary over the longer term. As policy-makers respond asymmetrically over successive financial cycles, hardly tightening or even easing during booms and easing aggressively and persistently during busts, they run out of ammunition and entrench instability. Low rates, paradoxically, validate themselves,” it said.
Claudio Borio, the BIS’s chief economist, says this refusal to let the business cycle run its course and to purge bad debts is corrosive. The habit of turning on the liquidity spigot at the first hint of trouble leads to “time inconsistency”. It steals growth and prosperity from the future, and pulls the interest rate structure far below its (Wicksellian) natural rate. “The risk is that the global economy may be in a deceptively stable disequilibrium,” he said.
Mr Borio worries what will happen when the next downturn hits. “So far, institutional set-ups have proved remarkably resilient to the huge shock of the Great Financial Crisis and its tumultuous aftermath. But could (they) withstand yet another shock?” he said.
“There are troubling signs that globalisation may be in retreat. There is a risk of yet another epoch-defining and disruptive seismic shift in the underlying economic regimes. This would usher in an era of financial and trade protectionism. It has happened before, and it could happen again,” he said.
The Economist reported last year:
Is QE deflationary? Yes, quite obviously so. Consider:
- A central bank that is deploying QE is almost certainly at the zero lower bound.
- QE will only help get an economy off the zero lower bound if paired with a commitment to higher future inflation.
- If a central bank is deploying QE over a long period of time, that means it has not paired QE with a commitment to higher future inflation.
- Prolonged QE is effectively a signal that the central bank is unwilling commit to higher inflation.
- QE therefore reinforces expectations that economic activity will run below potential and demand shocks will not be completely offset.
- QE will be associated with a general disinflationary trend.
Don’t believe me? Here is a chart of 5-year breakevens since September of 2012, when the Fed began QE3, the first asset-purchase plan with no set end date:
(The article then goes onto say that QE can be deflationary or inflationary depending on what else the central bank is doing.)
Michala Marcussen – global head of economics at Société Générale – believes that QE may be deflationary in the long run because:
Excess capacity is deflationary and the means to deal with it is to shut it down. Indeed, we expect China [which also engaged in massive QE] for now to exert deflationary pressure on the global economy.
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Unproductive investment is by nature ultimately deflationary. This is a point also worth recalling when investing in paper assets fuelled by QE liquidity and not underpinned by sustainable economic growth.
Prominent economist John Cochrane thinks he knows why. As he explained last year:
Here I graphed an interest rate rise from 0 to 5% (blue dash) and the possible equilibrium values for inflation (red). (I used ?=1 ?=1 ).
As you can see, it’s perfectly possible, despite the price-stickiness of the new-Keynesian Phillips curve, to see the super-neutral result, inflation rises instantly.
***
Obviously this is not the last word. But, it’s interesting how easy it is to get positive inflation out of an interest rate rise in this simple new-Keynesian model with price stickiness.
So, to sum up, the world is different. Lessons learned in the past do not necessarily apply to the interest on ample excess reserves world to which we are (I hope!) headed. The mechanisms that prescribe a negative response of inflation to interest rate increases are a lot more tenuous than you might have thought. Given the downward drift in inflation, it’s an idea that’s worth playing with.
Bloomberg noted earlier this month:
Now, the Neo-Fisherites [including Minneapolis Fed President Narayana Kocherlakota] have been joined by a very heavy hitter — University of Chicago economist John Cochrane. In a new paper called “Monetary Policy with Interest on Reserves,” he explains a mechanism by which higher interest rates raise inflation. Unlike Williamson’s model, Cochrane’s model obtains a Neo-Fisherian result without appealing to fiscal policy. In fact, he finds that in some cases, raising interest rates can even stimulate the economy in the short term! He concludes succinctly:
The basic logic is pretty simple: raising nominal interest rates either raises inflation or raises real interest rates. If it raises real interest rates, it must raise consumption growth. The prediction is only counterintuitive because for so long we have persuaded ourselves of the opposite[.]
Cochrane has a simple explanation of the model’s key predictions on his blog. He hypothesizes that now that the Fed pays interest on the reserves that banks hold with the Fed, monetary policy will be even more Neo-Fisherian — i.e., even more perverse.
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Cochrane’s arguments are based on simple equations that are at the heart of most modern macroeconomic models. If the Neo-Fisherites are right, then everything the Fed has been doing to try to stimulate the economy isn’t just useless — it’s backward.
Now, the overwhelming majority of empirical studies tell us that QE, and Fed easing in general, tends to raise inflation in the short term. But what if that’s at the cost of lower inflation in the long term? Japan has been holding interest rates at zero for many years, and its economy has been in and out of deflation. Massive QE has noticeably failed to make the U.S. hit its 2 percent inflation target. What if mainstream macroeconomics has it all upside down, and prolonged periods of low interest rates trap us in a kind of secular stagnation that is totally different from the kind Harvard economist Larry Summers talks about?
It’s a disquieting thought.
One of the main architects of Japan’s QE program – Richard Koo – Chief Economist at the Nomura Research Institute – explains that QE helps in the short-run … but hurts the economy in the long run (via Business Insider):
Initially, long-term interest rates fall much more than they would in a country without such a policy, which means the subsequent economic recovery comes sooner (t1). But as the economy picks up, long-term rates rise sharply as local bond market participants fear the central bank will have to mop up all the excess reserves by unloading its holdings of long-term bonds.
Demand then falls in interest rate sensitive sectors such as automobiles and housing, causing the economy to slow and forcing the central bank to relax its policy stance. The economy heads towards recovery again, but as market participants refocus on the possibility of the central bank absorbing excess reserves, long-term rates surge in a repetitive cycle I have dubbed the QE “trap.”
In countries that do not engage in quantitative easing, meanwhile, the decline in long-term rates is more gradual, which delays the start of the recovery (t2). But since there is no need for the central bank to mop up large quantities of funds, everybody is no more relaxed once the recovery starts, and the rise in long-term rates is far more gradual. Once the economy starts to turn around, the pace of recovery is actually faster because interest rates are lower. This is illustrated in Figure 2.
Indeed, things which temporarily goose the economy in the short-run often kill it in the long-run … such as suppressing volatility.
Postscript: Quantitative easing fails in many other ways, as well ...
The original inventor of QE – and the former long-term head of the Federal Reserve– say that QE has failed to help the economy. Numerous academic studies confirm this. And see this.
Economists also note that QE helps the rich … but hurts the little guy. QE is one of the main causes of inequality (and see this and this). And economists now admit that runaway inequality cripples the economy. So QE indirectly hurts the economy by fueling runaway inequality.
A high-level Federal Reserve official says QE is "the greatest backdoor Wall Street bailout of all time". And the "Godfather" of Japan's monetary policy admits that it "is a Ponzi game".
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DRex 5464324
"we're just musicians"
I fink yu got the gist of it +1
OK, I'll have a go.
Disclaimer: I'm an engineeer, not an economist or trader.
When a new unit of currency is printed out of thin air it gets its purchasing power by taking a small slice off the top of the purchasing power of all the other currency units already in existence. The increase in the number of currency units is called inflation. The temporary effect is to increase prices (also wrongly refererd to as inflation).
However, each new unit of curency printed out of thin air brings with it a liability to pay back both the principal "borrowed" and also the interest which was never borrowed nor printed. When the currency is sent back to the central banks it disappears in the same way that it appeared in the first place. This is called deflation. The reduction in the number of currency units chasing the same number of goods results in the purchasing power of the remaining units increasing and hence prices falling.
This is why printing money out of thin air with an interest liabillity is inherently deflationary in the long run. The amount to be paid back is always more than the amount of currency printed in the first place.
As LOP points out there is a further dynamic and that is the ever decreasing quantity of energy and commodities available for purchase. As these decrease the number of goods being chased by the same quantity of currency decreases and hence the price rises.
What we see playing out is a combination of all the above dynamics (plus a lot more).
Please tell me if I have my logic wrong. I am here to learn.
The economy is not a collection of "neo-Fisherite" or whatever equations. These mathematical models are complete garbage - all of them. Economics is not physics, it doesn't deal with inanimate objects, but human beings with their own volition, pursuing purposeful actions. Moreover, it is not obvious why prices should rise instead of falling. In a progressing economy, prices will ceteris paribus fall along with increasing productivity (because more is done with less and the supply of goods increases). It is only the Keynesian orthodoxy that insists we need "inflation", but economic growth is not a result of rising prices, and neither are rising prices a result of economic growth.
In the MAD Money-As-Debt systems, money is created when debts are created, and money is destroyed when debts disappear.
Too much money created out of nothing is inflation.
Too much money disappearing to nothing is deflation.
In the long, long run, the results tend to be runaway inflation, becoming hyper-inflation. However, the increasing whipsaw effects drive wilder and wilder oscillations between deflation and inflation. After all, there is NOTHING behind any of that but the ability to back up lies with violence, since the whole system is fundamentally ENFORCED FRAUDS.
Making "money" out of nothing in the first place is THE PROBLEM, compounded by it being privately controlled banks which are legally allowed to do that! Since that system was due to the ways that the methods of organized crime dominated the political processes, but that basic social fact was deliberately denied and/or ignored as much as possible, THAT PROBLEM of a monetary system based on "money" being created by debts and being destroyed when debts disappear, seems like it is never going to be well-understood by enough people, since they would have to move beyond their delusions regarding what money is, and/or should be, to face the facts that money IS measurement backed by murder, which has developed to become based on the maximum possible frauds and deceits.
The economic systems whipsaw themselves more and more, because of the wilder and wilder oscillations between too much money made out of nothing, then too much money disappearing back to nothing. That volatility itself can cause more bankruptcies, or business not being done, which causes more money to disappear, which is deflationary. Paradoxically, the systems respond by potentially compounding that (as was the main point in the article above) by making more money out of nothing, as more debts, through whatever excuses they can find as fit to rationalize (which tend to favour the banksters and their buddies the most, of course.)
Since the established systems can always find more excuses to make more money out of nothing as debts, while many more who previously could and would undertake going more into debt are no longer able and willing to do so, the longer, long-term outcome tends to be that the wilder oscillations between inflation versus deflation eventually ends in runaway hyper-inflation, as the last phase of the crazy collapsing into chaos:
Competitive Currency Devaluation & DeflationIn abstract theory, it ought to be elementary to relate the basic laws of nature to the economic system. However, the ONLY connection between the laws of men and the laws of nature IS the ability to back up lies with violence, which was how and why we ended up with the currently existing monetary systems being ENFORCED FRAUDS, where governments are the biggest form of organized crime, controlled by the best organized gangs of criminals, the banksters.
Ironically, it continues to be the case that most people confuse what money IS with what money should be. Hence, there continues to be the same sorts of bogus "solutions" to our problems based on what money should be. Almost nobody fully faces the fact that money IS measurement backed by murder, which is merely the most abstract form of all private property being claims backed by coercions.
There are profound paradoxes due to the money systems being ENFORCED FRAUDS, which trace back to how and why that happened. Superficially, it is obvious that making "money" out of nothing as debts, which can disappear back to nothing, contradicts the most basic laws of nature, such as the conservation of energy. Therefore, a political economy based on MAD Money As Debt appears to absurdly contradict the laws of nature. Of course, that MAD Money As Debt system was actually the banksters' frauds, backed by the force of governments, which ultimately means backed by MAD Mutual Assured Destruction.
The wilder and wilder swings of money made out of nothing as debts, in which system that money can also disappear back to nothing, if those debts disappear, drives wilder and wilder oscillations of inflation and deflation, until that finally snaps, and flies off as hyper-inflation. However, those swings of debt insanities were always based on those systems being enforced frauds, where the money was backed by murder, and therefore, the debt insanities provoke death insanities.
In my opinion, NONE of the "financial experts" that I am aware of being publicly significant have a consistent assessment of human civilizations as general energy systems, because doing so necessarily results in recognizing that governments are the biggest form of organized crime, controlled by the best organized gangs of criminals, because human realities are necessarily organized lies operating robberies, because the production of destruction controls production, which is why money IS measurement backed by murder.
Our established political economy is based on a foundation of ENFORCED FRAUDS which are deliberately denied and ignored. Therefore, economic bubbles are blown and pop, via the operations of the MAD Money As Debt systems tending to make too much money out of nothing, which then may subsequently result in too much money disappearing to nothing, which then may result in more money being made out of nothing, and so on and so forth, in wilder and wilder oscillations, until the system as a whole MADly self-destructs, by the last swing towards severe deflation provoking the last swing towards hyper-inflation, which finally destroys that system as a whole, whereupon those debt insanities provoke death insanities.
Ideally, human beings ought to understand themselves and their civilizations operating as general energy systems, with emerging evolutionary ecologies. However, the actual history of human civilizations was based on social successes through the history of warfare, where deceits and spies were crucial to that success. Upon that basis was built the political economy whose foundation was enforced frauds. None of that contradicted the basic laws of nature, but rather was always actually consistent with the laws of nature. Thus, the apparent paradoxes grew and grew, that the only connections between the laws of men and the laws of nature was the ability to back up lies with violence, which social systems became more and more successful the more that they could do that! However, all the while, that meant that society as a whole was becoming more psychotically insane, and more detached from any relatively more objective realities, because the dominating social stories were bullshit.
My conclusions are that since money IS measurement backed by murder, the only better monetary system would have to be one in which better murder systems backed that up. The debt controls always depended upon the death controls, and still do. However, the degree to which that was done through the maximum possible frauds and deceits has meant that our society appears to have become terminally sick and insane, because it can not publicly face any of the basic facts about itself.
Overall, we are looking at the established systems of electronic monkey money, backed by apes with atomic bombs, driving deliberately misunderstood systems of debt slavery, backed by wars based on deceits, towards debt insanities provoking death insanities. Along the way, the oscillations between wild swings between too much money made out of nothing, then too much money disappearing back to nothing, provoking more vicious spirals of the same sorts of oscillations between inflationary and deflationary trends, will keep on happening worse, and faster ...
We are on an untested roller coaster ride, where the long ride UP was the great period of prolonged inflation, which was possible when more and more and more money made out of nothing as debts was possible to greatly exceed the amounts of that money which was disappearing back to nothing. However, there are now deeper reasons why we have perhaps peaked ... and thus, dipping back DOWN into deflation, where more money is disappearing to nothing, than can be made out of nothing to replace that.
Of course, there are desperate efforts made by those who can make more money out of nothing as debts to do so, and pump that into the established systems, (primarily to benefit the banksters and their buddies). However, that will likely only result in another lesser ride UP, followed by another DOWN. Overall all, we are likely to be going DOWN more than UP, and therefore, the efforts to make more new money out of nothing as debts will eventually have no more effect than as hyper-inflation, which will be a sign that the first ride was over.
Of course, since that is an untested roller coaster ride, somewhere along that path we are likely to see it jump the rails, and then go WAY DOWN, beyond our current ability to imagine. The basic situation is that the entire political economy is based on enforced frauds, which only works to the degree that there are the still functioning State Religions, in the form of faith-based money, backed by national security psychoses. All of that paradoxically depends upon those systems continuing to operate through the maximum possible frauds and deceits about themselves, i.e. CONFIDENCE IN THE ACTUALLY ABSURD STATE RELIGION BULLSHIT.
Ideally, human beings ought to understand themselves better. However, since the established systems are sophisticated forms of social slavery, which depend upon the majority of people not understanding that, and not wanting to understand that, while the ruling classes work hard to attempt to keep most people ignorant and afraid, by continuing to promote their enforced frauds, as Bigger Lies, backed by More Violence, the fundamentals always automatically becoming more criminally insane. (That is especially the case because most people who begin to understand how the monetary system really works as enforced frauds, then continue to mistakenly propose idealized "solutions" based upon what they believe money should be, which can never actually exist in the real world.)
The situations that we face within the MAD Money As Debt systems, swinging from too much money made out of nothing, to too much money disappearing to nothing, manifesting as apparent inflation, and then deflation, via vicious spirals, are that nothing about that actually changes the ways that the laws of nature continue to operate. However, because the laws of nature manifested through human societies as systems of lies backed by violence, we are too collectively insane to become more scientific about ourselves, at least, so far, NOT enough so that we could have a monetary system which is rationally consistent with the laws of nature.
Since nothing can be made out of nothing, and nothing sent to nothing, we should NOT have a fundamentally fraudulent financial accounting system where money can appear to be made out of nothing, and disappear back to nothing. However, in order to have a monetary system consistent with the laws of nature, we would have to have achieved a murder system which is understood as being consistent with the laws of nature.
From a sublime perspective, with as much of an attitude of high indifference towards the suffering it causes, we already do have a combined money/murder system which IS consistent with the laws of nature, in as much as that system is based on the maximum possible frauds and deceits about itself. There were good reasons for how and why we ended up with a political economy built on top of systems of government enforced bankster frauds, where the public "money" supply could be created out of nothing, and disappear back to nothing, which resulted in the threats of wilder oscillations between inflationary and deflationary trends.
To express that in the most abstract way, human beings operate as entropic pumps of energy, which have deliberately understood the concept of entropy in as backward of ways as they possibly could. All private property was always based on backing up lies with violence. Everything that appeared to be productive was controlled by the production of destruction, and the overall situation was always an increase in entropy.
Productive activities were always creating more garbage and pollution, but the fundamentally fraudulent financial accounting systems were able to deliberately disregard that, while the profits were privatized, and yet, the losses were socialized. The epitome of that was the monetary system, based on the enforced frauds, with a privileged few who could legally make the public "money" supply out of nothing as debts, while everyone else was forced by the government to accept that fraud.
It was always the case that the systems that made money out of nothing, could do so more and more, in order to drive inflation, BUT, that could also result in too much of that kind of money disappearing back to nothing, to drive deflation. Quantitative easing (QE) was enforced frauds on steroids, whereby the central banks attempted to replace more of the roles of the other banking institutions, which were finding it difficult to continue to make more money out of nothing, by finding more borrowers who would agree to participate in that process, by going deeper into debt.
The real economy runs on real energy. We should have a financial accounting system that respects the laws of nature. However, such a system would then necessarily have to place the political economy inside of the human ecology, which means place the debt controls inside of the death controls. Of course, that is ALREADY the case, however, nothing about how that is being done is able to be publicly admitted in any significant ways, but rather was historically based on the biggest bullies' bullshit social stories becoming almost totally triumphant, so that LYING BY OMISSION was the main way that economics was discussed in public spaces.
Of course, as indicated by the article above, that overall situation is becoming more and more hyper-complicated. In my opinion there are no longer any groups of human beings who fully comprehend the existing systems anymore, and there are no longer any groups of human beings who can control those systems. The people who originally made and maintained the systems of enforced frauds that became our financial accounting systems have been left behind by those becoming more and more electronic, backed by atomic bombs, none of which phenomena are fully understood by human beings anymore.
Indeed, a big factor on the horizon of history is the emergence of a new kingdom of life, as computer machine entities enabled by the industrial revolutions. Those require their own evolutionary ecologies, hopefully, to be integrated with the human and natural ecologies, IF we are going to survive through those processes. In my view, any computer machine entities that develop enough of model of their world, with a model of themselves within their model of their world, shall thereby repeat all of the chronic philosophical, psychological and political problems that human beings always had, ever since human beings developed enough ability to have brains that could use language and other tools.
Again, to express what has been happening more abstractly, natural selection pressures became internalized as human intelligence, which developed systems of artificial selection, which went through the history of warfare to become based on the maximum possible deceits, which then morphed to become based on the maximum possible frauds. Furthermore, IF technological civilization survives, then we are approaching the point where computers are going to go through similar processes. Indeed, the degree to which algorithms are dominating the financial markets is already a sign of that transpiring.
Anyway, the fundamental issue is that the established monetary systems are based on enforced frauds, whereby money can be made out of nothing and disappear back to nothing, causing inflation and deflation. Those problems can never be resolved without addressing the root cause, which is the SOURCE of the money supply, as enforced frauds, and that cannot be resolved without facing how and why money IS measurement backed by murder.
Although we all do our part; The Good (guilty), The Bad (guilty), and The Ugly (guilty), you get ZHr Of The Year
: )
Now about that "happening worse, and faster ..." is that not EXACTLY the same message we are getting when you read between the lines of the AR5? I seriously can't imagine anyplace the discussion of The Sixth Mass Extinction aka The (really really) Great Dying aka THE death insanity, of an advanced species not likely to have the opportunity again for 100s of millions of years, than over in AR5 WGs.
See I think the politicians that are the YESmen we say they are to their thug-backed are SCARED SHITLESS, and so are they, not about what we've known for well long enough now, but that they now know it's coming worse, and faster... And they've just been told they will be held accountable even posthumously.
This makes logical sense when the Nature System does exactly the same thing you well explain with inflation (the boomerang that finally never comes back LOL) when it ebbs and flows until it gets pushed too far and then does a mass extinction level event? What the fifth assessment report IS telling us is that we ARE lining ourselves up for it Fully Completely if we ain't careful. And as you say, we are too insane to find our way Home, so death insanities it seems to be. Not a choice so much, just the same old neolithic way when we had the chance to "Trans" gracefully...
In this context IPCC AR5 and UNFCCC COP/CMP 21 are as 'advanced' as it will ever get.
Can't believe it? Here's
Chris Fields speaking at the WG2 press release where what he (really) says is that they know lots and lots and lots about mass extinction. And they want to learn more....
p.s. polar vortex aka Alberta Clipper (aka "trace of mint wafting in from the north so we don't fuck with the 401) means homework season! LOL cheers RM
I agree, MEAN BUSINESS:
... about that "happening worse, and faster ..." is that not EXACTLY the same message we are getting when you read between the lines of the AR5? ...
The electronic monkey money backed by apes with atomic bombs ONLY cares about the short-term. It takes for granted the natural world that was always there previously, as the abundance within which Neolithic Civilizations could develop, while destroying that abundance, through the mechanisms whereby the human beings who were the best at backing up lies with violence in the short-term did whatever they wanted, because nobody else could stop them.
The longer term effects of the systems of enforced frauds result in totally perverse deliberate ignorance, such that the threat of human beings changing the climate is practically impossible to respond to in any better ways, since the primary expressions of worries about that problem, and therefore, most of the bogus "solutions" to that problem, continue to operate WITHIN the same old social pyramid systems, which are based on backing up lies with violence.
The science of climate is hyper-complicated, and not yet fully understood, IF it ever will be ... However, it is OBVIOUS that human societies are controlled by lies backed by violence, especially including the ways that bullshit "science" is dominated by its funding, so that the "settled science" is more "settled" by who had the most money, rather than by more rational evidence and logical arguments.
As I usually do, I get by with irrational hopes for a series of political miracles in the medium term, while I believe in a kind of transcendental hope for the longer term, in the sense that energy will still be conserved, and evolutionary ecologies will still develop, despite the actually existing human systems having historically become based on backing up lies with violence, whose "success" has generated almost universal attitudes of evil deliberate ignorance, so that rational public debates about anything is practically impossible ...
I think that most mainstream scientists are still aptly described by the famous saying of Upton Sinclair:
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"
A better intellectual scientific revolution with respect to almost everything, especially the bigger things, that are the most important in the longer term, like climate science, suffers from the same basic problems, only perhaps more so, in the ways that all other social enterprises are dominated by the biggest bullies' bullshit.
THE BACK-UP SYSTEM IS NATURAL SELECTION. Perhaps, I only vainly wish that the artificial selection systems could become better, to select for more rational evidence and logical arguments within themselves, rather than their corrections being forced by natural factors beyond their control, which the human systems based on backing up lies with violence were able to discount and misrepresent, by exploiting even those to advance a corrupt agenda based on social control through enforced frauds, which necessarily drives itself to go madly out of control ...
As you stated, at the present time, "we are too insane to find our way Home, so death insanities it seems to be." ... The only barely realistic goal seems to attempt to facilitate that transformation, to catalyze the ways that natural selection will impact, to maybe improve the artificial selection systems better, faster, under that duress?
Apologies In Advance (AIA) Radical Marijuana, I just got back from reading the comments on the snow storm story and I'm a little rattled. And by this time of day my brain gets a bit mushy (see language from mine of last night LOL).
Glad you agree to being ZHr of the year!!!! ; )
Is it that humans developed to work quite well under duress? For simplicity's sake can we agree that we are fight animals not flight? So we need to up our political game to realize that the fight is now natural selection vs artificial selection but the difference now being that duress is rapidly becoming PANIC. Why? Because the force of nature is something we can conjure: The Canfield Ocean and The Sixth Mass Extinction.
The irony is that essentially AR5 is telling us in an orderly calm politically correct way that it's time to panic . We are at the fork in the road between a crazy collapse into chaos and a highly artificial civilization. This is tightrope territory over the gorge, anything could happen. And while we're at it let's not make the mistake of thinking that this revolution isn't upon us or that the price of rice in china is important! cough Zero Hedge cough
It's not about the messenger (UN/WMO/mainstream scientists) "born under a bad sign" because the message has your heart racing. PANIC.
ALL roads lead to Paris
p.s. that was me being called guilty in the above because you've never made a "bad" comment!
It’s a fairly uncontroversial assertion that central banks don’t raise or lower interest rates randomly, like fluctuations in temperature. It’s not a “random walk,” with Bernanke and Yellen flipping coins over lunch. Rather, central bankers move interest rates at specific moments: they raise them when they think the economy might “overheat,” and they lower when they think it is at risk of recession.
This means that central banks raise rates specifically when they expect investment to be strong (“overheat”). And they lower rates specifically when they expect investment to fall (“recession”).
So what Kothari et al. are missing is that investment trends actually cause rate changes. Central bankers’ expectations of overheating cause higher rates, and their expectations of recessions cause lower rates. So we would indeed expect that falling expected investment would be associated with lower rates, but the causation here isn’t rates-to-investment, its investment-to-rates, with a stopover in the vivid imagination of some central bankers.
So we’ve got two causal relations. First, from Econ101, that lower prices raise demand of identical products: “low rates raise investment.” Then we can toss in the causal relationship where high investment scares the Fed into raising rates: “raised investment raises rates.” And now we’ve got two correct causal chains that exactly contradict. We’ve spotted our noise. And now we have the likely explanation.
As a nice bonus, we also now have the truly helpful interpretation we should take away Kothari et al.’s findings: that the central bank’s reactive rate movements fail to smooth the boom-bust cycles they set in motion. Of course, we all know this, since we live in the real world and observe business cycles in the wild, despite our imaginative and apparently busy central bankers.
http://mises.org/library/central-banks-are-not-innocent-bystanders
(Peter St. Onge)
I've been telling people this for years. The whole interest rate - inflation paradigm is assbackwards. Raising rates raises the cost of doing business= higher prices. Lower rates lower the cost of doing business = lower prices. As the low rates spur competition, margins shrink and prices drop. You can be damn sure that central Bank manipulation of interest rates causes excatly what they say they are preventing.
The answer of course is to set a fixed forever fed funds rate of 2 or 3%. Then simply make banks raise reserves when the economy is hot and lessen them when the economy is slow. Fixes everything. The problem of course is that they don't want it fixed, they want to continue to steal your money through deflation and then inflation.
For a while I was one of the people concerned we would see the world tumble into a massive deflationary cycle as debts went unpaided and credit collapsed. Now I have come to think inflation is getting closer every day.
Before you discount the possibility that we will move directly from where we are into stagflation then hyperinflation please consider that hyperinflation paves the way for governments and those in power to make a transition to a replacement currency and a reset of the whole system.
http://brucewilds.blogspot.com/2014/11/deflation-i-think-not.html
Fuck inflation.
if you print money and increase digital credit a hundred fold, but manipulate the base of exeters pyramid lower, which force wins out?
Id be interested to know to what degree the supressed gold price , as opposed to debt burdened sagging demand, really contributes to the deflationary situation we find ourselves in
its the funniest fucking thing ever- they want to cheat on their debts by inflating everything but then chain the balloon to the ground by manipulating gold lower.
THE SOLUTION IS OBVIOUS GUYS. MCFLY?!?! MCFLY?!
Article starts with the following:
'Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation.'
NO it was'nt it was to Bail out the banks for all the toxic assets they had accumulated.
You're of course right ... I just meant what they SAID it was for.
If "ifs" and "buts" were candy and nuts, we'd all have a merry Christmas.
g,
it isn't "backwards", it is systemic, broad daylight, stealing
right under your nose so call it what it is; criminal
fascism disguised as a monetary system. that is my comment.
Blindman, yes of course ...
The only deflation is in government bonds. The world runs on energy and it may have had a correction recently, the trend is always less cheap energy and hence inflation. Until the world population stops growing there will always be inflation.
How about this?
STOP FUCKING WITH THE SYSTEM!!! THE MARKETS WERE PERFECT BECAUSE THEY WERE FREE YOU STUPID, GREEDY, ACADEMIC RETARDS!!!
Free market fails constantly. e.g. monopoly, externalities, tradgedy of the commons, lack of information/informed decisions, etc. There are literally hundreds of examples. Bunch of dorks who show up angry they didn't invest in stocks acting like a completely free market works. Yes, it would work for someone other than a banker...for some other type of olagarch who is also more clever than you. Awesome. Enough already with the 8th grade economics and boners for free markets that are complete shit, too.
Regulating a corporation is a complete different scale than fixing the price of money-reductio ad absurdum much?
if you think of technological advances, does
an innovation cause deflation? the older units
become cheaper or near worthless yet they still
provide essential qualities, just not the best
and latest. it seems advances in technology are
extremely deflationary and frankly it is wonderful
for people but it is corrosive to the debt money
system over time. kills the economy but the oligarchs
have a systemic solution for themselves. let the economy
die and steal newly created money from the treasury
at no cost, and get paid interest for your lack of
effort. what a system!
You want inflation? Mail everyone a check.
The average person does not want (afford) a loan of any kind, a home, or stocks.
This is not that hard.
QE increases the amount of currency available relative to the amount of consumable things available. That creates inflation. Period. The primary outlet of that inflation has been in the securities markets over the past _ years, thanks to Easy Alan and the Ben-o-matic presses. The incessant liquidity spigot has done nothing but paper over the debt defaults from the failing economy that bit off way more than it could afford for decades. The S&P flies higher and CNBC proclaims "recovery." Problem is, the trickle-down effects of the inflation have eroded John Q Public's ability to finance their leveraged assets.
So the inflationary force of the credit-from-thin-air policies is counteracting the underlying economic weakness. The fundamentals will increasingly take over, which is why there are 45 million food-stampers and a backlog of mortgage and credit defaults. The "deflation" you speak of is nothing more than asset bubbles popping and returning to values more appropriate to the fundamentals. But that "deflation" is not caused by QE. QE will forestall the deflation as long as possible, or until there is a loss of faith in the currency, in which case all bets are off.
Because inflation causes deflation, to complete a cycle.
Such a "cycle completion" only happens under a gold standard, without an FDIC and without a central bank. In a fiat money system, the central bank can always conjure additional money out of thin air. For instance, the Federal Reserve has nearly doubled the broad true US money supply since 2008. Since 2000, the US money supply has increased by 250% (or put differently: it is up 3 and a half times in just the past 15 years). If the central bank so decrees, it can be doubled again, again and again. You will be waiting for "deflation" forever.
“If [They're] Right, Everything The Fed Has Been Doing To Try To Stimulate The Economy Isn’t Just Useless — It’s Backward”
The FED hasn't been trying to stimulate the economy.
In 1988, Bernanke wrote that QE doesn't work.
Japan clearly proved Bernanke right, before Bernanke ran QE.
"The BOJ began doing quantitative easing in 2001. It had become clear that pushing interest rates down near zero for an extended period had failed to get the economy moving. After five years of gradually expanding its bond purchases, the bank dropped the effort in 2006."
Will you always land right-side-up ?
See
http://andreswhy.blogspot.com/2014/11/roman-dodecahedra.html
or
https://www.academia.edu/9373045/Roman_Dodecahedra
qe is stealing. that is the short of it.
it is creating money from nothing but
the legislated right to do so and then
distributing that to the part of the money
creating system, banks, to cover their
malinvestments and insane financial
creations and speculations. that is the
insane money system. their insanity is tolerated
because the system is insane at the root,
requiring inflation and growth even when these
are destructive to the entire system. adherence
to a usurious slave inducing debt system creates
more debt slaves and more financial violence.
it is wrong and bad and designed to be just that
because it also creates wonderful fortunes for
oligarchs who are systemically treated with free
stolen money to buy property, politicians and judges
for a song.
.
michael hudson said it well, try to digest this.
Summit MMT - Michael Hudson: Finances vs Economy, Credit vs Money [3/18 ENG]
http://www.youtube.com/watch?v=JZQqrxHGcoQ
.
economics , the beginning.
.
deflation may occur, inflation may occur.
it makes no difference to the class of the system,
the people occupying the part of the system, that
can simply make claims on newly created money out
of absolutely nothing but their position in culture
or society or the "system". the owners own the rights
to own everything, period. everyone else remains
confused and a subject of their dominance in this
"financial" sphere. economics is not a science,
an offshoot of math, a philosophy or an art.
it is a con from start to finish. glossed over
broad daylight stealing, now, with computers at the
speed of light and executed and executing at the
rate of nanoseconds.
+1 ... Hudson is the man.
I like Hudson and applaud his efforts pointing out "rentier" economics as a bad thing. That would be the Georgist view George.
http://geoeconomics.wordpress.com
Competing curriencies sound ok but messy. But MMT is a problem. Here's a critique.
http://www.paecon.net/PAEReview/issue66/Huber66.pdf
http://www.monetary.org/wp-content/uploads/2013/12/Viable-Solution-to-Ec...
http://www.monetary.org/wp-content/uploads/2014/04/32-page-brochure.pdf
I love what erm, err, he, um, has to, err, say um, but err, it um really err, annoys me the um way he um says it!
David
+1
Didn't you get the memo?
Nobody cares about the long run view anymore!
‘
‘
‘
What the do these retards, otherwize known as “Economissedst” not get about deflation?
It’s built into not only capitalism, but human nature.
Is it cheaper or more expensive to build tech or anything now, or 40 years ago?
Exactly. Capitalism promotes deflation.
Now, when prices are going up, what’s the nature of people, what do they do when their money isn’t enough to pay for these goods? They will hold onto their money, because they don’t understand the idea of inflation (their money is becoming worth less) but they do understand the idea of prices going up.
They save for the rainy day, not spend like drunken sailors! It’s just part of what being prudent was, is and should be when you have money.
I’m vexed.
Now! F-Off with the inflation!
•?•
V-V
PS. Remember when the banks used to charge interest on top of the inflation rate back in the good ol days?! When markets were free to make price discovery?
And today?
I don't understand. My personal observation is that when people see prices going up, people buy, rather than hold onto their money. For example, the real estate explosion of the 90s and 00s. Or, for the elite, art, penthouses, high-end personal vehicles, etc. Also, I have never met a capitalist whose goal was to decrease prices. Higher prices allow higher margins, higher profits, and more wealth for capitalists. Every chamber of commerce seems to have as one of its primary goals the election of local leaders who will hamper small new competitors, thus dampening competition, thus enabling the established local capitalists to charge the higher prices.
Hyper Deflation precedes Hyper Inflation...
BRing it bitchez!
Dis-inflation would be a good thing, GW.
It will be followed by mega {if noy hyper} inflation.
Welcome, Jon:
George,
In this instance I'm not sure why you did that! I think he has a point.
DavidC
And Adrian Peterson's kid's private parts are swollen because Adrian did not hit them hard enough, nor often enough.
FAIL. Sorry George, allow me to make it easy for you.
In order to maintain a decent standard of living, you need a fair amount of consumable resources and energy (resources and energy that are not accessible are irrelevant).
Right now there are 7+ billion people (and growing) all competing for a better standard of living and all the resources and energy required to make that happen. Deflation in useless crap and bullshit make-believe assets, sure, but totally irrelevant.
Deflation is things require for a decent standard of living? Not a chance.
LOP,
I have no idea what you just said. You might have a good point, but I couldn't understand what you were trying to say. Could you please explain?
I think s/he's saying that with a growing population, at least in something other than a short term scale, food and energy is not going to go down in price.
Makes sense, iff [iff= if and only if, right...] you assume that price points for oil, gas, and Doritos are not already inflated above something-like market demand.
I have a huge, huge problem with how energy prices are arrived at, and that makes me the target of the pure free market/they-only-read-Ayn-Rand types.
They assume that profits derived from the speculation of the few is both 'free market' and fair. In fact, price gouging as to both energy and food deprives productive labor of oxygen.
There's also a kind of capitalist-inertia when profits are artificially high. It is absurd that we still have cars and homes that run on fossil fuels. Absurd. But vested profits actually retard technical progress, which in turn robs future productivity and potential.
Sometimes the wealth of capitalists fucks up the system going forward. In fact it usually does.
San Francisco and much of the west would have a fantastic train, rail and ferry system - but at the right time, the car makers bought the trolly companies and made sure everyone needed a car.
Fuck... now I'm rambling.
"at the right time, the car makers bought the trolly companies and made sure everyone needed a car ..."
Indeed, Jonathan, you easily could "ramble" on, through example after example, of how the industrial revolution was directed by crazy corruption. E.g., "at the right time" alcohol and hemp were criminalized, so that that other industries would have no competition. The SUPREME EXAMPLE is the monetary system itself!
I grew uen at a tender age I understood what was transpiring in Pasadena, Cal. during the early 50's. It was primarily G.M. who took out the trolley's and trains. BUSSES. I was there and watched it happen.. Many cities went thru the same B.S.
It was the start of centralized corporation power and control. Milestones
It was a two headed attack. Goodyear was in on it as well.
All those cars, trucks, and buses need tires.
Methinks you make some good points ...
Gotta burn out the dead wood for new growth.
Antal Fekete explained it best over ten years ago.
But it is so elementary, except to those who can not think for themselves.
yep, and back in another age, the business cycle involved those big operations having the rug pulled out from under them, it does not happen now, otherwise we would have a lot less tied up in the FIRE economy. perhaps this time will be different and the government will not be able to bail out BOA, Goldman, etc., ???? NAAAHHH, never happen, or will only happen if the government falls