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Realistbear

Pitch Queered For Bernanke As Deflation Tightens Its Grip

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http://uk.finance.yahoo.com/news/commodity-spike-queers-the-pitch-for-bernanke-s-qe2-tele-3d0352c13a7f.html?x=0

Commodity spike queers the pitch for Bernanke's QE2
Ambrose Evans-Pritchard, 17:56, Sunday 8 August 2010
Don't be fooled: a food and oil price spike is not and cannot be inflationary in those advanced industrial economies where the credit system remains broken, the broad money supply is contracting, and fiscal policy is tightening by design or default.
It is deflationary, acting as a transfer tax to petro-powers and the agro-bloc. It saps demand from the rest of the economy. If recovery is already losing steam in the US, Japan, Italy, and France as the OECD's leading indicators suggest - or stalling altogether as some fear - the Eurasian wheat crisis will merely give them an extra shove over the edge.
Agflation may indeed be a headache for China and India, where economies have over-heated and food is a big part of the inflation index. But the West is another story.
Yields on two-year US Treasury debt fell last week to 0.50pc, the lowest in history. Core US inflation is the lowest since the mid-1960s. US business inflation (pricing power) is at zero. Bank lending is flat and securitised consumer credit has collapsed from $900bn to $240bn in the last year. Hence the latest shock thriller - "Seven Faces of Peril" by James Bullard, ex-hawk from the St Louis Fed - who fears
US is now just one accident away from a Japanese liquidity trap.
In Japan itself core CPI (NYSE: CPY - news)
deflation has reached -1.5pc, the lowest since the great fiasco began 20 years ago.
* 10-year yields fell briefly below 1pc last week. Premier Naoto Kan has begun to talk of yet another stimulus package. "The time has come to examine whether it is necessary for us take some kind of action," he said...

The Hawks want to see the bubble fully deflate and allow the market to find its own level. Bernanke may be blocked from doing a Merv with QE which will set the dog among the crows.

A very interesting set of circumstances with an outcome that is hard to predict. IMO deflation looks like a stronger probability given the bond yields and the almost certainty of a double dip.

__________________

* There are some who do not believe deflation can exist.

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Obama wants to stay in office. He will react by implementing a huge stimulus programme. Bernanke will assist with the printing press.

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WASHINGTON (
AP
) -- Consumer borrowing fell in June for a fifth straight month as households keep cutting back on credit card use.
Borrowing dropped at an annual rate of $1.3 billion in June, the Federal Reserve reported Friday. That marked the 16th drop in overall credit in the past 17 months.
Americans backed away from swiping their credit cards for the 21st straight month. That offset a rise in the number of auto loans.
Households are borrowing less and saving more, and that has dragged on the overall economy by lowering consumer spending.

QE in such an environment QE would be useless. Perhaps the unthinkable is already happening.

Edited by Realistbear

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Obama wants to stay in office. He will react by implementing a huge stimulus programme. Bernanke will assist with the printing press.

Ben's days at the Fed may be coming to an end very soon:

The Senate has delayed confirmation of all three appointees for the board, who all happen to be doves and allies of Fed chairman Ben Bernanke. The Fed is in limbo until mid-September. So the regional hawks who so much misjudged matters in 2008 have unusual voting weight, and now they have a commodity spike as well to rationalise their Calvinist preferences.

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Goldman Explains The Imminent Launch Of $1 Trillion In QE 2 - http://www.zerohedge.com/article/goldman-explains-imminent-launch-1-trillion-qe-2-muses-dreaded-double-d

# A return to unconventional monetary easing by late 2010/early 2011. We expect the Federal Open Market Committee (FOMC) to respond to renewed upward pressure on the unemployment rate with another round of unconventional monetary easing. These measures could involve more asset purchases?probably Treasury securities?and/or a more ironclad commitment to keep the federal funds rate low. If the committee decides on more asset purchases, the amount would be at least $1 trillion (trn).

# A ?baby step? to unconventional easing next week. Although it is a fairly close call, we now expect the FOMC to announce that it will reinvest pay-downs of mortgage-backed securities (MBS) in the bond market at next Tuesday?s meeting. While this would be a ?baby step? in the direction of renewed unconventional easing, it would probably be packaged as a decision to prevent gradual tightening of the overall policy stance.

As we have long anticipated, QE2 is a certainty as the Fed is now out of all bullets, and can only proceed with the nuclear tactical option.

- Should add that another option for Obama would be a large war ... against Iran, for example.

Edited by Errol

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http://www.bloomberg.com/news/2010-08-07/u-s-economy-improving-more-stimulus-isn-t-the-answer-rubin-o-neill-say.html

U.S. Economy Improving, More Stimulus Isn't the Answer, Rubin, O'Neill Say
By Courtney "Court" Schlisserman and Shobhana "Banana" Chandra - Aug 8, 2010 6:52 PM GMT
The U.S. economy will improve slowly and another round of fiscal stimulus probably wouldn’t be effective, former Treasury secretaries Paul O’Neill and Robert Rubin said.
Rubin, who served under Democratic President Bill Clinton, said the U.S. is “going to have slow and bumpy growth,” during a taped interview on CNN’s “Fareed Zakaria GPS” aired today. A “major second stimulus” might create more uncertainty and undermine confidence, he said.

Ben is becoming isolated and the global economy will not tolerate more stimulus as a lower dollar will finish any chance of recover elsewhere. Hank Paulson's "strong dollar" policy will not longer work as a way to devalue the $ to gain export advantage.

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Goldman Explains The Imminent Launch Of $1 Trillion In QE 2 - http://www.zerohedge.com/article/goldman-explains-imminent-launch-1-trillion-qe-2-muses-dreaded-double-d

# A return to unconventional monetary easing by late 2010/early 2011. We expect the Federal Open Market Committee (FOMC) to respond to renewed upward pressure on the unemployment rate with another round of unconventional monetary easing. These measures could involve more asset purchases?probably Treasury securities?and/or a more ironclad commitment to keep the federal funds rate low. If the committee decides on more asset purchases, the amount would be at least $1 trillion (trn).

# A ?baby step? to unconventional easing next week. Although it is a fairly close call, we now expect the FOMC to announce that it will reinvest pay-downs of mortgage-backed securities (MBS) in the bond market at next Tuesday?s meeting. While this would be a ?baby step? in the direction of renewed unconventional easing, it would probably be packaged as a decision to prevent gradual tightening of the overall policy stance.

As we have long anticipated, QE2 is a certainty as the Fed is now out of all bullets, and can only proceed with the nuclear tactical option.

- Should add that another option for Obama would be a large war ... against Iran, for example.

The front page of the international herald tribue had a Squid top economist and another locked in opposing views over the satte of the US economy. The guy from GS reckons deflation. Wish I could find the page/headline online...

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The front page of the international herald tribue had a Squid top economist and another locked in opposing views over the satte of the US economy. The guy from GS reckons deflation. Wish I could find the page/headline online...

If Goldman says deflation that means we're going to get the opposite - inflation.

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Either way, we won't have long to wait. We are entering the end-game, I think.

All the charts I'm looking at say another 18 months of "doing nothing" and all the implications that has...

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Both Japan and the USA are nearing decision time. Are they going to let deflation take over, or are they willing to 'do whatever it takes' and QE 2.0.

To noticeably move the dial I think the US would need at least $1 trillion in stimulus spending.

China is also starting to seriously slow.. right now their inflation yoy is right on target at 3%, which is the official target in China. But clearly that is set to fall hard as there has been a marked slowdown in demand in some key areas. Projects seem to be getting put on hold over demand fears. China has some time though before it needs to make decisions.

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Both Japan and the USA are nearing decision time. Are they going to let deflation take over, or are they willing to 'do whatever it takes' and QE 2.0.

To noticeably move the dial I think the US would need at least $1 trillion in stimulus spending.

China is also starting to seriously slow.. right now their inflation yoy is right on target at 3%, which is the official target in China. But clearly that is set to fall hard as there has been a marked slowdown in demand in some key areas. Projects seem to be getting put on hold over demand fears. China has some time though before it needs to make decisions.

wot another trillion....and when that runs out?

Market ticker has another surprise for you....

  • Unfunded pension liabilities are approximately $2.5

    trillion, compared to the reported amount of $493 billion.

  • Unfunded liabilities for health and other benefits are

    $558 billion, compared to the reported $537 billion.

  • Thus, total unfunded liabilities for all benefit plans are an

    estimated $3.1 trillion — nearly three times higher than

    the plans report.

If you need this translated, it's very simple:

You're not going to get the money you think you were promised....

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Both Japan and the USA are nearing decision time. Are they going to let deflation take over, or are they willing to 'do whatever it takes' and QE 2.0.

To noticeably move the dial I think the US would need at least $1 trillion in stimulus spending.

China is also starting to seriously slow.. right now their inflation yoy is right on target at 3%, which is the official target in China. But clearly that is set to fall hard as there has been a marked slowdown in demand in some key areas. Projects seem to be getting put on hold over demand fears. China has some time though before it needs to make decisions.

I reckon Japan might go for a devaluation.

I still reckon we'll get something approaching normal (not "pre-crisis" boom but sort of 2004/2005) levels of equity markets, exchange rates and bond spreads, however brief, before the SHTF again.

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Ben's days at the Fed may be coming to an end very soon:

The Senate has delayed confirmation of all three appointees for the board, who all happen to be doves and allies of Fed chairman Ben Bernanke. The Fed is in limbo until mid-September. So the regional hawks who so much misjudged matters in 2008 have unusual voting weight, and now they have a commodity spike as well to rationalise their Calvinist preferences.

This is the link I found for that quote - Ambrose strikes again:

http://uk.finance.yahoo.com/news/commodity-spike-queers-the-pitch-for-bernanke-s-qe2-tele-3d0352c13a7f.html?x=0

Can't see Bernanke going until Obama goes, but November elections may change the story. If the Fed is in limbo until September that puts the notion of mortgage cramdown on hold - although I'm sure that was just silly season gossip anyway.

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wot another trillion....and when that runs out?

If(when) it runs out and deflation is still threatening, then it'll be time for another shot.

Market ticker has another surprise for you....
  • Unfunded pension liabilities are approximately $2.5

    trillion, compared to the reported amount of $493 billion.

  • Unfunded liabilities for health and other benefits are

    $558 billion, compared to the reported $537 billion.

  • Thus, total unfunded liabilities for all benefit plans are an

    estimated $3.1 trillion — nearly three times higher than

    the plans report.

If you need this translated, it's very simple:

You're not going to get the money you think you were promised....

For the federal government pensions they can easily just print up some money to cover it. For states, municipalities, corporations and other organizations could be painful indeed.

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Either way, we won't have long to wait. We are entering the end-game, I think.

I wouldn't think so. Even with a contraction the size of the Great Depression it will take several years to get debt levels to more normal levels. I expect the deleveraging to take place over a couple of decades with growth rates close to zero although there is a chance that the US could follow Japan and be no closer to a solution after 20 years. Might happen in the UK as well as the coalition gets cold feet once the effects of austerity become clear.

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