How Many More Absurd Inflation Threads Are There Going To Be?

[Injin]

Who issues the money?

No one.

[Injin]

How does the carry trade "export" inflation? The carry trade (until recently) involved taking huge loans in yen then switching to e.g. dollars, depressing yen and raising the dollar. Goods then cost more in yen and less in dollars, surely this is importing inflation not exporting it. Only now, when the trade is unwinding and the yen skyrocketing are Japanese goods becoming more expensive to other countries and thus could you feasibly say Japan is "exporting inflation".

That's great, if inflation is rising prices.

It isn't, it's an increase in the money supply.

You can have an incrrease in the money supply and falling price (if for example you have a ruthless overclass of a one party state who will inflict a crushing depression on people in order to preserve it's own status quo.)

They send Yen out into the world in order to keep their export prices low. That's the whole point of doing it.

[bearORbullENIGMA]

No one.

Please explain, I have no interest in raising my post level to 13,000 plus in an effort

squeeze the blood out of your stone in an endless thread of posts.

[Timm]

These are always circular arguments. Perhaps if we had a common platform to agree on, we could move on from there. Would anyone disagree with the following:

1 ) The current situation is in its essential nature highly deflationary.

2 ) The situation in 1 ) carries a real systemic risk.

3 ) Creation of just the right amount of new money would avoid the risk in 2 ).

?

I'm sorry if my understanding is not to the level of many other posters, but there seem to be a lot of inteligent people here failing to reach a consensus.

[Injin]

But it has been true – you have resorted to very childish tactics recently while not discussing the subject at hand. It is good to see this post of yours returning to a more serious level.

@tis true, but I've only being doing it because you ignore history and self interest at every turn.

That’s fine, but that’s not what you have been saying – you have been saying that I am deluded to believe that what is going on is deflationary.

Yes, I think you are. Credit isn't money - but we've done that before.

But we can discuss this… I think that there are easily enough people who can see what you and I see who will not let this happen. One by-product of the boom in financial services is that it created a lot of economists after all. I also think that the history is very mixed – pre-war recessions were almost all deflationary or disinflationary. I also want smaller government btw.

The only people who count are the top statists and it's in their self interests to hyperinflate.

Me too – and prepared to admit I am wrong when someone demonstrates that I am.

Righto.

The collapse of the financial system is far more likely to be a result of this deflationary crisis than a future inflationary one.

See, here is what I think - collapses is inevtable at this point anyway - so why wouldn't those at the top of a collapsing system print shitloads and spend it on assets before getting the ****** out?

Every other paper money has ended that way - why not this one?

[uncle rogi]

Thanks for your kind words. No, I'm not going to be hounded off the board - though I might get bored off the board. What is interesting is the decline in quality of the discussion here. There are three posters now (one of them, sadly, Injin – I hope it’s only temporary with him) who refuse to come up with any arguments to support their view of inflation and instead resort to ad hominem jibes and personal attacks on anyone who disagrees with them. It has noticeably declined even since I posted this thread. I’m not entirely sure why – I can only guess it’s because they feel that they have been proved wrong but also feel they should not abandon their original viewpoint, as that would mean admitting “defeat” to themselves. Either way, it’s a pity and the board is poorer for it.

you refuse point blank to engage in geopolitical points for example,

i asked you directly what happens when the gilts no longer sell at auction.....no answer.

i asked you about the unfunded liabilities issue of the dollar that if left as is results in the need to literally print money to pay pensions and medicare from around 2012 onwards i.e. the eearly 90's russsia model of paying peoples pensions exactly as promised but the money is worth a fraction of what it was etc. see link at bottom of my sig to the I.O.U.S.A movie with former comptroller of the US in it....have you seen it (another unaswered question from a while back)

i asked you several times to explain that if deflation is allowed to occur it would destroy the economies of the UK and USA as surely as hyperinflation, thus the diffference is down to political choice/will as it always has been in history

i posted articles and videos of well respected previously relatively conservative people making shocking predictions based upon the serious nature of the crisis and you call them internet nuts and refuse again to answer any points that relate

i called you a staff economist at a mid level pension fund that was meant as a colourfull jibe at your mindset i.e. that you would be a geek insulated by relative wealth from the "street level" and you would be bookish and prone to over confidence of your knowledge of how this iteration of the system is supposed to function.....as it happens mate what is your job....?

[Injin]

Please explain, I have no interest in raising my post level to 13,000 plus in an effort

squeeze the blood out of your stone in an endless thread of posts.

People freely trade amongst themselves.

I have stuff I have made and offer it to others. They accept - yay I can trade - they say no, I have to do something else.

Everyone is doing this at the same time. No one issues money, it's discovered by having millions of people trade voluntarily with each other.

All that is required is the power of refusal of offers. It's a really simple system.

[Moo]

People freely trade amongst themselves.

I have stuff I have made and offer it to others. They accept - yay I can trade - they say no, I have to do something else.

Everyone is doing this at the same time. No one issues money, it's discovered by having millions of people trade voluntarily with each other.

All that is required is the power of refusal of offers. It's a really simple system.

The obvious problem here is how does, for example, someone who makes furniture trade with someone who supplies electricity?

[huw]

How does the carry trade "export" inflation? The carry trade (until recently) involved taking huge loans in yen then switching to e.g. dollars, depressing yen and raising the dollar. Goods then cost more in yen and less in dollars, surely this is importing inflation not exporting it. Only now, when the trade is unwinding and the yen skyrocketing are Japanese goods becoming more expensive to other countries and thus could you feasibly say Japan is "exporting inflation".

My understanding is that the carry-trade money would be used to buy bonds (whether government bonds, mortgage-backed bonds, or whatever) that increased the money supply of the country concerned. More money chasing a fixed supply of assets (like houses) led to inflation in those asset classes. At the same time, general inflation was reduced by the carry trade, because the carry-trade currency itself would be weakened while the currencies being bought would be temporarily strengthened.

What was the benefit to Japan? My take: they were running a zero-interest-rate policy in an attempt to stimulate their economy. Foreign borrowers were willing to borrow and consume Japanese products at a time when domestic ones weren't. Perhaps the BoJ showed that you can push a string for a while ... if the string is in the right country at the right time.

[Injin]

The obvious problem here is how does, for example, someone who makes furniture trade with someone who supplies electricity?

They ask them what they want.

A market is only ever a two person interpersonal issue, it looks complex because it's happening to millions of partners at different levels all the time.

You don't have to solve all those problems for them - they can do it for themselves.

[Extradry Martini]

There's the rub though...WWII gave birth to the the current debt bubble, hence I would assert every post-war recession was inflationary (with governments keener to take the inflationary route than allow the more painful deflationary one).

One an economy is based on debt, deflation is a much, much tougher route to take and we still don't have the stomach for it.

That may be true, and indeed I warm to that view in many ways - but why high inflation?

[Extradry Martini]

These are always circular arguments. Perhaps if we had a common platform to agree on, we could move on from there. Would anyone disagree with the following:

1 ) The current situation is in its essential nature highly deflationary.

2 ) The situation in 1 ) carries a real systemic risk.

3 ) Creation of just the right amount of new money would avoid the risk in 2 ).

?

I'm sorry if my understanding is not to the level of many other posters, but there seem to be a lot of inteligent people here failing to reach a consensus.

Good summary. You can argue that they are likely to overshoot no.3 there (but I haven't yet seen any evidence), but you cannot argue with those points.

[uncle rogi]

– pre-war recessions were almost all deflationary or disinflationary..

under a gold reserve standard, it is not now possible for deflationary collapse under a fiat system see bernankes speaches for further info , and the great depression resulted in the inflation of the dollar versus gold to help pay there way out of it (from $20 and OZ to $35) there version of QE i suppose but that trick is not possible now is it ? unless we get the dollar version 2 and or some other form of debt settlement outside the US treasury system...hmmm.

Me too – and prepared to admit I am wrong when someone demonstrates that I am.

see above.

The collapse of the financial system is far more likely to be a result of this deflationary crisis than a future inflationary one.

bernanke says no, and has done several times and the QE etc is just one part of it.

[MSWHPC]

That's great, if inflation is rising prices.

It isn't, it's an increase in the money supply.

You can have an incrrease in the money supply and falling price (if for example you have a ruthless overclass of a one party state who will inflict a crushing depression on people in order to preserve it's own status quo.)

They send Yen out into the world in order to keep their export prices low. That's the whole point of doing it.

If the money supply includes credit/debt, then we are a huge deflation. the shadow banking system has collapsed. people cant get credit - deflation occurs.

[Timm]

Good summary. You can argue that they are likely to overshoot no.3 there (but I haven't yet seen any evidence), but you cannot argue with those points.

Thank you.

So the next question would appear to be:

1 ) Will the BoE (etc) attempt to create more money?

We already know they will attempt to add to the broad money supply by encouraging credit growth. This does not seem to be going so well. The next stage is to credibly threaten the creation of narrow money. It seems to me that this is what is happening just now, and that it seems to be having at least some success.

?

[Extradry Martini]

@tis true, but I've only being doing it because you ignore history and self interest at every turn.

Yes, I think you are. Credit isn't money - but we've done that before.

Yes, but in aggregate has an identical impact on inflation.... As you say, we have been there before.

The only people who count are the top statists and it's in their self interests to hyperinflate.

Righto.

See, here is what I think - collapses is inevtable at this point anyway - so why wouldn't those at the top of a collapsing system print shitloads and spend it on assets before getting the ****** out?

Every other paper money has ended that way - why not this one?

Because everyone knows that if you do that you cannot attract investment or for that matter faith in your new currency. Which is precisely why we have spent so long trying to get inflation down.

Edited February 17, 2009 by Extradry Martini

[Extradry Martini]

If the money supply includes credit/debt, then we are a huge deflation. the shadow banking system has collapsed. people cant get credit - deflation occurs.

Absoluetely, but you'd be amazed by how many people here cannot see what is happening all around them.

[Injin]

If the money supply includes credit/debt, then we are a huge deflation. the shadow banking system has collapsed. people cant get credit - deflation occurs.

Credit isn't money, it's access to money by lying about having some.

[yellerkat]

Interesting commentary on QE by Chris Dillow at Stumbling & Mumbling.

Talk about hyper-inflation or a collapse of the gilt market is just hyperbole.

[Injin]

Yes, but in aggregate has an identical impact on inflation.... As you say, we have been there before.

I disagree, and every time I test it I get the same result - turning credit into money is inflationary.

Because everyone knows that if you do that you cannot attract investment or for that matter faith in your new currency. Which is precisely why we have spent so long trying to get inflation down.

But why would they care?

What's in it for them?

[bearORbullENIGMA]

People freely trade amongst themselves.

I have stuff I have made and offer it to others. They accept - yay I can trade - they say no, I have to do something else.

Everyone is doing this at the same time. No one issues money, it's discovered by having millions of people trade voluntarily with each other.

All that is required is the power of refusal of offers. It's a really simple system.

So I was correct when I said you prefer a barter system to money, even though you replied 'no'.

Isn't a barter system an extremely inefficient means of exchange? The man at the music shop may not want

2 barrels of fish for the guitar I buy.

[Injin]

Absoluetely, but you'd be amazed by how many people here cannot see what is happening all around them.

I agree, rising prices in most things and a diminsihing number of economic participants.

Somehow, this is a deflation!

[Injin]

So I was correct when I said you prefer a barter system to money, even though you replied 'no'.

Isn't a barter system an extremely inefficient means of exchange? The man at the music shop may not want

2 barrels of fish for the guitar I buy.

No, money will arive swiftly, just as it does everywhere that people are allowed to freely trade.

Money is the most commonly bartered item - you have to have the barter first and then money will turn up. I don't know what money is but I know how to find out, in other words.

[Timm]

Absoluetely, but you'd be amazed by how many people here cannot see what is happening all around them.

I think most people can see this.

The differences seem to be about what people think TPTB are going to do / try to do about it, and how that will play out.

I'd be very surprised if anyone thinks the situation would be inflationary without printing / QE / debt monetisation etc.

[Extradry Martini]

you refuse point blank to engage in geopolitical points for example,

I have generally ignored your posts full stop - you get abusive you lose my attention.

i asked you directly what happens when the gilts no longer sell at auction.....no answer.

Did you? Well, ok, the answer is that yields go up.

i asked you about the unfunded liabilities issue of the dollar that if left as is results in the need to literally print money to pay pensions and medicare from around 2012 onwards i.e. the eearly 90's russsia model of paying peoples pensions exactly as promised but the money is worth a fraction of what it was etc. see link at bottom of my sig to the I.O.U.S.A movie with former comptroller of the US in it....have you seen it (another unaswered question from a while back)

Why unfunded?

i asked you several times to explain that if deflation is allowed to occur it would destroy the economies of the UK and USA as surely as hyperinflation, thus the diffference is down to political choice/will as it always has been in history

I don't think the choice is between deflation and hyperinflation. To get hyperinflation, you need demand - lots of it.

i posted articles and videos of well respected previously relatively conservative people making shocking predictions based upon the serious nature of the crisis and you call them internet nuts and refuse again to answer any points that relate

This is the point - you post links of people whose sites go on for pages and pages of paranoid junk, but you don't say which bit you agree with, or which bit of it demonstrates my argument to be incorrect - you just post the link. What am I supposed to do with it?

i called you a staff economist at a mid level pension fund that was meant as a colourfull jibe at your mindset i.e. that you would be a geek insulated by relative wealth from the "street level" and you would be bookish and prone to over confidence of your knowledge of how this iteration of the system is supposed to function.....as it happens mate what is your job....?

You still don't get it. What I say stands up or falls by itself. It doesn’t matter who I am or what I do. I present the arguments and if they are wrong, others knock them down, and I then adjust them myself. You cannot demonstrate that what I say is wrong by speculating as to who I am. I could be the most respected economist in the world, but if my reasoning process is flawed then it is flawed – and I post my reasoning for you to see. Likewise, I could be a 19 year-old single mother of two posting from a council flat – it wouldn’t make what I say wrong.