Welcome to the MacNN Forums.

If this is your first visit, be sure to check out the FAQ by clicking the link above. You may have to register before you can post: click the register link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below.

You are here: MacNN Forums > Community > MacNN Lounge > Political/War Lounge > Federal Reserve is printing money like crazy - huge inflation is coming

Federal Reserve is printing money like crazy - huge inflation is coming (Page 2)
Thread Tools
olePigeon
Clinically Insane
Join Date: Dec 1999
Status: Offline
Reply With Quote
Nov 26, 2009, 03:12 AM
 
If saving money is detrimental to a free market economy, why does China's saving amount matter?
"…I contend that we are both atheists. I just believe in one fewer god than
you do. When you understand why you dismiss all the other possible gods,
you will understand why I dismiss yours." - Stephen F. Roberts
     
Andy8
Mac Elite
Join Date: Apr 2003
Location: Hong Kong
Status: Offline
Reply With Quote
Nov 26, 2009, 04:12 AM
 
Round and round it goes
From The Economist print edition

America buys Chinese exports, China buys American Treasuries. Can it continue?

AT ONE stage it all seemed to be working, even if it appeared a little surreal. China, a developing country, lent vast amounts of money to wealthy America to feed its spending habit. Americans spent the money on Chinese-made goods, sending the dollars back to China, which lent them to America again. But now many talk of a decoupling of the two economies. Niall Ferguson, a Harvard historian who, only a couple of years ago, popularised the term “Chimerica” for the symbiosis between the two, now says it is a marriage headed for the rocks.

China’s export figures appeared to support the idea that the country depended hugely on overseas markets for its growth, and on America in particular. By 2007 the value of China’s exports amounted to about 36% of its GDP, up from just over 20% in 2001. America was (and remains) second only to the European Union as a customer for Chinese exports, and by far the biggest single country. This year China is on course to regain its position as the biggest supplier of goods to the American market, overtaking Canada. And by September 2008 China had surpassed Japan as the largest holder of US Treasuries, in other words as America’s principal creditor.

But the marriage was not quite as close as the headline figures suggested. China certainly helped its exporters by keeping the value of its currency low, buying dollars that were used to buy US Treasuries. Those Treasury holdings helped keep American interest rates low and American consumers spending. But sustaining such growth in exports was not as vital to China as many assumed. The value-added component of its exports accounted for a much smaller share of its GDP than the gross figure because much of the value of Chinese goods consumed in America was created elsewhere. The biggest driver of growth in China was investment, and that has become all the more true as China tries to pump up its economy with nearly $600 billion in stimulus spending. So although China’s economy no longer enjoys the double-digit growth rates of a few years ago, it is on course for 8% growth this year and a similar rate next year, says Nicholas Lardy of the Peterson Institute for International Economics in Washington, DC, even as America’s economy is still trying to emerge from recession.

No wonder that China is feeling a little smug. Millions of migrant workers have been laid off from their jobs in the ravaged export industry, but now a rush of Christmas orders is opening up new opportunities. Some factories even complain of labour shortages. In many cities house prices have been rising rapidly (a new bubble, some fear) and consumer spending—though never as strong as the government would like it to be—is holding up well. Students face a tough job market when they graduate, but that is partly because college enrolment has surged in recent years. Official statistics show that urban unemployment has risen only a whisker since the beginning of the year. Chinese job figures can be unreliable, but anecdotal evidence points the same way.

American officials have developed a tendency to put the two economies on a par, but despite all the talk of a G2 (though not by the two governments themselves) they are far from equal. China’s GDP in 2008 was $4.4 trillion, smaller than Japan’s (although next year it could overtake Japan) and less than a third of America’s. Albert Keidel, a former Treasury official, says it makes little sense to equate the economies of China and America. “But in terms of influencing China to think that it is a partner with us and therefore it has certain responsibilities and should listen to what we think is important, that has some salience,” he says.

To help cajole China into joining hands with America, Mr Obama has set up a new annual forum called the Strategic and Economic Dialogue that held its first meeting in Washington, DC, in July. The idea was to bring together leading policymakers from both countries to discuss the entire range of problems confronting them. “The pursuit of power among nations must no longer be seen as a zero-sum game,” the president said as he addressed the gathering.

You lose, we lose

As far as the economy is concerned, China heartily agrees. It may grumble about the dollar’s dominance in the global trading system, but it has no desire to pull the rug from under America’s economy. A run on the dollar would be a blow to China itself, slashing the value of its stash of over $800 billion in US Treasuries. Chinese officials also worry openly about a possible resurgence of inflation in America, which would also drive down the value of the dollar. The American budget deficit spooks China, but appears to make little difference to its willingness to lend. China, says Wu Xiaoqiu of Renmin University, has been “kidnapped” by America’s currency. China’s purchases of US Treasuries will naturally slow down along with its export growth. But for now the country is still piling them up.

China may dream of a different world in which the yuan ranks alongside the dollar, euro, sterling and yen as a reserve currency. It is beginning to promote use of the yuan instead of the dollar in transactions with some of its trade partners, but it has set no timetable for making its currency convertible. In September it bought $50 billion in IMF bonds to boost its influence in the institution and strengthen the role of non-dollar currencies (IMF bills are linked to a basket of currencies). But China has not sought to ease the Americans or Europeans out from their dominant roles in the World Bank and the IMF.

When Timothy Geithner, now treasury secretary, said during a Senate confirmation hearing in January that Mr Obama believed China was “manipulating” its currency to gain an unfair trade advantage, the administration was quick to back away from the remark. The yuan’s value has hardly been mentioned in public since. A recent study by the Peterson Institute says that the yuan remains “significantly undervalued”, by 15-25% against a weighted average of the currencies used by China’s trading partners. But American officials know just how prickly China can get when it is accused of mercantilism.

As Americans save more and buy less from China, America’s trade deficit with China—which has been its biggest with any country since 2000—will shrink anyway. But protectionist sentiment in both countries will remain strong. Mr Obama’s decision in September to impose punitive tariffs on imports of Chinese steel pipes and tyres infuriated the Chinese government, although it has so far resisted lashing out (summitry with Mr Obama being too big a party to spoil).

American businessmen, meanwhile, worry no less about protectionism in China. Many saw China’s decision in March to reject a takeover bid by Coca-Cola for a Chinese juice company as a bad omen. As Chinese businesses look around America for bargains, they will get a mixed reception: sellers are eager for China’s cash, but worried about the survival and security of Brand America.
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Nov 26, 2009, 01:25 PM
 
All those economists that bring the argument that China doesn't wanna lose its $800B in treasuries: WAKE UP. The Chinese already KNOW that money is basically lost. By the time they get it all back, the USD is toilet paper. They know that.

What China is doing is slowly (in a orderly fashion) winding down investments in the US and redirecting its productive capacity to own consumption and to other importers. They know and expect that the US will f**k it up, because there are no signs at all that the US politicians get it.

-t
     
finboy
Registered User
Join Date: Mar 2000
Location: Garden of Paradise Motel, Suite 3D
Status: Offline
Reply With Quote
Nov 26, 2009, 02:01 PM
 
Originally Posted by turtle777 View Post
Well, take a look for yourself:
I'm not convinced that the Fed is going to be behind the inflation, at least what they've done since 2007. Most of that was systemic liquidity, and ebbs and flows and stays out of prices.

The "stimulus," however, and spending of all types (including extending unemployment benefits) will HAVE TO result in inflation at some point, and any monetization of that (printing to spend NOW) will drive inflation for sure. Another big factor is the uncertainty regarding future taxes, that will drive up rates eventually, and the uncertainty over health care expenses. Those are a lot more tangible I think.
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Nov 26, 2009, 02:42 PM
 
Originally Posted by turtle777 View Post
All those economists that bring the argument that China doesn't wanna lose its $800B in treasuries: WAKE UP. The Chinese already KNOW that money is basically lost. By the time they get it all back, the USD is toilet paper. They know that.

What China is doing is slowly (in a orderly fashion) winding down investments in the US and redirecting its productive capacity to own consumption and to other importers. They know and expect that the US will f**k it up, because there are no signs at all that the US politicians get it.
Case in point: "How and Why China Will Flood the Gold Market " by Jeff Clark. FSO Editorial 11/25/2009

-t
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Nov 26, 2009, 05:30 PM
 
Here's a nice graph, showing how the government is fudging the CPI number to keep inflation "down".

The graph compares the 1980 CPI definition to what the official number is today.



Taken from here.

-t
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Mar 4, 2010, 12:26 AM
 
Well, hell, helicopter Ben's still at at it.

This is the change from when I first posted this chart.





Up about 24% in 14 months.

-t
     
Cold Warrior
Moderator
Join Date: Jan 2001
Location: Polwaristan
Status: Offline
Reply With Quote
Apr 1, 2011, 06:52 PM
 
Bumped to remove the auto-lock. Some concerns about age, but PM me if it's a problem and I'll consider moving new posts into a new thread.
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Apr 1, 2011, 07:39 PM
 
Thanks, CW.

Well, it's been another year. What has the Chairsatan done ? Yes, as predicted, he's gone gung-ho after killing the USD.

Between March 2009 and March 2011, the Fed's balance sheet expanded from about 1.6 Trillion to 2.45 Trillion, 53% increase, or about 25% each year.



Of course, the Bureau of Lies and Statistics is doing what it can to fudge inflation numbers, but if you look at how inflation was calculated back in the day (SGS Alternative), you can already see about 10% inflation.



-t
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Apr 10, 2011, 08:11 PM
 
Bill Gross (PIMCO) now short US debt

Exclusive: Bill Gross Is Now Short US Debt, Hikes Cash To $73 Billion, An All Time Record | zero hedge

The end has just come nearer.

-t
     
Dork.
Professional Poster
Join Date: Sep 2005
Location: Rochester, NY
Status: Offline
Reply With Quote
Apr 10, 2011, 10:34 PM
 
Is he long on oil futures? Maybe he could use some of that $73 billion in cash to help out in Libya.

It takes balls to short the US Government. I'm not even sure how you do that.
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Apr 10, 2011, 10:41 PM
 
Originally Posted by Dork. View Post
It takes balls to short the US Government. I'm not even sure how you do that.
Short sale of T-Bills.

It's really unbelievably ironic: the Largest Bond Fund in the world shorts US Treasuries.

-t
     
Dork.
Professional Poster
Join Date: Sep 2005
Location: Rochester, NY
Status: Offline
Reply With Quote
Apr 11, 2011, 11:29 AM
 
Now that I think about it a bit, it's really not that risky a move.

Interest rates on those treasuries are so low that keeping a short position probably doesn't take that much cash to maintain. There is a small (but not zero!) chance that the debt limit will not be increased, and the US government will have to default. If that's the case, a short position will probably make a ton of money. But if business proceeds as usual, you could wind down the short position rather easily (or not -- if it's cheap enough to maintain, you might just hold it until the next debt window increase). It's essentially a lotto ticket, but I wouldn't be surprised if the number crunchers figured out it has a greater expected return than treasuries which currently don't have a very high return.

(Did I get that right? I get all my knowledge about financial markets here, from turtle777, finboy, and besson3c.)
     
glideslope
Grizzled Veteran
Join Date: Mar 2002
Location: NY
Status: Offline
Reply With Quote
Apr 11, 2011, 01:10 PM
 
Originally Posted by thechidz View Post
worse than the great depression and similar to Hitler's Germany. We better get out of these wars.
My Grandfather came to the US in 1935 barely making it out after being targeted by the Nazi's. He was a Mechanical Engineer in the German Aircraft Industry.

He would tell me stories of going to the store with a wheelbarrow of paper money to purchase bread in 1923. They lived on boiled potatoes, and what ever they could find.

Still hear his voice to this day, and it is becoming loud.
To know your Enemy, you must become your Enemy.”
Sun Tzu
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Apr 11, 2011, 01:35 PM
 
Originally Posted by Dork. View Post
Now that I think about it a bit, it's really not that risky a move.

Interest rates on those treasuries are so low that keeping a short position probably doesn't take that much cash to maintain. There is a small (but not zero!) chance that the debt limit will not be increased, and the US government will have to default. If that's the case, a short position will probably make a ton of money. But if business proceeds as usual, you could wind down the short position rather easily (or not -- if it's cheap enough to maintain, you might just hold it until the next debt window increase).
Generally I would agree.

There is one short-term risk: a stock market crash with flight to "safety, the USD.
(kind of a repeat of 2008)

It could push bond yields down in the short run, and make the USD stronger compared to other currencies.

However, that state can't be maintained. The Fed will only allow this for a short while, and then bring on QE3, QE4 and QE EleventyBillion.

In the mid- and long-run, bonds are in a bear marekt, and Bill Gross knows this.
The USD is doomed as long as we have the current breed of politicians and bureaucrats in charge.

-t
     
Athens
Addicted to MacNN
Join Date: Jan 2003
Location: Great White North
Status: Offline
Reply With Quote
Apr 13, 2011, 12:47 PM
 
Isn't the paper money only a 4% representation of the Money supply which is mostly electronic?
Blandine Bureau 1940 - 2011
Missed 2012 by 3 days, RIP Grandma :-(
     
turtle777  (op)
Clinically Insane
Join Date: Jun 2001
Location: planning a comeback !
Status: Offline
Reply With Quote
Apr 13, 2011, 01:14 PM
 
Originally Posted by Athens View Post
Isn't the paper money only a 4% representation of the Money supply which is mostly electronic?
What difference does that make ?
"Prining money" refers to "printing" electronic money.
When the Fed buys Treasuriy Notes (i.e. pure monetization of debt), it transfers electronic dollars into the Treasury's bank account, which then is used to pay government employees or other government spendings.

M2 is now growing at a 10% yearly rate, picking up velocity.

Money Supply Charts

-t
( Last edited by turtle777; Apr 13, 2011 at 01:23 PM. )
     
 
Thread Tools
 
Forum Links
Forum Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Top
Privacy Policy
All times are GMT -4. The time now is 08:45 PM.
All contents of these forums © 1995-2017 MacNN. All rights reserved.
Branding + Design: www.gesamtbild.com
vBulletin v.3.8.8 © 2000-2017, Jelsoft Enterprises Ltd.,