Mish's Global Economic Trend Analysis Wed 2009-11-25 12:05 EST

What Is Inflation and How Does One Measure It?

Michael Shedlock

...Inflation is a net expansion of money supply and credit, where credit is marked to market. Deflation is the opposite: a net contraction of money supply and credit, where credit is marked to market...Credit (and credit problems) dwarf monetary concerns at the present...I still expect the US to slip in and out of deflation and recession for years to come just as happened in Japan...banks aren't lending, consumer credit is contracting, credit writeoffs are likely to exceed monetary printing, and symptoms like treasury yields are in generally in agreement...To bail out the banks' poor bets on Dot-Com companies and Latin America in 2001-2002, Greenspan purposely ignited a credit bubble that led to the mother of all housing crashes. In response to the housing bust, the Fed refused to let failed banks go out of business and is attempting to force another credit bubble...However, this is the end of the line. Housing was the bubble of last resort, nothing can come close to the number of jobs created by the global housing bubble. Further attempts to reflate will do nothing but create a currency crisis, crash the economy, and add to future liabilities that cannot be paid back.

Inflation; measured; Mish's Global Economic Trend Analysis.

Jesse's Café Américain Fri 2009-11-20 08:01 EST

Krugman Declares "Mission Accomplished," Maginot Line Completed

Jesse

...the key to coming out of a crisis permanently is not how quickly and dramatically one inflates the money supply, or even how long one maintains it, and how many stimulus programs one can create, but rather how quickly and capably a country can reform, can change the underlying structures that caused the problem in the first place. Japan has been doing it slowly because of its embedded kereitsu structure and government bureaucracy supported by a de facto one party system under the LDP. In the 1930's the impetus for reform was overturned by a strict constructionist Supreme Court and an obstructionist Republican Congress. The story of our time might be the perils of regulatory and political capture.

Jesse's Café Américain; Krugman declared; Maginot Line Completed; mission accomplished.

zero hedge Mon 2009-10-26 09:28 EDT

How The Federal Reserve Bailed Out The World

The Bank of International Settlements [BIS] just released a major paper titled "The US dollar shortage in global banking and the international policy response" which goes on to demonstrate just how it happened that Fed chief Ben Bernanke in essence bailed out the entire developed world, which was facing an unprecedented dollar shortage crisis due to the sudden implosion of FX swap lines and other mechanisms which until that point were critical in maintaining the dollar funding shortfall for virtually every foreign Central Bank...When the financial system almost imploded in the fall of 2008, one of the primary responses by the Federal Reserve was the issuance of an unprecedented amount of FX liquidity lines in the form of swaps to foreign Central Banks. The number went from practically zero to a peak of $582 billion on December 10, 2008. The number of swaps outstanding was almost directly inversely correlated with the value of the dollar...what happened is that short-term sources to sustain the massive dollar funding mismatch disappeared virtually overnight, and CBs were suddenly facing a toxic spiral of selling increasingly more worthless assets merely to satisfy currency funding needs in an environment where all of a sudden nobody was willing to provide FX swap lines...had the Fed not stepped in, the rest of the world...would have simply collapsed as the $6.5 trillion dollar funding gap closed in on itself, causing a indiscriminate selling off of all dollar denominated assets. The implosion of the basis trade would have seemed like a picnic compared to what was about to ensue had the Fed not stepped in to perpetuate the Fiat banking way of life.

Federal Reserve bail; world; Zero Hedge.

Credit Writedowns Fri 2009-10-23 08:57 EDT

US angling to get Chinese to revalue renminbi

In what looks to be a central line of attack in the quest to re-balance the global economy, the Treasury Department has ratcheted up the rhetoric against China's currency peg. The Treasury's semiannual report to Congress slammed the Chinese for their lack of exchange rate `flexibility,' but stopped well short of accusing the Chinese of currency 'manipulation' as Tim Geithner had claimed...[dollar losing reserve currency status]

angle; Chinese; credit writedowns; revalue renminbi.

Tue 2009-09-29 11:33 EDT

How Bad Will It Get?

Mike Whitney, CounterPunch

In the two years since the crisis began, neither the Fed nor policymakers at the Treasury have taken steps to remove toxic assets from banks balance sheets. The main arteries for credit still remain clogged despite the fact that the Bernanke has added nearly $900 billion in excess reserves to the banking system. Consumers continue to reduce their borrowing despite historically low interest rates and the banks are still hoarding capital to pay off losses from non performing loans and bad assets. Changes in the Financial Accounting Standards Board (FASB) rules for mark-to-market accounting of assets have made it easier for underwater banks to hide their red ink, but, eventually, the losses have to be reported. The wave of banks failures is just now beginning to accelerate. It should persist into 2011. The system is gravely under-capitalized and at risk...The economy cannot recover without a strong consumer. But consumers and households have suffered massive losses and are deeply in debt. Credit lines have been reduced and, for many, the only source of revenue is the weekly paycheck...The current recession has exposed the fault-lines dividing the classes in the US. Neither party represents working people. Both the Democrats and the Republicans are supportive of "social engineering for the rich"; regressive taxation and economic policies which shift a greater portion of the wealth to the richest Americans. The question of inequality, which has grown to levels not seen since the Gilded Age, will dominate the national conversation as the recession deepens and more people slip from the ranks of the middle class...After Obama's stimulus runs out, consumer spending will again sputter and the economy will slide back into recession.

bad.

The IRA Analyst Mon 2009-09-21 17:23 EDT

Exposure at Default: As Banks Shrink, So Does the Economy

...before Treasury Secretary Tim Geithner and the other G-20 finance ministers set about to raise capital levels, they need to understand that the earnings of the banking industry are going to be impaired for years as the cost of resolving failed banks is repaid. Restoring solvency is the first issue for many banks, then we can talk about increased capital and restrictions on risk taking equally. And as the banking industry shrinks defensively in order to conserve capital and fund liabilities impaired by realized losses, the credit available to the US economy also shrinks. You can't have economic growth without credit growth...Bottom line is that deflation is still the chief threat to the US economy, driven by a relentless contraction in bank and nonbank credit. Until we see a restoration of the market for nonbank finance and a sustained turn in the EAD of the large bank peer group, which accounts for almost 70% of the entire US industry balance sheet, we do not believe that any economic recovery will be meaningful in terms of jobs or asset prices.

Banks Shrink; default; economy; exposure; IRA Analyst.

The Economic Populist - Speak Your Mind 2 Cents at a Time Fri 2009-09-11 17:54 EDT

90% of Residential Loans U.S. taxpayer backed

Buried in a Washington Post article: 90 percent of all new home loans are funded or guaranteed by taxpayers...taxpayers are on the hook for most of the loans that are still being made if they go bad. And they are also on the line for any losses in the massive portfolios of old loans at Fannie Mae and Freddie Mac, which own or back more than $5 trillion in mortgages.

90; economic populist; Mind 2 Cents; Residential Loans U.S. taxpayer backed; speaking; Time.

Tue 2009-04-21 00:00 EDT

naked capitalism: On Traders Behaving Badly and Cognitive Bias

``traders will cheat to maximize their bottom line, which makes sense, since they are screened and incentivized to be the sort that will seek aggressively to extract as much as they can''

cognitive biases; naked capitalism; Traders Behaving Badly.

Fri 2008-11-07 00:00 EST

Wall Street bankers in line for $70bn payout |

Wall Street bankers in line for $70bn payout, by Simon Bowers | Business | The Guardian; 2008-10-17

70bn payout; lines; Wall Street bankers.

Fri 2008-06-27 00:00 EDT

Mish's Global Economic Trend Analysis: Is The Inflation Scare Over Yet?

"Destruction of credit via massive writedowns..., accompanied by sharply rising unemployment rates, falling wages, and curtailment in credit lines everywhere is simply not an inflationary environment"; "ery likely new all time lows in the 10-year treasury yield and 30-year long bond are coming up"

Inflation Scare; Mish's Global Economic Trend Analysis.

Tue 2008-06-17 00:00 EDT

Sudden Debt: No More Salami

global CDO issuance down 94% YOY; death of structured finance leaves Wall Street production lines idle

Salami; Sudden Debt.

Wed 2008-06-11 00:00 EDT

Mish's Global Economic Trend Analysis: Junk Bond Defaults Soar; Citigroup "Uneasy"

over credit line drawdowns

Citigroup; Junk Bond Defaults Soar; Mish's Global Economic Trend Analysis; uneasiness.

Wed 2008-03-26 00:00 EDT

Winter (Economic & Market) Watch >> Mad Max Check Out Time

Winter (Economic & Market) Watch >> Mad Max Check Out Time; "The lender of only resort to the shark in suits black box crony capitalists has caused quite a splash. It is clear to me that the Pig Men will line up around the block to get the kind of terms offered in the JPM-BSC Ponzi finance liquidation"

economic; mad Max Check; Market; Time; watch; winter.

Fri 2008-03-21 00:00 EDT

naked capitalism: Why Didn't Bear Use its Credit Lines?

bears use; Credit Lines; naked capitalism.

Fri 2008-02-22 00:00 EST

Between The Lines > Inside Bernanke's Brain - The Fed's Response To The Crisis

Between The Lines > Inside Bernanke's Brain - The Fed's Response To The Crisis, by Aaron Krowne; "Fed doesnt actually control rates, at least not directly. It only sets a TARGET"; "in times of great distress (as now), the rates can get away from the Feds grasp, and it becomes important to distinguish. Specifically, if the Fed were to try to force the funds rate up to the 4.5% target while they were naturally trading around 3%, they would actually have to WITHDRAW liquidity from the system, causing a catastrophic deflationary spiral."

Bernanke's Brain; Crisis; Fed's responsibilities; lines.

Wed 2007-09-26 00:00 EDT

Between The Lines > Is The Fed Flushing Out The ``Excess Credit'' Demons?

Between The Lines > Is The Fed Flushing Out The "Excess Credit" Demons? by Aaron Krowne; reserve requirements relaxation by Fed more important than rate changes

demonic; excess credit; Feds flush; lines.