Tue 2010-08-24 20:21 EDT

Gonzalo Lira: How Hyperinflation Will Happen

Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain...For its part, the Federal Reserve has been busy propping up all assets--including Treasuries--by way of ``quantitative easing''...But this Fed policy--call it ``money-printing'', call it ``liquidity injections'', call it ``asset price stabilization''--has been overwhelmed by the credit contraction...the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation...Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It's not that they want more money--they want less of the currency: So they will pay anything for a good which is not the currency...Treasuries are now the New and Improved Toxic Asset...there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil...asset managers will sell Treasuries...right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields...The Fed's buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries...It will be a flash panic...By the end of that terrible day, commodites of all stripes--precious and industrial metals, oil, foodstuffs--will shoot the moon...if it doesn't happen this fall, it'll happen next fall, without question before the end of 2011...

Gonzalo Lira; happened; Hyperinflation.

Thu 2010-07-22 10:39 EDT

A Dual Mandate for the Federal Reserve, The Pursuit of Price Stability and Full Employment

Willem Thorbecke (2000)

Federal Reserve currently has two legislated goals--price stability and full employment--but a debate continues about making price stability the Fed's primary and overriding goal. Evidence from the recent history of monetary policy contradicts arguments in favor of assigning primacy to inflation fighting and supports giving full employment equal importance. Economic performance under the dual mandate has been excellent, with low unemployment and low inflation, while many European countries whose central banks focus solely on inflation are experiencing double-digit unemployment. The costs of unemployment are high, but the costs of even moderate inflation are estimated to be low. Central bankers, who tend to be inflation-averse, need to be prodded to consider goals other than inflation. And, if the Fed pursues price stability exclusively, the price level is not free to increase in the event of an adverse supply shock to prevent large increases in unemployment. A dual mandate allows the Fed to focus on one goal or the other as conditions demand and to balance policy effects.

dual mandate; Federal Reserve; full employment; priced stabilize; pursuit.

Sat 2010-05-22 21:16 EDT

CFEPS Research - L. Randall Wray

L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City, a Senior Research Associate at the Center for Full Employment and Price Stability [CFEPS]...A student of Hyman P. Minsky while at Washington University in St. Louis where he earned his Ph.D. in economics (1988)...Professor Wray has focused on monetary theory and policy, macroeconomics, and employment policy. He is currently writing on modern money, the monetary theory of production, social security, and rising incarceration rates (Penal Keynesianism). He is developing policies to promote true full employment, focusing on Hyman P. Minsky's "employer of last resort" proposal as a way to bring low-skilled, prime-age males back into the labor force. Wray"s research has appeared in numerous books and journals...

CFEPS Research; L. Randall Wray.

Wed 2010-05-19 11:40 EDT

Community Development Job Guarantee

CofFEE - Centre of Full Employment and Equity

The Centre of Full Employment and Equity has developed a sustainable path to full employment, which it calls the Job Guarantee program. A major focus of our work is on articulating this program - explaining how it works, the urgency of it, and the reasons why it is the only way to achieve full employment with price stability, a combination that has evaded most economies in the last 25 years. Under the Job Guarantee policy, the government continuously absorbs workers displaced from private sector employment. The Job Guarantee employees would be paid the minimum wage, which defines a wage floor for the economy. Government employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector. The approach generates full employment and price stability. The Job Guarantee wage provides a floor that prevents serious deflation from occurring and defines the private sector wage structure. CofFEE's latest work in this area has been developed into a proposal for a Community Development Job Guarantee (CD-JG) focussing on the long-term unemployed (people who have been unemployed longer than 12 months) and youth unemployed. These two groups have been targeted because of the severe economic and social costs that result as the period of unemployment lengthens, or when unemployment occurs at the beginning of a person's working life...

Community Development Job Guarantee.

Wed 2010-05-19 11:39 EDT

The Job Guarantee Program

CofFEE - Centre of Full Employment and Equity

The Centre of Full Employment and Equity has developed a sustainable path to full employment, which it calls the Job Guarantee program. A major focus of our work is on articulating this program - explaining how it works, the urgency of it, and the reasons why it is the only way to achieve full employment with price stability, a combination that has evaded most economies in the last 25 years. This is the Job Guarantee program resource page and you can read all about the solution to unemployment in the documents contained here...

Job Guarantee Program.

Credit Writedowns Fri 2009-10-23 09:00 EDT

The next crisis is already under way

Wolfgang Munchau of the Financial Times wrote a very important comment piece in today's Financial Times. In it he said that central banks are targeting asset prices to avoid the brunt of cyclical downturns. This policy is inducing asset bubbles and creating a more volatile real economy with unpredictable negative consequences...Munchau invokes Hyman Minsky's model of financial instability to help explain how this sets us up for a volatile future because traditional macroeconomic theory is inadequate for understanding what got us to this point. In essence, the idyllic state of economic and price stability we know as ``the Great Moderation'' is really just a financialization of the economy. However, a large financial sector leads to excessive dependence on asset prices to fuel growth, which in turn leads to an accumulation of debt...

credit writedowns; Crisis; way.

Mish's Global Economic Trend Analysis Sun 2009-09-20 11:23 EDT

Yellen Calls For "U" Shaped Recession and Another Jobless Recovery

Michael Shedlock

...excerpts from Janet Yellen's Outlook for Recovery in the U.S. Economy: ...the complex topic of inflation. In my career, I have never witnessed a situation like the one that exists now, when views about inflation risks have coalesced into two diametrically opposed camps. On the one hand, one group worries about the long-term inflationary implications of a seemingly endless procession of massive federal budget deficits. At the same time, others fear that economic slack and downward wage pressure are pushing inflation below rates that are considered consistent with price stability and even raising the specter of outright deflation... My personal belief is that the more significant threat to price stability over the next several years stems from the disinflationary forces unleashed by the enormous slack in the economy.

Jobless Recovery; Mish's Global Economic Trend Analysis; Shaped Recession; U; Yellen called.