Re: Its not just the US Federal Reserve...Everybody's Doing it...
Scott Raynovich
4/28/2011 9:53:47 AM
Ashish,
We don't have hyperinflation yet (though hyperinflationists have been calling for it for years) because the money multipliers and money velocity are still low -- and dropping! So the Fed is pumping all this money and it is flowing into certain assets (emerging markets, commodities, and precious metals), but not so much into the Western labor market. Inflation won't really take off until some of that money makes it back into the developed market economic system, and then it could accelerate rapidly.
I will have a post on this next week.
AskAsa said:
"One downside to these low rates is that many people can't take advantage of them."
That's exactly right. It's a gift to the banks who can borrow at low rates and loan to the rest of the world at higher rates. The government likes this because it "saved" the banks and allowed them to repair their balance sheets. But there is definitely a cost, especially if you are a saver and your savings have no yield now.
Re: Short term thinking
AskAsa
4/28/2011 7:12:06 AM
One downside to these low rates is that many people can't take advantage of them. They're stuck in houses they bought when they had higher paying jobs, and can't qualify to refinance now -- even with the lower APR -- because of lower income and/or lower property value.
Its not just the US Federal Reserve...Everybody's Doing it...
back2basicz
4/28/2011 5:51:06 AM
Scott,
It is a very well known fact of Life(&Economics),that the real value of any item lies in
its scarcity.
So with Central Bankers worldwide pumping in so much liquidity in a desperate attempt to preserve Asset prices(which ends up inflating more and more bubbles);more and more people globally have lost faith in Paper Money/Fiat Money.
I am seeing it on the Ground in Africa,China,India,Latin America and even here in the United.States.
So where do we go from here?
Do we really get HyperInflation here in the US???(which is getting more and more coverage globally?)
I am not as sure as the rest of the readers here are.Problem is that the Derivatives market has collapsed and in spectacular fashion too.That was the major factor which was propping up Housing markets(and is a major Liquidity Sucker-Deflationary force).
Even Central Bankers do turn off the Liquidity Spigots then my personal feeling is not only will Asset prices(of all Commodities including Gold and Oil) collapse;but it could very well lead to a massive Jump in the US Dollar[Thats the problem with Heavily Leveraged trades-They look like fun when they are going in your favor but can boomerang dramatically against you as well].
Regards
Ashish.
Agreed cheap money will not solve any of the current issues as clearly seen today ..Gold continued to rise as he spoke. There is no confidence that Bernanke is managing the long term implications of the policy enacted for the past few years. We are not seeing any positive movement based on his actions, the housing market is abysmal the economy is sputtering and the dollar is a second class currency. It’s time for a changing of the guard at the Fed that understand the macroeconomic implications of its policies.
...but I couldn't be more thrilled that rates (specifically the 6-month Libor) are so low (for now). My adjustable rate on an apartment building is 2.75%! After paying my loan, I'm cash flowing $200/door/month! When do people think is the time to lock in a new fixed rate?
Re: Short term thinking
Tenacious
4/27/2011 6:50:41 PM
yea, but just remember. the Fed's gonna be more transparent now. Ben said so..
Short term thinking
AskAsa
4/27/2011 6:45:01 PM
I get frustrated by the Fed because it seems committed to short term thinking, Of course some actions look good "now." But isn't a better question to consider "What effects will this action have on all of our tomorrows?"
Re Cheap money
tokyogai
4/27/2011 5:12:50 PM
Scott,
I couldn't agree more. Cheap money means no time taken for decisions that should take time.Hanging on the fed's words instead of building volume and business just doesn't make sense. Maybe we could learn something from the Chinese.
Scott
I think you are absolutely right about the cheap money causing crisis. There will be another crisis sooner or later. How will investor protect themselves? Gold is a straight forward answer to the financial crisis.
I think Paul Volcker is the best Fed Chairman this country ever had. He got the guts to stand against harsh political attacks and widespread protests , raising the rate to more than 20%, finally get rid of these cheap money and tamed the inflation.
Greenspan & Bernanke is too soft to do anything meaningful to save our financial system.
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