Comments on: The Inflation Is Coming, The Inflation Is Coming (?)

By: Shannon Melton

Shannon Melton — Thu, 15 Jan 2009 14:11:33 +0000

Paco Ahlgren has been writing a lot about the weakening dollar, Treasuries, and inflation.

http://experienceiseverything.blogspot.com/2009/01/is-fed-buying-treasuries.html

By: Harry Brett

Harry Brett — Wed, 26 Nov 2008 12:17:33 +0000

I’m new to all this, but although the public is conditioned to see inflation as a bad thing, particularly if you’re living on a fixed income, it will have a positive effect on both ends of the problem. Inflation will simultaneously increase the value of fixed assets, while essentially devaluing existing debt. As long as wages keep up with prices, inflation may be part of the solution.

By: Blackeyebart

Blackeyebart — Tue, 25 Nov 2008 20:07:11 +0000

Solving a localised problem in housing by using inflation has three problems 1 it is inefficient – the cost to every asset holder is greater than the advantage to every liability holder. (Check the nation’s Balance sheet – there are more assets than liabilities.)
2 In the short term it will make everything worse. The property market will not recover until the number of sellers decline. But cost inflation will drive more people to the market. And you cannot have asset inflation without cost inflation. Morgagees will respond to inflation by trying to increase interest rates. Think what that will do to the housing market.
3 Curing the inflation will create the recession that inflating the economy was designed to avoid. Show me in history where inflation was slain without pain.

By: Signs of Monetary Expansion « The Baseline Scenario

Signs of Monetary Expansion « The Baseline Scenario — Tue, 25 Nov 2008 19:35:17 +0000

[...] What does this mean? It looks like the Fed will be buying securities either by wiring cold, hard cash to sellers, or by increasing their account balances at the Fed itself, without simultaneously selling Treasuries (or asking the Treasury Department to issue new Treasuries) to sop up an equivalent amount of cash. This ordinarily would run the risk of increasing inflation, but with short-term prices falling, arguably a bit of inflation is just what we need, as Simon and Peter argued yesterday. [...]

By: How to Create Inflation « The Baseline Scenario

How to Create Inflation « The Baseline Scenario — Mon, 24 Nov 2008 21:37:29 +0000

[...] Simon and Peter argued in Real Time Economics earlier today that we need some inflation (see the post just before this one) – not only because deflation is bad, but also because it helps protect asset values, including the [...]

By: Manshu

Manshu — Mon, 24 Nov 2008 19:12:06 +0000

What is a reasonable level of inflation that the US can live with?

I guess if US continues to print currency, very soon the dollar will be worthless. So what is the ball park percentage of inflation that is safe? 2%, 5% 10% or some other figure?

What happens to the trillions held by China and Japan in this scenario? Do they start selling it gradually and move to gold or yens?

By: Dan

Dan — Mon, 24 Nov 2008 18:09:16 +0000

How long before the dollar is worthless?

By: Anonymous

Anonymous — Mon, 24 Nov 2008 17:18:33 +0000

I have other aaproach. What markets don’t like is “Uncertainity”.
Since this crisis is of historic proportions, why doesn’t Govt assess real value of assets held by top 20 finacial institutions in the country? Isn’t this is job of regulators? Once that is done, project losses of additional 20%. And then market will know exactly what each company is holding. Otherwise speculations and rumours will just drive market down. Nothing wil help.

At the same time keep pumping money in the system but don’t lower the lending standards to create new bubbles.

By: Anonymous

Anonymous — Mon, 24 Nov 2008 16:46:53 +0000

From macroeconomic point of view and to bring stability back it is okay. But there should be some tough measures taken for future. Strict regulations and tough punishments. Also, govt should take all the bonuses paid to executives from bailed out institution since 2003 (Citi is now prime candidate). This will help calm taxpayers and dodge political mudsledging. In fact, there should be some of executives already in Jail. Start with rating agencies’ CEOs. Once they have to defend themselves all pieces of this puzzle (who else was at fault) will fall into place. Government has to show to taxpayers that these greedy executives are paying the high price.

In general, inflation is kind of re-distribution of money. It is unfair to taxpayers (and savers like me) that our buying power goes down. Why should we bail out (redistribute money) to these greedy institutions? when they were profiting they didn’t share a dime.

Also, from Citi’s deal, there is not really any upside for govt or taxpayers apart from 8% in dividend and $7B in prefered stocks. If asset prices recover Citi has all the upside with only limited downside.