Printing Money

purch

Once the money printing starts to make a perceptible impact, watch the panic as people move to put their cash into tangible assets

I really do think that there is a huge underestimation of just how much money needs to be created just to plug the gap.

The temptation will always be, however, to "over egg the pudding" and with the less than stellar track record of our central bank, treasury and PM it would be foolish to expect them to get this procedure right.

tradetime

!!!!!!? wrote: »

People are buying bonds now out of pure fear and total mistrust in the banks, the hedge funds and the markets in general.

Sorry, I'd have to disagree with the inclusion of banks in that comment, it's almost tantamount to scare mongering as it makes no sense. US bank deposits are guaranteed up to $250,000 by the FDIC which is back stopped by the US Treasury, thus the government guarantees your bank deposit, if the government were to default on savings deposits, their guarantee of treasury's would be meaningless.
The reason bonds are so strong is because investors have moved into bonds since there is too much uncertainty in the stock market, particularly the big mutual funds, pension funds, just about any fund whose mandate allows it. They have to have a return or face further redemptions, if one had the infamous crystal ball bonds have been the place to be since late 2007, they are customarily the place for investment money to hide in uncertain times, highly liquid and as good as cash.

tradetime

The US certainly didn't see it coming either and have reacted over-zealously once it was blatently obvious what was happening.

Not my point, there has been much made of the fact that "this is just what the Japanese tried and it didn't work"
It's not about whether they anticipated it, the Japanese property bubble burst circa 1992, it wasn't until 1998 that the government began investing in banks via subordinated debt. They also tried to keep all the banks alive, whereas the US have identified key institutions that they feel pose a systemic risk, smaller banks are folding regularly in the US. As I said the Japanese effort was viewed to be a viable approach, but to be too little too late, ergo, if you believe the model should work then you correct the flaws too little becomes a heck of a lot, and too late becomes within months of the beginning of the crisis, not years

tradetime

!!!!!!? wrote: »

That's because the carry trade 'exported' much of the inflationary effect. They could make money available but they couldn't control where it went.

That's actually an interesting point, I've not read much comment on what role the carry trade had on Japans efforts to control the crisis, it shouldn't be an issue in this crisis as everybody is cutting rates.

tradetime

purch wrote: »

I really do think that there is a huge underestimation of just how much money needs to be created just to plug the gap.

The temptation will always be, however, to "over egg the pudding" and with the less than stellar track record of our central bank, treasury and PM it would be foolish to expect them to get this procedure right.

This allowing for accuracy gives some idea of the "gap"
http://www.marketoracle.co.uk/Article7824.html

carolt

Woah - those are some figures in that article!

Not a cheery read.

WTF?_2

tradetime wrote: »

That's actually an interesting point, I've not read much comment on what role the carry trade had on Japans efforts to control the crisis, it shouldn't be an issue in this crisis as everybody is cutting rates.

There's nowhere really to export the inflation to for the UK. The only country in the world that can 'dilute' the inflation it produces is the US, courtesy of the unique position of the dollar.

That means we'll potentially get fallout from dollar inflation plus the full force of our own money printing. Should that manifest itself strongly I'll aim to be out of cash (beyond a six month emergency fund) and into a tangible asset such as a house.

You just know that when politicians and the compliant media are strongly pushing the 'deflation' line onto the public, that what is really going to happen down the road is inflation. There is no way they'll ramp the interest rates up and turn off the printing presses once we see a 'recovery' start.

carolt

How depressing - are there no honest men (or women) in charge of our finances?

Or are you suggesting they are honest but just plain incompetent?

purch

Total destruction of household wealth in the third quarter: $2.8 trillion, the worst in recorded history. That's four times more than the government's entire $700 billion bailout package (TARP).

Sounds like Hyper-Inflation is just around the corner :rolleyes:

The chances of them creating enough new money to plug the gap anytime soon are incredibly slim.

I'll agree that they will no doubt over-compensate over time, and this might lead to an moderately inflationary rebound 7-10 years down the road, but I think it is the deflationary impact that is being under-estimated.

The media is pushing the Inflationary scare story far more.

carolt

Sorry for being dim - and yes, I do know it's worse this time round - but house prices, stock markets etc have all crashed before eg in the early 90's, and we had none of this kerfuffle, neither massive inflation or deflation that I recall.

Why can't we just let asset prices fall till they hit fair value?