In case you missed it...

[Kodiak]

A weekend op-ed by [URL="http://www.nytimes.com/2013/03/31/opinion/sunday/sundown-in-america.html?pagewanted=all"]David Stockman[/URL]

Take the time to read it. But it make you want to crawl under the bed!

[rhoff]

It's odd he would criticize Friedman then go on to
re-iterate all the basic warnings of Friedman from
over the years. I agree with his assertion that
Keynsian economics has been what has caused
all this disfunction. I would disagree with the
assumption that the Lehman bankruptcy wouldn't
have led to a financial crisis had the central bank
not stepped in,we have 1933 to know how it
would have played out. I also think it is absolutely
laughable to assert that governments overspend
because Nixon dropped the Gold standard. The
Us govt ran deficits during the civil war,along with
every other nation that has devalued it's currency
over history. Govt promise more than they can tax
because it's human nature to care more about
immediate self preservation than long term
sustainability.

[cottonpicken]

Columbia Professor Michael Woodford, the world's most closely followed monetary theorist, says it is time to come clean and state openly
that bond purchases are forever, and the sooner people understand this the better.
"All this talk of exit strategies is deeply negative," he told a London Business School seminar on the merits of Helicopter money, or "overt
monetary financing".
He said the Bank of Japan made the mistake of reversing all its money creation from 2001 to 2006 once it thought the economy was safely
out of the woods. But Japan crashed back into deeper deflation as soon the Lehman crisis hit.
"If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet
of central banks," he said. This could done with a flick of the fingers. The debt would vanish.
Lord Turner, head of the now defunct Financial Services Authority, made the point more delicately. "We must tell people that if necessary,
QE will turn out to be permanent."
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The write-off should cover "previous fiscal deficits", the stock of public debt. It should be "post-facto monetary finance".
The policy is elastic, for Lord Turner went on to argue that central banks in the US, Japan and Europe should stand ready to finance current
spending as well, if push comes to shove. At least the money would go straight into the veins of the economy, rather than leaking out into
asset bubbles.
Today's QE relies on pushing down borrowing costs. It is "creditism". That is a very blunt tool in a deleveraging bust when nobody wants to
borrow.
Lord Turner says the current policy has become dangerous, yielding ever less returns, with ever worsening side-effects. It would be better
for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy.
The policy can be "wrapped" in such a way as to preserve central bank independence. The Fed or the Bank of England would decide when
enough is enough, or what the proper pace should be, just as they calibrate every tool. That at least is the argument. I merely report it.
Lord Turner knows this breaks the ultimate taboo, and that taboos evolve for sound anthropological reasons, but he invokes the doctrine of
the lesser evil. "The danger in this environment is that if we deny ourselves this option, people will find other ways of dealing with
deflation, and that would be worse."
A breakdown of the global trading system might be one, armed conquest or Fascism may be others - or all together, as in the 1930s.
There were two extreme episodes of money printing in the inter-war years. The Reichsbank's financing of Weimar deficits from 1922 to
1924 - like lesser variants in France, Belgium and Poland - is well known. The result was hyperinflation. Clever people made hay. The slow-
witted - or the patriotic - lost their savings. It was a poisonous dichotomy.
Less known is the spectacular success of Takahashi Korekiyo in Japan in the very different circumstances of the early 1930s. He fired a
double-barreled blast of monetary and fiscal stimulus together, helped greatly by a 40pc fall in the yen.
The Bank of Japan was ordered to fund the public works programme of the government. Within two years, Japan was booming again, the
first major country to break free of the Great Depression. Within three years, surging tax revenues allowed Mr Korekiyo to balance the
budget. It was magic.
This is more or less the essence of "Abenomics", the three-pronged attack on deflation by Japan's new premier and Great Power revivalist
Shinzo Abe.
Stephen Jen from SLJ Macro Partners says Western analysts have been strangely slow to understand the breathtaking scale of what is under
way. The Bank of Japan is already committed to bond purchases of $140bn a month in 2014. This is almost double the US Federal Reserve's
net purchases (around $75bn a month), and five times as much as a share of GDP.
Prof Woodford and Lord Turner both think the Fed has already begun to monetise America's deficits, though Ben Bernanke has been
studiously vague whenever pressed in testimony on Capitol Hill. These are early days. It is tentative and deniable.
The great hope is that this weird episode will soon be behind us, and that such shock therapy will never be needed in the end. If stock
markets tell the truth, the world economy is already healing itself. Another full cycle of global growth is safely under way.
But stock markets are a bad barometer at the onset of every crisis, not least the blistering rally of late 1929, a full year after the world
economy had tipped into commodity deflation.
The Reuters CRB commodity index has been falling steadily for the past six months. Copper futures have dropped 10pc since mid-
February. This is nothing like the early months of the great global boom a decade ago.
The bull case rests on US recovery, a seductive story as the housing market comes back to life and the shale boom revives the US chemical
industry.
Yet the US money supply figures are no longer flashing buy signals. The M2 money stock has contracted over the past three months, and
M2 velocity has dropped to the lowest ever recorded at 1.54.
The country must navigate a fiscal squeeze worth 2.5pc of GDP over the rest of the year, arguably the biggest fiscal shock in half a century.
Five key indicators have been soft over the past week, with the ADP jobs index coming in much weaker than expected on Wednesday.
Growth is below the Fed's "stall speed" indicator, an annualized two-quarter rate of 2pc.
The buoyancy over the past quarter has been flattered by a collapse in the US savings rate to pre-Lehman depths of 2.6pc, and while falling
saving is what the world needs, it is not what America needs. Thrifty Asians are the people who must spend if we are to right the collosal
imbalances in the global system.
The world savings rate is still climbing to fresh records above 25pc. For all the talk of change in China, Beijing is still pursuing a
mercantilist policy. It is still flooding the world with excess goods. It is still shoveling cheap credit into its shipbuilding industry, adding to
the glut. It is still keeping its solar industry on life-support.
China remains chronically reliant on global markets. Given that its trade surplus is rising again, it is questionable whether China is adding
any net demand to the world.
The eurozone, Britain and an ever widening circle of countries in Eastern Europe and the Balkans are mired in recession. Growth is expected
to be just 2pc in Russia and 3pc in Brazil this year.
My fear - hopefully wrong - is that recovery will falter over the second half, leaving the developed world trapped in a quasi-slump, a sort of
grey zone of zero growth that goes on and on, with debt trajectories ratcheting up.
The Dallas Fed's PCE index of core inflation has already dropped to 1.1pc over the past six months. The eurozone's core gauge has fallen to
1.5pc. A dozen EMU countries already have one foot in deflation with flat or contracting nominal GDP. Another shock will tip them over the
edge into a deflationary slide.
If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be
the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks
destroying German political consent for the euro project.
By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game
begins, you stand aside at your peril.
A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating
into ever more deadly strains.
Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign
debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.





http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html

[errolanderson]

that's the position of an academic.

good grief . . . .

[rhoff]

I think the scary thing despite your view going
forward is that all this easing is completely
unprecedented and there is no past scenario to
gauge ourselves by.

[errolanderson]

The U.S. is now on-a-mission to flood
the market with phony money. This is an
attempt to cover their sorry butts from
imploding in financial markets. If the
Americans don't cut their money printing
(QE3), we are at risk at a major bubble
collapse in markets (IMO).

This is the road global markets are
taking right now. Keynesianists will
eventually find their own road to
destruction.

Also, there is all this money printing
and no inflation . . . in fact
disinflation. What gives?? Were't gold
prices supposed to go to the MOON??

Gold is now in a major bear market as is
silver. This has certainly not gone to
plan for the keynesian money printers.

[Rareearth]

Errol, with QE3 and it we debate inflation or
deflation, how do you see the grain markets being
effected. Seems to me trade will stall or move to
a trickle as every one try's to figure out what is
safe. Many suggest commodities, hard assets are
the safest bet. Cash flow is always king. Your
thoughts.

[errolanderson]

Rareearth . . . commodities and hard
assets are now high risk of price
decline (IMO). To me, commodities and
hard assets are now entering an era of
deflation. This is not a time to own
these assets in my opinion.

Also Canada is simply overvalued to the
U.S. So either the U.S. has to make a
miracle recovery or Canada slips. We
have to get in-line with our largest
trading partner.

Land prices may drop, real estate across
Canada is at risk. See know way around
this scenario in my mind. Many on
agriville disagree.

Different grains have different
outlooks. Like edible peas, like milling
oats, canola will continue to be a
bright star, but growers can't be cocky.
Canola sell-offs might be nasty and
unexpected.

Cash corn values are toast . . . . cash
market lows have yet to be seen. Barley
bids will drop when feedlot cattle left
the pens soon. Highs are in for U.S.
wheat cash markets assuming any form of
weather normality.

My fear is a currency war . . . That
would be a dagger to markets and
economies. If Bernanke keeps pushing the
print button, that could piss off a lot
of global central banks. The 1930's had
a brutal currency war . . . the ending
was not pleasant.

So I guess I don't agree with the masses
on what will get us out of these
problems. There is no inflation to enjoy
and hang our financial sins on. The key
is for growers to be active risk
managers and right now I sense the
opposite due to last years U.S. drought.
Too much wheat was left unpriced in the
bin. Too little wheat was forward
priced. Basis contracts were pushed hard
and as Brenda stated these contracts are
crappy.

These are my opinions that I realize
that they are not shared, but since you
asked . . . .

[Rareearth]

Thanks Errol. There is a currency war! Not a if or
when. The key will be supply and demand, not
just for the grains also the currencies or metals. If
things implode will foreign governments be able to
finance grain imports to keep the peasants happy,
and satisfied. If they get hungry they will rebel,
foreign governments won't want that. I wonder if
things implode how long it would take to get trade
to a "normal" level, weeks months, years if
implosion occurs.

[Kodiak]

Errol, what are mechanics and the sequence of events whereby money printing leads to deflation?

I understand how it leads to inflation (classic definition - too much money chasing too few goods). Seems to me deflation would occur when the opposite is true - a surplus of goods and too little money to buy them.

Maybe I've stumbled on the answer. Are the Bernanke Bucks going down a black hole? I don't think so - he'll need them back when he turns around and sells the bonds he's been accumulating. Is that where the deflation comes in? The Fed calling in all those $$ that it previously created and exchanged for government paper?

[rhoff]

Its a good question posed by Kodiak, help me
understand the process where money printing
leads to deflation. In my mind deflation would only
come about if all central banks stopped
printing,gov'ts adopted austerity and consumers
started to truly delever. None of these things are
happening or likely to happen. The US gov'ts idea
of less spending for 2013 is the same amount the
fed will print in one month.
Also consider this easing is no longer an
american only phenomenon now we have the
UK,and BOJ full bore.
Gold in 1975 fell by 50% and I'm sure that year
there was plenty of Errols suggesting the gold bull
run is over however it was just re-loading.

[buzz]

Scary yes but I think people will still have to eat so I guess I will keep farming.

Maybe watch the pennies a little more and pay down some debt.

Is the sky really falling boys?