Faber: Nations Will Print Money, Go Bust, Go to Warâ¦We Are Doomed
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Thurston, sometimes real world problems don't have positive solutions. In those circumstances you have to choose between strategies that you know will be painful. Such situations are the big leagues of decision making and leadership. A decision in such circumstance requires a thoughtful choice among all losing strategies, and the strenth and commitment to perservere through the pain to save what can be saved.
It is that context that talk about our situation now. I never said that we want inflation or deflation. Personally, I don't believe either path is without pain. What I am actually saying is that in the context of the current process of aggregate private credit contraction it appears that the inflation strategy that is assumed to be the most popular political choice is presently not working. I think it could work, but only after the fiscal strategy is changed in a way to promote private sector growth rather than government sector growth. I think you and I agree in that...based on your tax cut recommendation that I would agree with...but I don't see that happening...best we can hopefor is less spending and a standstill after the bush tax cuts expire.
If growth is not possible, it is even more important that we pay attention to the deficit spending. You dismiss it becuase your historical reference is grounded in an inflation context, a much larger private sector/ public sector balance, a much lower starting real individual tax rate, and a much lower amount of existing accrued sovereign debt. Consider that federal real revenues continued to increase annually all through the great depression. What do you think the chances are of that happening now. Expressed as a percent of GDP our federal revenues last year were the lowest since 1954...but our spending expressed as a percent of GDP increased by 17% from the prior year.
You don't think that is a problem becuase you suggest that the government has a monopoly on currency....so did Zimbabwe. That 'monopoly' depends on whether treasury auctions are successfull. When a treasury auction fails badly you will see that the right to print money will be a wasting asset.
The gov't bilge that Scataphagos referred to is the bilge that comes out of Krugman's mouth...as evidenced by exactly wrong quote posted above.
It is that context that talk about our situation now. I never said that we want inflation or deflation. Personally, I don't believe either path is without pain. What I am actually saying is that in the context of the current process of aggregate private credit contraction it appears that the inflation strategy that is assumed to be the most popular political choice is presently not working. I think it could work, but only after the fiscal strategy is changed in a way to promote private sector growth rather than government sector growth. I think you and I agree in that...based on your tax cut recommendation that I would agree with...but I don't see that happening...best we can hopefor is less spending and a standstill after the bush tax cuts expire.
If growth is not possible, it is even more important that we pay attention to the deficit spending. You dismiss it becuase your historical reference is grounded in an inflation context, a much larger private sector/ public sector balance, a much lower starting real individual tax rate, and a much lower amount of existing accrued sovereign debt. Consider that federal real revenues continued to increase annually all through the great depression. What do you think the chances are of that happening now. Expressed as a percent of GDP our federal revenues last year were the lowest since 1954...but our spending expressed as a percent of GDP increased by 17% from the prior year.
You don't think that is a problem becuase you suggest that the government has a monopoly on currency....so did Zimbabwe. That 'monopoly' depends on whether treasury auctions are successfull. When a treasury auction fails badly you will see that the right to print money will be a wasting asset.
The gov't bilge that Scataphagos referred to is the bilge that comes out of Krugman's mouth...as evidenced by exactly wrong quote posted above.
Is it as you say: "The problem nowadays is not the printing of money but the fact that there is not enough money around to fuel economic growth. "
Or is this just a symptom of productivity and consumption being out of balance. The real problem in the West might be insufficient productivity relative to consumption, in which case easier credit might make matters worse.
And on a related matter, those of you arguing about economic theory and whether or not the Fed is powerless to stop deflation might want to do some field research and report back. You could, for example, check out the price per pound of chicken breasts compared to a year ago. Theory is sometimes trumped by reality, and that seems to happen more often in the soft sciences like economics and sociology than in the hard sciences!
Ed, with all due respect, please don't start with the Zimbabwe. The Chinese will continue to buy our bonds as it is in their own best interests to do so. I don't want to blow too many minds here, but it might come as a surprise to learn that the US Govt does not fund its spending via foreign debt (Galbraith, Mosler, Stiglitz, et al.) I'm not suggesting there isn't a tipping point with the currency, but that is the wolf on the hill two towns over. There is a wolf at the door and austerity/budget cuts/deficit hawkishness will let him into the house.
Quote from piezoe:
And on a related matter, those of you arguing about economic theory and whether or not the Fed is powerless to stop deflation might want to do some field research and report back. You could, for example, check out the price per pound of chicken breasts compared to a year ago. Theory is sometimes trumped by reality, and that seems to happen more often in the soft sciences like economics and sociology than in the hard sciences!
Pork, poultry and most grain products are down significantly in the past 2 years. I just sat through a presentation on food/commodity pricing at a restaurant convention recently and that is one of the saving graces for restaurants throughout this tough economic period.
"If assets were gold or oil, this phenomenon would be called inflation. In stocks, it is called wealth creation."
- Treasury Secretary Nicholas Brady
Let's think about that quote. Forget QTM. Forget indices that you say are mere aberrations when they act not according to "conventional wisdom." Let's look at something economists ignore - let's look at life. How it changed these past 40 yrs. How we used to live and how we live today. Because my beef with economists is that their thinking is too linear and sterile. They neglect other processes and events and take credit where no credit is due.
Let's look back these past 40 years....
We had the cheap food program under Nixon - grow what you can and we'll pay you for it.
We had de-industrialization, industrial offshoring and technological offshoring made possible by broadband, so it was no longer just the guy that turns a screw on an assembly line, but also the call center, the programmer, etc... that were replaced by people working for a 1/10th of the cost.
We had the consolidation of millions of mom and pop retail stores into megastore behemoths - same with restaurants.
We had Bovine Growth Hormone, genetically modified foods... Whereas in the 1930s over 25% of the population lived on a farm - today, just over 2% of the population grow more food than ever before.
All these technologies and production efficiencies and economies of scale and cheap labor from abroad, were what? They were deflationary.
And who got a lot of credit for this? The Federal Reserve. You know why? Because the inflationary policies of the past 40 years had to show up somewhere... they showed up in stocks, in housing, in office buildings, in resorts, you name it. Anything that can be securitized, invested in, and sold... and it made us all incredibly "wealthy" and made us feel smart. What a convenient accident of history! Thank you Mr. Greenspan, the maestro! At least that's what we thought at the time just before the crash, right?
What's next? Unless the nonmonetary deflationary processes I described above continue at an increasing speed.... I think inflation will rear its ugly head and affect those that can handle it the least - it's actually happening right now, as is deflation. In my perception, they are both happening at the same time because they affect different aspects of life differently. One will eventually give in to the other, in a very big way.
Central Banks accomplish nothing. Their net effect on the economy, and society as a whole, is catastrophic. They give us a false sense of security, all the while taking credit where none is due, and shifting blame on others when it solely belongs to them. One day Milton Friedman's monetarist theories will find their place on the same trash heap of history that Karl Marx's theories inhabit. They were both "over their heads" central planners.
(by the way - I don't mean to sound abrasive - nothing against you. My blood just boils when I analyze the Federal Reserve's actions)
He's not exactly had an easy job. He underestimated the problems in housing and banking, but he has responded "ok". Contrary to what Faber says, the US has yet to show any signs of hyperinflation or a Zimbabwean fate for the currency - in fact the dollar has rallied massively against the Euro and pound, and US Treasuries have yielded 3-4% for the last year.
If Faber judges a central banker by the performance of the currency and government debt, then by all rights he should be praising Bernanke not describing him as the worst central banker ever. He should also admit he made a terrible call on his short Treasuries and short dollar positions, and give an update on whether he has exited, admitting he was wrong, or whether he is still trying to top-pick both those bull markets.
Please provide links of him being short USD and short treasuries.
As far as him being overly critical of Bernanke, do you really feel after a decade of the USD being the weakest of all major currencies a 6 month relief rally not in the least due to the reversal of the carry trade is supposed to crown Bernanke as the central banking king of sound money?
Seems a bit premature, wouldnt you say?