Nassim Taleb on Charlie Rose: "Massive Deflation Nightmare, Roubini Too Bullish"

[Pekelo]

Quote from Now is Now:

Basically, the simple answer is when money supply exceeds productivity...then you have money chasing goods, therefore prices go up. Hope I haven't simplified it too much

Well, I figured that much, but the problems is that they are apples and oranges. Money supply is the volume of money printed, productivity is, well productivity. So it is hard to compare those.

Now is there some kind of ratio/number/index to watch for so we would know for sure that we entered the inflation phase?

 

[Daal]

Quote from Pekelo:


Now is there some kind of ratio/number/index to watch for so we would know for sure that we entered the inflation phase?

I'm going to pay attention to the price index components of the PMI, ISM,etc. The beige book regional reports, fomc minutes. The Senior Loan Officer Survey to know when banks start to lend
The CCI(old CRB index)

 

[Anaconda]

Quote from Angrycat:

I think it's pretty clear that Bernanke is no idiot. I also think it's pretty clear he has no idea what he's doing - that is, he has no idea what the effects of what he's doing will be.

Well, he is smarter than you cause you actually believe what you wrote. He knows what he doing, he is following his orders from the owners of the Fed (it does have shareholders you know). He knows the intended effects, or at least has some kind of a clue. And the Fed is right on track with its plan. Maybe once that gets into your head, you will see the picture with more clarity.

Also, just because he is considered as the all-mighty chairman with superpowers by the media, does not make it so. The fact that he is in the spotlight so much is proof that he is just following orders.

 

[Now is Now]

Quote from Pekelo:

Well, I figured that much, but the problems is that they are apples and oranges. Money supply is the volume of money printed, productivity is, well productivity. So it is hard to compare those.

Now is there some kind of ratio/number/index to watch for so we would know for sure that we entered the inflation phase?

Daal , seems to be on the mark...

Sorry , I could have explained my answer a little better..while the money supply increases compared to productivity , it is in fact the velocity of the money being worked into the market that will in effect lead to possible inflationary pressures.

I may screw this up a little, so bare with me...productivity is only part of the equation and there cannot be any set of historic ratios to determine money velocity (growth or decline) as no two periods over a number of years are the same, especially now,therefore money supply has to be engineered to accommodate existing circumstances. In my opinion, the Fed will attempt to liquefy the market to a)prevent deflationary pressure from taking hold and b) with a little luck, stabilize the market place so that it may gradually rid itself of excesses and provide opportunity for growth.

It ain't going to be easy this time.

Money supply is like oil in a car, it is simply monitored to keep the economy on an even keel with a bias towards moderate growth.

The unfortunate situation we have at present eliminates this function to be efficient,because the Fed , in its wisdom has become a party to propping up the market place which is inefficient. They are in effect "enabling' the drug addict instead of persuading/forcing them to dry out. Therefore, potential real growth is going to be stymied .

The trick is...how does the government extricate itself?

Hope I haven't confused you.

 

[GCSICLRBC]

Quote from scriabinop23:

He's right about a lot of things, but he ignores Soros' also valid idea of reflexivity. Trends can be self reinforcing... ie if deflation sentiment kicks in, managers stop capex, people stop spending, they sell stocks... This can go on for a while... It can be a bubble in both directions.

What happens to 'cash is king' when the Fed is printing money without abandon? People panic away from cash to anything with physical value. That reflexivity can be undone just as quickly as it is wound up.

Time and more importantly value (ie earnings) will solve the overhead supply issues.

Money supply will replace credit, and eventually serve to increase credit flow in nominal terms.

***
If banks don't lend out no new money enters the system. The Fed can recklessly print money to 'plug holes' in banks but we won't see inflation or hyperinflation unless banks lend.

Will they?

Wait and see...

 

[scriabinop23]

Quote from GCSICLRBC:

***
If banks don't lend out no new money enters the system. The Fed can recklessly print money to 'plug holes' in banks but we won't see inflation or hyperinflation unless banks lend.

Will they?

Wait and see...

You can give money directly to the people and bypass banking altogether. That is inflationary.

 

[Angrycat]

Quote from Anaconda:

Well, he is smarter than you cause you actually believe what you wrote. He knows what he doing, he is following his orders from the owners of the Fed (it does have shareholders you know). He knows the intended effects, or at least has some kind of a clue. And the Fed is right on track with its plan. Maybe once that gets into your head, you will see the picture with more clarity.

Also, just because he is considered as the all-mighty chairman with superpowers by the media, does not make it so. The fact that he is in the spotlight so much is proof that he is just following orders.

Oh, right. Because dipshits like you haven't learned the definition of "externalities" and "unintended consequences". In your neat little pretend world the smart people can plan everything from a central point. The only reason central planning has failed in the past is that central planners were not smart enough.

 

[richrf]

Quote from Now is Now:

Daal , seems to be on the mark...

Sorry , I could have explained my answer a little better..while the money supply increases compared to productivity , it is in fact the velocity of the money being worked into the market that will in effect lead to possible inflationary pressures.

I may screw this up a little, so bare with me...productivity is only part of the equation and there cannot be any set of historic ratios to determine money velocity (growth or decline) as no two periods over a number of years are the same, especially now,therefore money supply has to be engineered to accommodate existing circumstances. In my opinion, the Fed will attempt to liquefy the market to a)prevent deflationary pressure from taking hold and b) with a little luck, stabilize the market place so that it may gradually rid itself of excesses and provide opportunity for growth.

It ain't going to be easy this time.

Money supply is like oil in a car, it is simply monitored to keep the economy on an even keel with a bias towards moderate growth.

The unfortunate situation we have at present eliminates this function to be efficient,because the Fed , in its wisdom has become a party to propping up the market place which is inefficient. They are in effect "enabling' the drug addict instead of persuading/forcing them to dry out. Therefore, potential real growth is going to be stymied .

The trick is...how does the government extricate itself?

Hope I haven't confused you.

Yes. I think that velocity is the key. Any one of the variables can grow, but it is velocity that has the most overall effect, since it can change the fastest and grow (or as we have seen slow down) the fastest. It is the key variable. How do we know this is changing? Watch auto and housing sales.

 

[Now is Now]

Velocity basically determines whether the Fed injects the market place based upon the weakness in velocity, and if so to what degree. In other words, if the need for money decreases or gets "washed" then velocity in of itself decreases. The Fed would step up to the plate and inject funds into the market place necessary to ensure growth opportunities where possible to counter that trend.

The problem ,of course, is that those that should be working the funds into the market place are not doing their job..

This could be a very serious situation in the near future.

 

[richrf]

Quote from Now is Now:

Velocity basically determines whether the Fed injects the market place based upon the weakness in velocity, and if so to what degree. In other words, if the need for money decreases or gets "washed" then velocity in of itself decreases. The Fed would step up to the plate and inject funds into the market place necessary to ensure growth opportunities where possible to counter that trend.

The problem ,of course, is that those that should be working the funds into the market place are not doing their job..

This could be a very serious situation in the near future.

Yes, the feds are doing everything they can to induce velocity, but there is no spending, because no one trusts each other. You can thank S&P and Moody for this. Credit ratings are viewed as shams nowadays.

So, Obama's administration is hoping to address this by coming in as the spender of last resort to complement the Feds who are the lenders of last resort. It is rather weird when you think about it, but it may just work. It is the only possibility to avoid a death spiral. If ... and this is a big IF ... government induced spending can make people a little more optimistic about their jobs, and their ability to pay debt, velocity may begin to increase. The Feds have to figure out what to do about housing foreclosures. Guaranteed 4.5% may be what it takes. This is all a guessing game, but I am betting upon a win.