Tag: Inflation

Posted on

Christian Noyer: Monetizing public debt

Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the BIS: Some central banks have developed large-scale public debt acquisition programmes. They have done so for reasons relating to immediate macroeconomic stabilisation… to go beyond the zero-interest rate limit. The Eurosystem as well intervened on a much smaller scale when malfunctioning debt markets prevented the effective transmission of monetary policy impulses. There is not a single central bank that is seriously considering the monetisation of deficits with the more or less declared intention of reducing the weight of debt via inflation. In my view, this notion is nothing more than a financial analyst’s fantasy.

via Christian Noyer: Public and private debt – imbalances of global savings.
Comment:~ No central bank has declared an intention to monetize public debt (or deficits) — reducing public debt via inflation — but without a viable alternative how many will end up there? Gary Shilling points out that “competitive quantitative easing by central banks is now the order of the day.” The Bank of Japan last year “expanded its balance sheet by 11 percent, while the Federal Reserve’s increased 19 percent, the European Central Bank’s rose 36 percent and the Swiss National Bank’s grew 33 percent.” Japan, after 20 years of stagnation and with net public debt at 113% of GDP, illustrates the predicament facing many developed countries. If there was a plan B they would have tried it by now.

Posted on

Labor Shortage May Help China Adjust to Slower Growth – WSJ.com

Reflecting the tight labor market, wage income for urban households rose 13% year-on-year in the first half, and average monthly income for migrant workers rose 14.9%, according to data from China’s National Bureau of Statistics…… At current rates, China’s private-sector manufacturing wages will double from their 2011 levels by 2015, and triple by 2017, eroding competitiveness and denting the exports that have played a key part in China’s early growth.

via Labor Shortage May Help China Adjust to Slower Growth – WSJ.com.

Comment:~ It makes you question official inflation figures of just 2.2 percent when wage increases are significantly higher.

Posted on

Economists React: How Likely Is QE3 Following Jobs Data? – WSJ

CAPITAL ECONOMICS: QE3 will depend on second-quarter GDP and July’s ISM data because the jobs report was not bad enough to make QE3 “a done deal.” Both GDP and ISM numbers will be released just ahead of the Fed’s next policy meeting.

via Economists React: How Likely Is QE3 Following Jobs Data? – Real Time Economics – WSJ.

Comment:~ The range of opinion canvassed by WSJ leans toward the Fed holding off QE3 for the present because jobs numbers aren’t bad enough to warrant drastic intervention. In the long run QE appears inevitable — and not only in the US. There are three options: (1) stagnation with low growth and high unemployment; (2) debt-deflation as in 2009; and (3) inflation. Option (3) would reduce the public debt load by raising nominal GDP and rescue underwater homeowners and banks by lifting real estate values. Those on fixed incomes would suffer but they do not appear a powerful enough lobby to deter politicians from this course.

Posted on

Quantitative easing and the (lack of) responses in bond yields

…When the Fed was performing quantitative easing, treasury yields rose as the economy recovered and inflation expectation rose. On the other hand, treasury yields fall when the Fed was not performing quantitative easing as the period without quantitative easing coincided with the weakening of the economy as well as the deterioration of the Euro Crisis.

10-Year Treasury Yields

via Quantitative easing and the (lack of) responses in bond yields.

Comment:~ Quantitative easing (QE) expands the stock of money in the economy as the government, through its agent the Fed, issues new banknotes (or equivalent deposits) in payment of goods and services. The resulting inflation would drive up yields.

Posted on

Inflation/Deflation Face-Off: Harry Dent v. James Rickards

At the latest Casey Research conference, Recovery Reality Check, James Rickards, senior managing director of Tanget Capital Partners and author of Currency Wars: The Making of the Next Global Crisis, debates Harry Dent, founder and president of HS Dent Foundation, on the subject of which is more likely in the near-term economic future, inflation or deflation.

Posted on

German Adjustment – NYTimes.com

Paul Krugman: Germany believes that its successful adjustment was the result of its own virtue, but in reality it was successful in large part because of an inflationary boom in the rest of Europe.

And here’s the thing: the Germans are now demanding that the European periphery replicate its achievement (and actually surpass it, because the required adjustment is much bigger) without providing a comparably favorable environment — they’re demanding that Spain and others do what they never did, which is deflate their way to competitiveness.

This is a road to disaster.

via German Adjustment – NYTimes.com.

Posted on

EconoMonitor » Distributional Impacts of Monetary Policy

…Higher than expected inflation will indeed create some winners and losers:

However, the biggest losers are creditors who are almost by definition wealthy, since people owe them money. If a creditor has lent out $100 million at 2 percent interest (e.g. buying a 10-year U.S. or German government bond) and the inflation rate rises from 2 percent to 4 percent, this creditor has lost an amount equal to 100 percent of his expected income or 2 percent of his wealth. This is a far larger loss than any worker could experience as a result of this increase in the inflation rate.

Who would be the winners?

Also, most workers are debtors to some extent. They are likely to have mortgage debt, credit care debt, student loan debt and or car debt. A higher rate of inflation means that they can repay this debt in money that is worth less than the money they borrowed.

via EconoMonitor : EconoMonitor » Distributional Impacts of Monetary Policy.

Posted on

Europe’s Economic Suicide – NYTimes.com

Paul Krugman: If European leaders really wanted to save the euro they would be looking for an alternative course. And the shape of such an alternative is actually fairly clear. The Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it. Even with such policies, the peripheral nations would face years of hard times. But at least there would be some hope of recovery.

What we’re actually seeing, however, is complete inflexibility. In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems. Meanwhile, key officials at the central bank are making a point of emphasizing the bank’s willingness to raise rates at the slightest hint of higher inflation.

via Europe’s Economic Suicide – NYTimes.com.

Posted on

Ray Dalio on global deleveraging, growth and inflation

Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, speaks with Matthew Bishop, US business editor and New York bureau chief for The Economist:

[gigya src=”http://c.brightcove.com/services/viewer/federated_f9?isVid=1″ bgcolor=”#FFFFFF” flashVars=”videoId=1491113553001&playerID=57825992001&playerKey=AQ~~,AAAADXaozYk~,BawJ37gnfAnGoMxEdQj_T9APQXRHKyAC&domain=embed&dynamicStreaming=true” base=”http://admin.brightcove.com” name=”flashObj” width=”486″ height=”412″ seamlesstabbing=”false” type=”application/x-shockwave-flash” allowFullScreen=”true” swLiveConnect=”true” allowScriptAccess=”always” pluginspage=”http://www.macromedia.com/shockwave/download/index.cgi?P1_Prod_Version=ShockwaveFlash”]

Posted on

Gold falls as Fed gives no signs of new stimulus | Marketscope | Investing | Financial Post

The dollar rebounded after Fed Chairman Ben S. Bernanke, in congressional testimony, gave no signal that the central bank is considering additional measures to spur the economy. He said the inflation outlook is “subdued.” The greenback gained as much as 0.5 percent against a basket of competing currencies.

via Gold falls as Fed gives no signs of new stimulus | Marketscope | Investing | Financial Post.

Powered by WordPress / WordPress Maintenance By WPSmart