[wildbourgman]

I'm a little late to this discussion but I think QE and stimulus were a disaster. Even though I did enjoy the nice tax break in the form of full depreciation of some major purchases.

I think that we also had a good bit of inflation due to QE, the bailouts and stimulus. We are still suffering the fall out right now of trying to tame the business cycle and therefore the economy has never really cleansed itself from the mal-investment of housing boom and possibly even the dotcom boom.

In my view if our recession of 2008 was going to be deep enough to cause 40% deflation, because that's what the economy could sustain and because that's what the business cycle needed in order to clear out inventory, and then the governments intervention that caused 1 percent inflation, that's a total of 41% inflation caused by the interference.

I know that's a run on sentence but I'm not educated enough to explain it any differently. Does that make any sense to anyone? At some point we have to pay the piper, sure Bernanke and the gang got themselves out of the woods but in the big picture they postponed the inevitable, complicated it, and made it exponentially worse when we final have to deal with the consequences of our actions.

[MonteQuest]

In my view if our recession of 2008 was going to be deep enough to cause 40% deflation, because that's what the economy could sustain and because that's what the business cycle needed in order to clear out inventory, and then the governments intervention that caused 1 percent inflation, that's a total of 41% inflation caused by the interference.

I know that's a run on sentence but I'm not educated enough to explain it any differently. Does that make any sense to anyone?

No. You are going to have to elaborate. How does 40% deflation + 1% inflation = 41% inflation?

Or are you saying the "intervention" caused 41% inflation?

[wildbourgman]

In my view if our recession of 2008 was going to be deep enough to cause 40% deflation, because that's what the economy could sustain and because that's what the business cycle needed in order to clear out inventory, and then the governments intervention that caused 1 percent inflation, that's a total of 41% inflation caused by the interference.

I know that's a run on sentence but I'm not educated enough to explain it any differently. Does that make any sense to anyone?

No. You are going to have to elaborate. How does 40% deflation + 1% inflation = 41% inflation?

Or are you saying the "intervention" caused 41% inflation?

What I'm saying IF the real economy was going to have 40% deflation during a recession and the intervention stopped that cold and then actually gave us 1% inflation, wouldn't that turn around feel like 41% inflation to people that needed the 40% reduction in goods and services in order to have the same purchasing power?

In the big picture I'm saying that the folks on the bottom got royally screwed during Stimulus and QE. Prices were going to fall to a point where life would have been much more affordable and the entire rich getting richer meme would have been changed somewhat. What we eventually did was bail out the rich and caused an inflationary environment where they gained much more since 2008. The people on the bottom tier saw prices go up when they should have fallen, our wages were stagnant and now I think we are going to see a replay of the same event because we never fixed the systemic problems.

[radon1]

we never fixed the systemic problems.

The systemic problem, according to yourself, is that "the economy has never really cleansed itself from the mal-investment of housing boom and possibly even the dotcom boom". Therefore, fixing it means laying off those employed in mal-invested firms, i.e. laying off massive numbers of the people on the bottom.

Capitalism = rich getting richer (with or without QEs).

[wildbourgman]

Radon, massive amounts of people lost employment anyway we just didn't see it due to the robust welfare state. If we had soup and bread lines rather than EBT cards you'd call 2008 the start of the depression. Our level of people in the United state that are out of the work force and or underemployed is at depression levels and has been for some time.

I feel like we would have had a spike in job losses in 2008-09, the bad actors would actually been financially been punished through free market economics. We would have had a real sustainable rebound at some point not this artificial BS. The addiction to growth leads us to subsidize the rich and ultra rich that is in no way right or sustainable.

So if the choice would have been taking our medicine and allowing the collapse all at once and having a real economy or having this meandering collapse and never really knowing when our actions are going to catch up with us, I'd take the instant pain.

Think about it this way, is it better to take pain killers and keep going when you have a severe physical ailment or is it better to feel the pain, understand what actions hurt you in the first place so you don't repeat them, and eventually do the things that will heal you long term?

QE and stimulus was morphine for the banking system more than it was for the population as a whole.

Doesn't that make sense?

[MonteQuest]

The people on the bottom tier saw prices go up when they should have fallen, our wages were stagnant and now I think we are going to see a replay of the same event because we never fixed the systemic problems.

Yes, we didn't deleverage the existing debt; we added to it. Simple as that. The bubble is bigger than ever and still searching for a pin.

[wildbourgman]

The people on the bottom tier saw prices go up when they should have fallen, our wages were stagnant and now I think we are going to see a replay of the same event because we never fixed the systemic problems.

Yes, we didn't deleverage the existing debt; we added to it. Simple as that. The bubble is bigger than ever and still searching for a pin.

Agreed.

To me the bigger the bubble grows the smaller the prick needs to be in order to make the bubble burst. Unfortunately there is a bunch of pricks out there that can potentially pop this sucker!

I'm trying to figure out how to react when the helicopter money starts.

[MonteQuest]

I'm trying to figure out how to react when the helicopter money starts.

Immediately spend it on some very tangible and that will be in demand. Now, that could be anything from physical gold to liquor and cigarettes, depending on how everything shakes out.

[wildbourgman]

Did my thoughts on inflation ever make sense to anyone other than me?

[vtsnowedin]

Did my thoughts on inflation ever make sense to anyone other than me?

I followed your math but don't know the validity of your 40%deflation starting point.
For people that kept their jobs through the 2008 to 2015 period the stimulus worked or at least did them no harm. Those that got stripped of their investment through job loss and foreclosure took a huge hit in comparison so it is just a matter of whose ox is being gored. The fact that we increased the National debt as much as we have is the much bigger problem and may yet bring down not only the middle class but the rich as well.

[radon1]

Think about it this way, is it better to take pain killers and keep going when you have a severe physical ailment or is it better to feel the pain, understand what actions hurt you in the first place so you don't repeat them, and eventually do the things that will heal you long term?

How do you know that the things that will heal you in the long term do exist? Everyone assumes that this is the case, and that this goes without saying, but no one explains why.

This is a terminal condition. Long-lasting, with ups and downs, but terminal. 0% interest rates and no inflation. With QEs, at least the banking system is working, cash machines operate and so on.

[Pops]

Prices were going to fall to a point where life would have been much more affordable...

In deflation prices fall relative to currency.

Good deflation is when prices fall because productivity rises, and wages rise commensurately.
There was big-time deflation in the late 1800s for example. But it was because of industrialisation that brought about cheap industrially made stuff lowering prices even while demand boomed and wages rose.

But bad deflation, when money becomes less available and so more valuable (as in a credit freeze) lowers prices because of reduced demand. Prices fall but wages do to.

[MonteQuest]

Did my thoughts on inflation ever make sense to anyone other than me?

To have 41% inflation, you would have to increase the money supply through the roof. Price inflation is the result of too much money chasing too few goods. An inflated "money supply." Yes, we have gone deeper in debt, but QE didn't increase the money supply, it swapped a bad debt portion of the "money supply" for a more liquid asset, bank reserves. Basically, we hid some of the assets we needed to deleverage on the FED's balance sheet to keep the house of cards from coming down--deleverage.

[MonteQuest]

But bad deflation, when money becomes less available and so more valuable (as in a credit freeze) lowers prices because of reduced demand. Prices fall but wages do to.

Spot on correct.

[MonteQuest]

Prices were going to fall to a point where life would have been much more affordable and the entire rich getting richer meme would have been changed somewhat.

Not necessarily.

Price deflation is about falling prices for the goods and services you need to live and enjoy life. Because the prices for the things you need to buy are falling – your money buys more, meaning your real wealth is rising, all else being equal.

Asset deflation is about falling prices for the substantive assets that you have – such as your house and your investment portfolio. Because the prices for which you can sell your assets are falling, your assets buy less, meaning your real wealth is falling.

So, bread might be cheaper, but you lose your ass in the stock market and have no money to buy bread.

[wildbourgman]

Ok, let me break this down to one anecdotal scenario and that's it after this.

If I am a worker in 2008 and my income is cut 40% due to the crisis. I now expect prices of everyday goods to fall 40% , but then the government and central banks prop up the market and we actually get a 1% increase in prices. Would that not feel like 41% inflation to that person and others in his situation ?

I think that's why stagflation of the 1970's was so painful.

That's all I'm saying. It's really not that far fetched a concept.

[Pops]

That's better!

It could even be that your wages stayed the same but your savings were decimated, or you home value fell.

[vtsnowedin]

Part of the problem of both inflation or deflation is the unevenness of the process. Back when Carter was president we had fifteen percent inflation but my wages only went up nine percent. If you had debt at fixed interest you got to pay it off with cheaper dollars but the banks soon caught on to that and charged interest rates that were above inflation so it was a matter of luck whether inflation hurt you or helped you. With deflation prices on gas and food might go down but don't expect you property tax bill to decline or your medical insurance to get cheaper as a percentage of your income.. If you wanted to play it you would sell hard assets and hold the cash hoping to buy the assets back later at a lower price.

[MonteQuest]

I've been reading about "helicopter money", and here is what I think it all means.

Helicopter money involves the FED crediting your bank account with money they created out of thin air. No debt attached. Money supply is increased.

QE involved the FED swapping bad debt held by the banks for excess bank reserves they created out of thin air. No debt attached. Money supply remains the same, but the bond yield curve is affected.

QE involved a liquidity swap with the stated intention that the bad debt will at some time be sold back to the private sector when the economy picks up and there is the first sign of inflation above target. Which raises a few questions: Will the bad debt be good debt by the time the FED needs to sell it to rein in the money supply? Or will they sell other securities they hold and continue to hide the bad debt on their balance sheet? Are there enough good securities to do that?

Helicopter money would be put into reverse by raising taxes when the economy is doing better and inflation arises above target. What will people do with their “helicopter money”? Will they save the money or spend it? Let us suppose they buy government debt in the form of bonds. Then this is exactly the same as QE, except that consumers will hold government debt temporarily, instead of the central bank. The ROI will offset the tax bill when it comes. For the credit constrained folk, the central bank’s “check” is just like the loan they couldn’t get. So they use the “check” to make some tangible purchase and reduce their future consumption to pay the tax bill when it comes. Instead of buying government debt, they have bought something real, which will increase aggregate demand for sure.

Bottom line: Helicopter money won't be free. How much you have to pay back, I guess will depend upon how well the economy is doing. Anybody see something I am missing here? Kind of uncharted waters.

[Cog]

You are going to shower the poor with money during hard times and then tax me for the privilege during times of plenty?

How about no.