Friday, March 4, 2011

Sustained Unemployment Confirms The Failure of QE-2

So today, two bits of news came out: Unemployment declined to 8.9% last February, as the U.S. economy added 192,000 jobs; and the Federal Reserve signalled that it is definitely-definitely-definitely ending Quantitative Easing 2 (QE-2) in June, as originally scheduled, on the assumption that the economy is improving, and therefore no further extension of QE-2 will be necessary. 

Portrait of the author,
chewing over what it all means. 
On its face, this would seem to be . . . not good news, but at the least encouraging news: The economy seems to be improving, albeit anæmically. 

But is it? 

Stepping on the heels of the Bureau of Labor Statistics release of the employment figures, Tyler Durden at Zero Hedge pointed out that, based on the 25 year average of employment participation of 66.1%, U-3 unemployment ought to be at 11.6%—quite a bit higher than the current 8.9% headline number. 

This points to something that a lot of commentators of the BLS’s numbers have been saying for a while: The number of individuals in the labor market as defined by the BLS has been steadily dropping. But it hasn’t been because of some sudden demographic shock—it’s been because more people have been unemployed for more than two years. 

So-called “Ninety-Niners”—people who have been unemployed for more than 99 weeks, and have therefore run out of unemployment insurance—are dropping out of the BLS accounting for unemployment. 

Calculated Risk had a very clever chart back in December:

Calculated Risk pointed to the peak of job losses—the first quarter of 2009—and how those individuals would be running out of unemployment benefits right about, well, now. The money-quote from CR:
This graph shows the change in payroll jobs each month. The peak job losses were in early 2009—and 99 weeks is just under two years—so many of those people will be exhausting their benefits over the next few months.
So it’s not that there’s been an anæmic growth in jobs—it’s just that more people are being statistically kicked out of the labor force altogether. ZH’s point about U-3 unemployment being 11.6% is likely more accurate than not.

But even if we ignore the naysayers in the blogosphere, such as ZH, CR and Yours Truly, the labor “improvement” isn’t much of a step up: U-3 unemployment at 8.9% from 9.0% the month before, the broader U-6 unemployment index at 15.9% from 16.1 the month before. Down from the November 2010 peak of U-3 unemployment of 9.8%, U-6 unemployment of 17.0%.

Whoop-dee-do. Should I break out the party favors now? Or wait ‘til U-3 unemployment is down to all of 8.8%?

On the other hand, the Federal Reserve is hell-bent on keeping up QE-2—the full $600 billion over eight months of that deficit monetization program. In the above-referenced Bloomberg reporting, the Fed drones were unconcerned that the end of the policy would be abrupt; and they’re right not to worry, the bond markets are fully priced in, insofar as the end of QE-2 is concerned.

But the Fed drones in the report seem to be exceedingly worried about the effect on interest rates that the end of QE-2 will bring about. Per Bloomberg:
Fed staff members, such as Brian Sack, the New York Fed official in charge of carrying out the bond buying, have argued the total amount, or stock, of securities the Fed has announced it will make has more impact on longer-term interest rates than the timing of those purchases. That’s a view now held by several members on the Federal Open Market Committee, including the chairman.
“We learned in the first quarter of last year, when we ended our previous program, that the markets had anticipated that adequately, and we didn’t see any major impact on interest rates,” Fed Chairman Ben S. Bernanke told the Senate Banking Committee during his March 1 semiannual monetary-policy testimony. “It’s really the total amount of holdings, rather than the flow of new purchases, that affects the level of interest rates.” 
Between the lines, the Fed thinks the “recovery” is anæmic at best, illusory at worst—a central bank confident in an economic recovery wouldn’t be so concerned about how the withdrawal of its monetization program would affect interest rates. The end of QE-2—still more than three months away—would be handled with more equanimity by a confident central bank.

So! What does this mean?

It means the Fed is as nervous as a virgin on her wedding day—because it realizes that QE-2 has been a failure.

The Fed is saying that QE-2 will end in June—definitely-definitely-definitely end in June, as Dustin Hoffman’s Rain Man would have said. And the Fed has already put out the expectation that it won’t raise interest rates until the first quarter of 2012, which is when the Fed expects the economy to have fully turned around, and be in full-fledged “recovery”.

Only problem is, as I see it, that the Fed has no confidence in this scenario: Bernanke and the Munchkins at the Federal Reserve don’t really believe in their prediction that the economy will be in turnaround by 2012.

If they did, there’d be no need for hand-wringing over the end of QE-2 in June 2011. There’d be no emphasis on their concern about rates, once QE-2 ends, and even less worries about the abruptness of the withdrawal of the Treasury bond purchases. If the economy were sailing along—as was predicted would happen with the unleashing of QE-2—the policy of money-printing would be quietly turned off, as everyone focussed on the once-again expanding U.S. economy.

That’s not happening—the anæmic employment figures bear this out.

Which means QE-2 was a bust.

Remember: The whole reason from the Federal Reserve’s Quantitative Easing 2 policy was so as to kickstart the U.S. economy with easy money. The Bernank’s argument was, zero interest rates weren’t enough—hence QE-2.

But the unemployment figure tells the story of the failure of QE-2. Even if we accept the Bureau of Labor Statistics’ numbers without complaint, unemployment has gone down all of 1%—at the cost of $600 billion in Fed money-printing. If we accept that John Williams at ShadowStats or Tyler Durden at Zero Hedge are correct in pointing out that real U-3 unemployment as measured historically is closer to 12% than to 8%, then QE-2 has been a complete bust: A pooch-screw of epic proportions.

Apart from not helping U.S. unemployment, this QE-2 money-printing has had the effect of spreading inflation throughout the world—with the accompanying political destabilization that that inevitably entails. The Egyptian protestors ought to send a bouquet of roses to The Bernank, for what he did. So should the Tunisian, Yemeni and Libyan protestors.

No one is sorry to see Mubarak, Ben Ali or Gaddafi go. But what happens when this inflation-fueled political instability touches Saudi Arabia? Russia? Will we be so thrilled, when the protests there cause $200 a barrel oil here? What happens when inflation causes riots in Indonesia? China? Will we be so thrilled, when those markets tank, hurting U.S. exports and driving up the costs of U.S. imports?

Obviously, the Fed did not foresee how QE-2 and the exporting of inflation would affect the rest of the world—no one could have predicted that.

However, the Fed did predict that QE-2 would put more money in the Federal government’s till, with which it could “stimulate” the U.S. economy into growth. It did predict that ZIRP and QE-2 would lead to a wave of business borrowing, and an expansion of the U.S. economy.

But that is not happening. The unemployment numbers are giving lie to the notion that QE-2 could kickstart anything—except inflation.

And that inflation is about to hit the United States.

A couple of days ago, I wrote that the next week-and-a-half would be the do-or-die window for the dollar: The charts seemed to tell the tale of a break down, if the dollar index fell decisely below 77 over the next eight trading days.

As I write this on Friday morning, the dollar index is at 76.350. Gold is at $1,430, silver at a 30-year high of $35.30, copper up, agro up, oil up. The euro, the pound sterling, even the loonie—all up.

Ben Bernanke paid $600 billion for a 1% drop in unemployment in the United States, and a big inflation spike in the rest of the world. Sounds to me like a horrible bargain—a bargaing whose full inflationary price we have yet to discover, but which I think we soon will.
If you’re interested, you can find my recorded presentation “Hyperinflation In America” here. I discuss in detail what I would do, if and when the dollar crashes. 


  1. The problem is the same everywhere: governments are not bailing out businesses, or their buddies, or the people . . . they're bailing out BANKS, through money printing and tax payer expense. Cronyism with the banking industry is what is causing all this instability.

    Ireland is a perfect example. In 2008, Ireland's economy was fine, it had growth, and it had a great tax haven in the EU. However, 2 banks went bad - each had a debt about the size of Ireland's entire GDP. EACH BANK. The Irish government decided to guarantee the banks' losses through the Irish taxpayer.

    Think of it. The politicians bailed out 2 banks, each with debt roughly equal to Ireland's entire GDP, completely sinking an otherwise perfectly sound local economy. Why? Because the 2 banks were loaded with debt from other banks, in the UK, Germany, and the US. The European banking community would begin to topple if Ireland did not bail out these parasites. So the Irish government sacrificed their economy's future to preserve Europe's banks.


    Now, think what the Bernank, the Fed, Goldman Sachs, JP Morgan, HSBC, and the rest of these scum are doing to the WORLD. These banks have their former employees (and new recruits) spread throughout the US Government, the Fed, the SEC, the CFTC, on and on and on. My government has been captured from within, and it runs the world's currency. China's communist government calls for a new, stable reserve currency . . . and I MUST AGREE WITH THEM!

    Mark my words, this will end in full scale war within America, and the world, if these parasites are allowed to stay in power. A handful of bankers cannot be allowed to rule the world.

  2. As I have written often, what seems to be a failure from one point of view is a monumental success from another.

    It is really only the motives of the players that need to be understood to unravel all this confusion.

    When you search your heart Gonzo, you know who Ben Bernanke really works for and you understand how he is flawlessly carrying out his mission, despite any ridiculous notion that a consortium of foreign banking interests could follow a mandate to serve the people.

  3. I'm afraid I don't follow your between the lines reading. What sort of glass do you use to see between those lines. Bernanke says pretty straightforwardly: "We learned in the first quarter of last year, when we ended our previous program, that the markets had anticipated that adequately, and we didn't see any major impact on interest rates"
    So you read between those lines the exact opposite of what he says and then base a good portion of your argument on that. Seems like you may be hallucinating between the lines, or maybe it's just straw-manning.
    At any rate, I think the flame in your header should be burning down somewhat because your arguments seem to be reaching the end of their logical matchstick. I think that following your prognostications could lead many to have burnt fingers...

  4. Let's not also forget how impotent QE 1 and 2 have been for the housing market.

    Despite the Fed plunging mortgage rates to record lows in 2009 and 2010, we have had the weakest demand for existing homes since 2000 while at the same time new home sales are the lowest on record.

    Fed monetary policy is a failure any way you slice it.

  5. Of course, Bernanke definitely doesn't have any underwear on. Definitely.

  6. With China buying a cubic butt-tonne of gold and cornering the market in rare earths, what are the chances that they peg the Yuan to a new gold standard? Nothing screams security like having a cuntry's currency on a gold standard, especially when the fiat currencies have tanked.

    C deK

  7. Good stuff!. personally i believe the Austrian explanation for qe2: creating money out of thin air allows the purchase of something for nothing, instead of something for something. Immediately the something for nothing trade weakens the wealth producers, creates more dollars chasing the fewer available real things, increases the input costs of the wealth producers and actually destroys industry thereby putting pressure on employment.

  8. Greenspan predicted in July of last year that the Government can not continue to deficit spend without interest rates increasing (Greenspan confessional seeking atonement ?)
    If Bernanke does not QE3 then interest rates will rise which will lead to a bond collapse which will lead to Gonzalo's hyperinflation scenario.

  9. There is a story that is not told in the unemployment numbers. I have not seen it addressed anywhere. It is the story of those over 50 who lost their jobs in the downturn.

    No one will hire them.

    They have spent what was left of their retirement money to survive until now. Their home values continue to slide. Their COBRA ran out long ago. If they have any health issues at all - most folks this age are on cholesterol meds - they can't be insured, even for major medical. They are not eligible for Medicare until age 65. Those who are fortunate enough to have hit Medicare eligibility cannot get treated by a primary care physician anyway because none of them will take new Medicare patients. The reimbursement rates are so abysmally low it costs physicians money to take on new Medicare patients.

    These folks are the bulge of the Baby Boom. They will not pick up their fishing poles or sit and watch wrestling like the generation before them. They are used to taking action. They worked hard and played by the rules. They took their shot at the America dream and came up empty. The folks in this group have lots of time on their hand and lots of politicians to be mad at.

    It remains to be seen what political fallout will result from this group being kicked to the curb.

  10. As a homeschooling mom, I'm reading my 9 and 11 year old girls the book "Whatever Happened to Penny Candy?" by Richard J. Maybury. It talks about economics, inflation and recession, wage/price spirals, and the history of fiat money in terms that even kids can understand. If my girls can understand these concepts, and realize that we are on a course toward hyperinflation, why can't our "professionals" in government?

  11. I believe it is the intention of Obummer and the FEDs to intentionally crash the world economy? Once oil hits and remains above $150 barrel, globalization doesn't work for China. At $150 Europe and the US economies cannot grow and China loses not only its major export markets but the ability to make money on exports.

    Why would the US crash the global economy? 1) Because the middle east oil exporters were on their way to replacing the US$ as the currency to trade oil and replace it with their own currency by 2012. Without oil being denominate in US$ we cannot maintain the US$ as the world's reserve currency. No reserve currency means we cannot afford our global war machine, ergo our empire.

    2) By crashing the global economy, the Chinese trajectory is stopped dead on its track. for example, it become prohibitively expensive (transport cost) to import Iron ore from Brazil, process it into steel in China and export it to Europe and the US.

    It comes down to "if we can't run the show no one else is going to run the show"

    3) Battle for natural resources become very ungly. The US, Europe, LatAm and West Africa become one major trading bloc. China, Russia, most of Asia and East Africa become the other major trading bloc.

    Expect an acceleration of North American economic and political intergration. Also expect wars to secure middle eastern's oil fields. The wild card is Germany. Does Germany remain part of the West or does it play both sides?

  12. Great comment Bill Foord ! printing a mountain of money destroys real wealth creation

    FIAT money is NOT wealth and anything it touches is tainted

    DOWN with Wall Street; UP with Main Street

  13. Victor, we've always been at war with Eastasia.

  14. Its clear that a new treasury dollar backed by gold ought to start replacing the fed greenback and the slate ought to be wiped clean across the globe;

    i cannot anticipate when the illuminati will ever release their grip so the show must go on

  15. Awesome post's. Here is a real example of China sucking up all available natural resources that destroy price structures in our economies.

    In 2008 the price of white soluable potash was 235.00 per ton deld. to Texas. China sucked up every contract they could get there hand's on and the cost blew up 890.00 within week's.

    We manufacture a Natural gas well completion fluid call KCL with potash, KCL fell of a cliff and we where totally unable to sell our product's to the producer's due to excessive price increases.

    Potash is used in most agriculture fertilizers as well as lawn fertilizers.

    Not to bore anyone with the trivial price increases but this natural resources war China has started to manufacture product's and then export back into countries, is outrageous.

    China has had a open invitation to attack the U.S. economy as well as the world's. Cheap Yuan and a High dollar and we wonder why our housing market and economy have crashed.

    To many let's hold the hand of the world pirates and not enough people with any business experience letting the pirates destroy the U.S. standard of living.

    Everyone want's the U.S. help in a time of crisis and then pisses down our neck's and tell's us it's raining when we are a burden.

    I am just an average person who is working to protect our assett's as well, but if anyone think's that China will do better with a gold standard Yuan, ruled by a Comunist Fed, YOU must have smoked a few to many joint's when the rest of us had sweat running down back's working to support your life style.

    Yes I agree this is a mess, yes we are working to protect our asset's as well, yes most American worker's are upset that our food prices raised 46 percent in 2010, yes most who don't agree with Bush like Oboma and vise versa but when you can Import a raw material for 3 times the going rate, produce product's like steel from Iron Ore and then ship to the U.S. for a profit and have to ball's to bitch that the U.S. has fucking up our world is beyond reason.

    If a Chinese pegged Yaun is what is needed then grab your passport and fly on over there to the mill and grab hard hat and gloves. Jump right on in, the water is warm.

  16. The only reason for QE2 is to keep the ponzi scheme going by buying the government bonds. The Fed is buying 70% and other foreign banks 30% of all bond auctions. What happens in June if the Fed quits buying. There are no other buyers left to finance the U.S. debt. Game over.
    John C.

  17. I hate to be the one to state this but, it is over kids! If you have not moved a goodly part of your funds out of the US by now and established a safe house in another country then you are had. There is no fixing this mess because it cannot be fixed. That is the whole point. It isn't supposed to be fixed. SDRs are the next step into serfdom. The only chance left to hold any value in real terms is to buy silver and if you have any FRN left over buy some gold and put it in the ground. Do it now!!

  18. The credit expansion was the false promise made to millions of people world wide. Leverage was used innappropriately by all....and demand that was supposedly there was not. All created by the onset of easy money. It made all debts seem small regardless of how large they really were and with inflationary pressure borrowing has been the name of the game over the last thirty years. It is like a giant game of muscial chairs with the exception that when the charis are yanked away and the music stops most of the participants find that the chairs they thought were there were gone too. End of game.

  19. I just think of the millions of americans trying to pay their bills,the jobs are going away(have been for years)the price of energy and food keeps going up.I wonder how everyone well make it.RW

  20. Gonzalo, I hope you have time to answer my question as I'm sure a lot of other people are curious about this as well.

    If Bubble Blowing Ben Bernankinstein decided to end QE in June wouldn't that pretty much be instant, catastrophic deflation and depression? Wouldn't the stock, bond and commodities markets collapse overnight?

    I'm just curious what your take is on this question.

  21. To answer Moondeer,

    The bond markets are aware that June is when QE2 will end. I don't think there will be any sort of "instrant, catastrophic deflation and depression", as you put it.

    I do think, though, that if there's no more heroin for the junkie—ie, no more QE for the Federal government—then it's going to be a lot tougher for the Treasury department to sell new issuance of Treasury bonds.

    The effects of that?

    . . .


  22. I wonder if I should pull what cash I have out of my 401k. So far, the housing market crashed, and the market. I wonder what the odds are of that money existing when I retire in 20 years. Seems like a huge gamble. Sorry.. somewhat off topic.

  23. Gonzalo, thanks for the reply.

    I suppose the results would have to be higher interest rates. I can't imagine anyone wanting to buy our treasury bonds otherwise.

    The results of higher interest rates?

  24. GL, I appreciate your thoughts. However, there is another way of looking at QE. When Bernanke completed QE1 the equity markets declined dramatically. His reaction was to bring forth QE2 to raise stock prices. We appear to be on the cusp of another stock market decline. Since Bernanke believes in the efficacy of QE programs why wouldn't his automatic response to be to bring forth QE3 to save the day. Bernanke keeps changing the measuring sticks of success. If QE2 did not lower interest rates it did assist the stock market. It is sort of like playing American football and deciding as you run the play what constitutes a first down. Sometimes it is a gain of 10 yards sometimes less especially if you are your own coach, player and referee. I do not think Ben Bernanke feels that spending $600b was a bad deal for a 1 percent improvement in unemployment. His retort "look how much wealth I added through the equity markets." Inflation, "I don't see any," since we don't count fuel and food. Those poor foreign nations with populations in revolt - well "that is the dark side of global competition for scarce resources." not my doing.

  25. Dear Gonzalo:
    Please, if Bernanke stops monetizing Treasuries at 50%, 60% or whatever of the deficit, which is a HUGE number, then Treasuries demand will decrease.
    If Treasuries demand decrease then the Treasury will have to pay higher interest rates to sell their debt.
    If interest rates go up bond prices will decrease.
    If bond prices decrease then there will be more selling of bonds.
    If more bonds are sold then interest rates go higher.
    Then repeat again and again and again ...
    Then hyperinflation.
    What other logical conclusion is there?

  26. Dear Ebag,

    As I have been saying since, oh, around last August . . .


  27. The USA is in the process of a long-term resolution of a lack of competitiveness - due to high salaries paid to American workers. One way or another these salaries must come down. It is not possible to maintain the imbalance by flooding the US markets with liquidity at low interest rates. Sustained high unemployment is one key symptom of this problem.

    Bernanke may have hoped that he could achieve a "soft landing" by devaluing the US dollar (through expansion of the US money supply). But ironically, many of the highest risks for sovereign defaults are still in Europe. Meaning that the euro is perceived as weak by many investors and their is still some demand for the dollar for safety reasons (though this is ebbing). The system is vulnerable to a crash. There is no "grand solution" behind the strategy being employed by the worlds central banks. They are simply feeling their way on a day-to-day basis.


  28. Gonzalo

    Is there any way to contact you besides through this blog? I cannot find a contact link.

  29. The negative effect of the rising interest rate really wouldn't even have to affect the bond market to cause massive inflation. When the Fed and Congress "stimulated" in the midst of the 07/08 correction, they created estimates of up to $5 Trillion for the Banksters.
    Those same Banksters are sitting on that "excess reserve" since the Fed magically started paying interest on "reserves". When the interest rate goes above what the Fed is giving, then the Banks will do what they've been legally (immorally) the ability to do. Which is using the fractional-reserve system to create even more money out of nowhere.
    The Austrians are right. This can only end in one of two ways: Suffering the necessary correction or a destruction of the currency.
    I hope everyone is prepared for the latter since a reversal now is politically impossible. They wouldn't like to admit they've been lying this whole time.

  30. The article assumes that the purposes of QE2 are indeed what The Bernank claimed publicly that they were. However, if we examine other possibilities, we'll see that QE2 hasn't failed at all. In fact, it was a brilliant success.

    So, what if the real reasons behind QE2 were:

    1) To pump up the stock market (e.g., in order to create a "wealth effect" or whatever). Brilliant success - the US stock markets are levitating on fumes, with nary a correction.

    2) To finance the otherwise unsustainable US government deficit. Brilliant success - any other country with such a deficit would have collapsed by now.

    3) To harm the Chinese and undermine their economy via exported high inflation, forced revaluation of their currency and so on. Well, they haven't let the yuan appreciate significantly yet, but they are having a hard time containing their inflation.

    4) To devalue the US dollar (e.g., in order to help the exporters and to make it easier to service the US debt). Brilliant success here - the dollar can hardly catch a bid...

    5) To support artificially the bond market. Not an outstanding job here, since the rates have crept up a bit nevertheless - but still by far not as much as without the Fed bond buying.

    6) To facilitate the transfer of wealth from the middle class to the government and to the super-rich via inflation. Not a bad job here, either, I must say.

    As you can see, the Fed is doing an excellent job of fulfilling their goals. You just must not assume that their goals are what they publicly claim that they are...

  31. "The euro, the pound sterling, even the loonie—all up."

    Gonzalo, not sure if you meant that in the way I'm reading it, but please... don't lump the Canadian loonie in with those losers.

    Canada is largely a resource - commodities - based economy. Canada is the largest oil supplier to the US - providing almost 2x more oil than 2nd place Mexico.(

    Canada has minerals, clean water & ag-commodities in abundance.

    Canada's financial system operates under laws that did not allow the kind of malfeasance that has economically destroyed the nations you just lumped it in with.

    Canada is not in debt well beyond any realistic hope of repayment. Canada's banking system is solid, unlike the gilded facade of it's neighbor to the south.

    It's Achilles heal is it's enormous reliance on trade with the US - a trading partner who, like a morbidly obese person, has fallen down and can't get up, despite the Fed's monetary flounderings.

    The only reason the C$ is not (much) higher than it is is the Canadian central bank's aversion to raising interest rates primarily because that would drive the dollar even higher and hurt export trade to the US, which consumes approx 80% of Canadian exports.

  32. The idiocy of this once great Country is mind numbing. We HAVE oil and so does Canada. We have mindlessly wasted it on horsepower and weight and could easily have Turbo-diesels that exceed 50 mpg right now like the VW TDI for one.Coal can be converted over to very low sulphur diesel economically, and we have more coal than Saudi has oil. Nuclear energy is the only real answer to increasing electrical needs and we HAVE Uranium as does Canada.
    So -- What do we do -- well first none of the above-- and to top it off China is buying up the resources we have and don't use, such as their purchase of a percentage of Chesapeake and portions of the very valuable Athabasca in Canada. Maybe electric cars are the future but that future is NOT right now. Now we will invade yet one more Islamic nation in oil's name-----"stupid is as stupid does" --- somebody very intelligent said that--- at least in comparison to the dolts who run this place.

  33. Dear Martin:
    Please, add the following to the idiocy:
    Obama and company are obsessed with renewables which are fundamentally flawed forms of energy.
    Ethanol costs more and produces more CO2 than gasoline, as recently stated by both Bill Clinton and Al Gore. Al confessed that he backed ethanol to get the Iowa primary votes.
    Wind mills and solar power are scams.
    No one can control the wind nor the clouds.
    Therefore they can only produce electricity when it's windy or sunny.
    If you need electricity when it's cloudy or windless, well, light a candle or blow cool air on your sweetheart.
    This is the idiocy that is supposed to provide new jobs to the US economy.

  34. GL,
    I just finished reading "When Money Dies". For those who don't know it's about the 1920's inflation in Germany and Austria after WWI.

    Well, after reading that book and studying the scenarios that lead to such a wild ride of hyperinflation, it all would not have flourished in such a grand manner in those days if worker's wages had not been constantly raised to keep up with the rise in prices. It was a vicious cycle that fed on itself with each pay raise workers got. Since real wages increases in the USA have actually been stagnant or falling since....oh some say 1973, how can we have TRUE hyperinflation?

  35. Angie, you've got it backwards.

    Inflation is NOT caused by the increasing prices (including the price on labor, which is what wages are). Increased prices are caused by inflation. Inflation itself is caused by the increase of the supply of money and money equivalents.

  36. Anon:

    Very true, Anon, I know the originations of regular old inflation but when it gets to HYPERinflation is what i am asking about.

    Our "printed or digitized" dollar amounts don't seem to be staying here in the US nor are they going toward wage increases year over year, they are going overseas or into developing nations it seems and/or sat on by banks on their balance sheets. How many times has it been said that the banks are "sitting" on their new cash printed or digitized to them by the Fed to fill their blackhole balance sheets? M3 is what needs volcity to get HYPERinflation, right? Money can be printed all day long but it can be clogged up by banks....they don't HAVE to lend it out into the real world or at least here in the USA. (And it's seems they are not).

  37. These stop gap arrangements will not help in curbing unemployment, a complete revamp of the industrial policy should be done to curb unemployment.

  38. There is no significant difference between inflation and hyperinflation. Hyperinflation is just printing of hyper-large amounts of money. Note how the hyperinflation in Zimbabwe stopped in its tracks once the money printing (together with the currency) was abandoned?

    Inflation is increasing of the true money supply relative to the available amounts of goods and services, period. It doesn't matter whether the printed money is kept as "cash reserves" or not - it is still causing inflation. True, the banks aren't lending. This doesn't mean that they keep the free money "dead" in their vaults. First, the Fed is paying them interest on their reserves. Second, these reserves are used as colateral for speculation in the stock, bond, currency and commodity markets. Why do you think the commodity prices have been rocketing up? It is not just because of the (currently very gradual) weakening of the dollar or because of the "Chinese demand" crap - it is also because the large speculators are bidding them up, playing with the free money they've got courtesy of the Fed.

    And, no, M3 is a crappy indicator of inflation or of the money supply. A proper measure for this is the "Austrian" (True) Money Supply - which has been increasing by double-digits percentage (annualized) for more than a year already.

  39. Reply to EBAG

    I agree that a bond selloff would cause rates to rise in a process that could feed on itself. However, this would destroy bond equity. A wipeout of bond equity would be highly DEFLATIONARY. If it happened fast enough, the Fed would not be able to create money fast enough to prevent a collapse.

  40. GL ... I'm having a hard time loading your Web page using Internet Explorer. I don't know why. It seems to work fine with Mozilla.


  41. GL,
    On March 4 I posted here about a phenomenon not reflected in the unemployment numbers - large numbers of those over 50 who cannot find work. In my comment I referred to the group as baby boomers, and I noted that it remains to be seen what political fallout will result from this group being kicked to the curb.

    Yesterday a piece by Cindy Perman appeared at CNBC online entitled "Too Young to Retire: Boomers Pushed Out of the Work Force." In referring to the over 50 out-of-work crowd Ms. Perman says, "Initially, they feel betrayed to be kicked to the curb after so many years of loyal service."

    Coincidence? Hmmm....


  42. I'd like to add to the comment above about Zimbabwe halting its inflation by ceasing to print money. The other thing they did was to tie their currency to the US dollar. When this happened, it stopped the inflation. The Weimar Germans did the same sort of thing to stop their 2 year headlong rush to destroy their currency with money printing. The German finance minister issued a new currency backed by property first of all and then by gold. At the same time he stopped the printing presses. The german volk were so shattered by the hyperinflation that they believed in the property backed currency, even though it was a fraud, property not being convertible as was the gold that eventually they turned to. Of course the ordinary citizen could not convert his new mark into gold but it still continued to stabilise the mark.
    It's still a way off for the ordinary citizen of the world to equate the central bank money printing with the inflationary forces roaring through the globe currently, especially when Bernanke denies that his policies are at fault. However, we must be going to cop an inflationary belting as there are solid hints of a new system in waiting, being dribbled out. The IMF suggests a special drawing right (SDR) backed by a basket of currencies and possibly gold, which would give the SDR some solidity; the BIS is waiting in the wings as a possible new governing body - its been issuing accurate warnings about the mad central bank policies and their deleterious effects (which is strange as all the major central bankers meet at the BIS regularly, and Greenspan was/is on the board of directors, plus who knows who else??) If we had a severe bout of inflation, the ordinary person would be rendered poor rapidly, while I think that sovereign debt would be eliminated. The demand destruction from the poverty would go to some way to solve the problem of declining oil production. And the increasing authoritarian governments globally would deal with the internal social unrest. Problem solved!

  43. Gonzalo, your headline "Sustained Unemployment Confirms The Failure of QE-2" is wrong.

    The goal of QE-2 IS to sustain unemployment. It's the only way to milk maximum profitability out of the fewer who are still employed.

    QE-2 is working just fine.

  44. Unemployment has not dropped, and all around evidence of this is becoming clear. Republicans ran on a pro-jobs platform, yet the only bills in congress and state legislatures are attempts to cut jobs, not create them.

    True evidence of hyperinflation can be seen in the grocery store. Ice cream used to be 1/2 gallons, and is now 1.5 quarts mostly, for the same price or a bit more. 25% inflation. 12 packs of soda pop are now 8 packs for the same price, a 33% inflation. Cases (24 packs) of soda are now about a $1.50 more, a 25% increase. Coffee, milk, even eggs have been affected, and this is just the beginning. If the prices haven't gone up, the containers have become smaller.

    The Fed. could have put a stop to this a long time ago, and how we are going to get a recovery in the USA when we are spending over 10 billion each month just on two wars is a question no one is even asking.

    Last, why not get the money that the financial sector ripped off back from them? Over a trillion dollars so they could foreclose on almost three million homes? Madoff goes to prison, and the rest get off scott free.


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