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| Economy |
| Inflation Begins |
| 2009-06-03 |
| Think of it as the early rumblings of thunder preceding the storms that will eventually explode into a tornado. The more lyrically-minded might see visions of a single butterfly flapping its wings somewhere off Bora Bora, creating the tiniest of ripples on a glasslike sea and setting in motion the eventual tsunami that will wreak havoc many thousands of miles away. That was the role of the bond market last week, as the yield curve—the difference between yields on the Treasury’s two-year and ten-year notes—expanded to 2.75 percentage points, their widest differential ever. That’s right—ever. Thus did the bond market herald the inception of the developing inflation tidal wave created by out-of-control spending and ever-yawning budget deficits. As part of the stimulus/recovery package, the Fed has been buying up massive amounts of Treasurys as well as mortgage-backed securities. But as the grim reality of delusional social-realignment programs and trillion-dollar deficits emerges from the dissipating post-election rapture, it is becoming clear that the government’s printing presses will have to keep spinning at dizzying speeds around the clock to fund both the stimulus as well as future outlays as the government either nationalizes or “reforms” anything that moves or breathes—financial institutions, autos, healthcare, markets, energy, credit cards—the list grows by the day. The money has to come from somewhere, and not even fleecing the “wealthy” will cover the cost of recasting the nation in the Obama vision. No, the government will have to continue to sell massive amounts of Treasury bonds, although it is no longer clear who will be lining up to buy them as the world begins to lose faith in robustness of the dollar and the ability of the U.S. to control unthinkably profligate spending in its quest for a utopian society—or at least one that more resembles Europe’s mildly-modified socialism. Ah, supply and demand, one of the myriad simple economic laws that for some reason appear to exist beyond the grasp of an Obama administration chock full of Harvard graduates and Nobel laureates: When supply outstrips demand, prices fall. The burgeoning surfeit of Treasury securities is beginning to overwhelm the demand for them, so the price goes down and the yield rises. This will make it even more expensive, of course, to kite this bacchanalia of government growth, influence, and power over its citizens. So investors shun and abandon long-term paper, with its open-ended inflation exposure, and seek safe haven in short-term securities. That’s how the yield curve steepens. And so the vicious cycle continues: The more the administration proposes to spend, aided and abetted by congressional cohorts, the more funds the government will have to raise at increasingly disadvantageous terms. Higher Treasury rates will, of course, push up interest rates across the board. Attention, Obama acolytes: It’s called inflation, and it is a cancer that eats away at a nation’s economic well-being and social fabric. Go and ask nearly any Latin American or Eastern European country. Rest at link |
| Posted by:ed |
| #15 So when can we start hanging the guilty politicians? |
| Posted by: OldSpook 2009-06-03 23:41 |
| #14 Those who seek to emulate Mussolini should remember how his career ended. It didn't faze the MSM at the time.... |
| Posted by: KBK 2009-06-03 23:35 |
| #13 thanks to all these gifts... Acorn among us... |
| Posted by: 3dc 2009-06-03 21:59 |
| #12 rvw, you tease.... |
| Posted by: Barbara Skolaut 2009-06-03 20:06 |
| #11 Those who seek to emulate Mussolini should remember how his career ended. |
| Posted by: rwv 2009-06-03 19:28 |
| #10 "Don't be at all surprised when the next step in the fascist takeover of the economy is wage and price controls on virtually everything." The best cigar you can afford to AlanC. This is the stealth plan of how the Messiah and his cronies on the left plan to 'rein in health care costs'. As we enter the coming period of high inflation, doctors and hospitals would raise fees to keep up with their own rising costs. The government's plan is to freeze fees in place or index them at a rate far below inflation. Presto, the appearance of decreasing health care costs. Except that hospitals and doctor's offices will go bankrupt when they can't raise their fees to cover costs, leaving the government to take over the health system utterly. Beyond this, shortages will be created the same way as they were when Nixon did his little experiment in wage-price freezes in the 1970's. |
| Posted by: no mo uro 2009-06-03 17:59 |
| #9 yes Nimble, money supply is important, but in the short term the velocity slows because of unemployment With respect to the long term, we can hope (pray) that much of the TARP money will be repaid which would slow the money supply growth. Very little of the stimulus funds have been spent so there is some chance of reining in the out years of that program. On the other hand, the $ for GM and Chrysler and FannieMae and FredieMac are probably not recoverable in the next decade if ever. We will have to hope the Fed will tighten in 2010. |
| Posted by: Lord garth 2009-06-03 13:54 |
| #8 Must be very worrisome as Bernanke even warned Congress they had to cool the spending. |
| Posted by: Lumpy Elmoluck5091 2009-06-03 13:36 |
| #7 Money supply has little to do with inflation, eh? |
| Posted by: Nimble Spemble 2009-06-03 13:25 |
| #6 With the unemployment rate as high as it is and probably not getting down to 8% before the end of 2010, the CPI and WPI will probably be quite tame through then. Interest on 10+ year debt may go up quite a bit more but, in the short run, this will prevent a rapid recovery in home prices. Thus, it is hard to see much retail level inflation risk for the next 18 months or so. |
| Posted by: Lord garth 2009-06-03 12:51 |
| #5 Don't be at all surprised when the next step in the fascist takeover of the economy is wage and price controls on virtually everything. Fascism is an economic system where the government through cronyism, regulations and tax power controls business without bothering to "own" the business. Everyone should read up on Mussolini. |
| Posted by: AlanC 2009-06-03 12:28 |
| #4 Deflation has been a more of a fear than ever a manifestation. You must not own a home, P2K. Just as there is a wealth effect when assets appreciate, there is a poverty effect when they decline. We have just had a massive destruction of asset value that has sever demand impact. To combat the reduction in demand, the government has printed money which will ultimately result in inflation of prices for current goods and services and ultimately, the reinflation of asset values at the cost of an inflation that taxes those on fixed incomes the most. This is the introduction of the shifting of the burden from the young to the elderly. Part of the price for having supported the "Greatest Generation" and being the pig in the python. Don't ever think they weren't thanked for their service. |
| Posted by: Nimble Spemble 2009-06-03 09:36 |
| #3 Price inflation AND debt deflation can easily happen at the same time. Trying to "cure" the debt deflation that the economy needs with harmful monetary inflation will be a disaster for jobs. |
| Posted by: Bright Pebbles 2009-06-03 09:18 |
| #2 Inflation Begins When did it ever stop? No matter how small, it's pretty much always been there. Deflation has been a more of a fear than ever a manifestation. I wouldn't count the inability of some car manufactures to off load their junks no matter what the price as an indication of deflation. |
| Posted by: Procopius2k 2009-06-03 09:06 |
| #1 You sow Identitity Politics you reap... |
| Posted by: g(r)omgoru 2009-06-03 05:28 |