Market Watch, March 19, 2009...
Gold rallies 8% as Fed move fuels inflation fears
NEW YORK (MarketWatch) -- Gold futures rallied more than 8% Thursday to end near $960 an ounce, as the Federal Reserve's plans to purchase as much as $1.15 trillion in U.S. bonds and mortgage-backed securities sparked worries of inflation ahead, raising gold's appeal as a hedge against rising prices.
"Looking ahead, we fear inflation. It may be that Dr. Bernankenstein has created a monster beyond his control," said Michael Farr, president of Farr, Miller & Washington, referring to Fed Chairman Ben Bernanke.
The U.S. dollar's losses in the wake of the Fed's move also lifted gold prices, with a weaker greenback raising gold's investment appeal.
As Governor Mark Sanford of South Carolina noted, March 16, 2009...
... the problem of too much debt cannot be solved with more debt. ...if you print enough of anything, you cheapen it. We’re out there running the printing press essentially on a currency and we’re cheapening it. You can go back to the 1920s with what happened to Argentina. You can go back to the time between World War I and World War II when it happened in the Weimar Republic in Germany. When it happened there, you needed a wheelbarrow load of currency to get so much as a loaf of bread.
We’re nearing a very scary tipping point, the point at which the international markets stop buying our debt. ...we get to that point where they stop buying ...currency free falls, and we have inflation and you just undid all the stimulative efforts that have taken place over this last year. ...
Millions of people out of work... trillions of dollars in out-of-control Democrat spending (signed into law by Obama)... and now, the real prospect of inflation and higher prices -- possibly much higher -- when Americans can least afford it!
Is this the CHANGE Americans wanted and Obama promised?
AAR
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Glenn Beck was discussing this with an economist on his TV show last night. Basically what the guy said was that what the government is attempting to do has NEVER been done successfully in recorded history, and has never even been attempted at the level we're seeing today. I believe he used the phrase "uncharted waters" -- how reassuring. He said, theoretically it could work, but the timing as far as turning off the printing presses will be absolutely critical. I kind of got the impression it's gonna be like catching a bullet in your teeth. Odds are pretty good that we're simply going to end up with massive inflation. Now the question remains: will we also end up with soaring unemployment and interest rates as in the late 70's and early 80's? According to original Keynesian theory, unemployment and inflation aren't supposed to move in the same direction at the same time, but both Carter (both went up simultaneously) and Reagan (both came back down simultaneously) disproved that theory in a matter of 5 or 6 years. Perhaps The Count can shed some light on how Neo-Keynesians view this mess.
ReplyDeleteWe're going to need a super computer to keep track of the Democrats out-of-control spending and budget deficits. How much longer will it take before even moderate and conservative leaning Democrats can't stomach Obama's irrational and incompetent spending?
ReplyDeleteL.A. Times, March 20, 2009:
Reporting from Washington -- President Obama's $3.55-trillion budget has stumbled into a series of economic and political pitfalls that threaten to undercut his grandest ambitions.
The chairman of the [nonpartisan] Senate Budget Committee on Thursday projected deficits far higher than the Obama administration had calculated, possibly as much as $1.6 trillion higher over the next 10 years...
... fiscally conservative Democrats have raised concerns about proposed spending increases. Leaders of the House and Senate tax-writing committees have criticized some of Obama's proposed tax increases on wealthier Americans. And influential Democrats are backing away from using a legislative shortcut that may be Obama's best hope for passing his far-reaching health and energy policies.
An additional multibillion-dollar bailout for banks and other financial institutions, which the administration will soon propose, is expected to add more pressure to the federal government's finances.
Where Obama's budget foresees rolling up $7 trillion in cumulative deficits over the next 10 years ... [new estimates] pegged the deficits at $1.6 trillion higher over that period ... the figure was calculated by his panel's Democratic staff members.
... also faces opposition from influential Senate Democrats. Conrad, the chairman of the budget panel, said reconciliation should not be used for such major policy changes.
Sen. Ben Nelson (D-Neb.), one of about 15 moderate Democrats concerned about Obama's spending levels, said the White House might have to reassess its priorities in light of the new estimates.
But, ignore facts and reality, for Obama and Queen Pelosi, it's full speed ahead over the cliff!
"Our priorities are the same," Pelosi said. "You can't say we are going to do less because those numbers are pessimistic."
The White House also said the projections would not force a change in course.
"It's not productive to constantly be chasing your tail and, as things change every day, revise your numbers," said Kenneth Baer of Obama's budget office.
AAR
Inflation?
ReplyDeleteFirst I’d worry about the currency plummet; all currencies have been in freefall for some time, and the USD looks like it’s attempting to win the race to the bottom. Calls have been made to substitute the Euro for the USD as the international currency of choice, if that happens, look for hyperinflation in the US.
China is already experiencing an accelerated inflation and they hold massive amounts of fungible US instruments, The danger here is that in order to protect the valuation of the investment, China may decide to sell short, that is, if they believe that the USD will accelerate (inflate) faster than the Yuan they will be forced to sell the US instruments to shore up their own. As long as the American economy is the haven of choice to investors the dollar will hold value better than other currencies; after all, the equity of our currency is the faith the American people have in it.
Interesting you used the term Neo-Keynesian, Spook. I’ve been reading the observations of the old left economists like Minzie Chin and have run across the term New Keynesian (capitalized no less) that indicate that they feel this approach is no longer discredited but actually preferred. The key to their approach is that Keynesian spending is necessary to start a recovery and begin the process of recruiting investment. The place the “Old” Keynesians failed is where they neglected to turn over the spending to the private investors and continued government spending as a matter of course.
So, like chumming the waters, New Keynesians believe they can attract the fish with buckets of fish heads, but unlike their alt-counterparts they’ll stop chumming when the sport fisherman arrive. You and I recognize that the chum isn’t an attraction to the fisherman, it’s a free lunch for the fish.
I neglected to sign my post;
ReplyDeleteThe Right Honorable Count d'Haricots, of Courland
You and I recognize that the chum isn’t an attraction to the fisherman, it’s a free lunch for the fish.
ReplyDeleteGreat analogy, Count. The "Neo-Keynesian" comment was intentional and based largely on our off-blog communications from a while back. I guess we're about to find out first hand whether the theory as any practical application. It's gonna be an awfully expensive experiment regardless of the outcome. We're talking about numbers so astronomical that the average person can't begin to wrap his head around them. I think there are probably only a handful of elected representatives who fully understand the ramifications of what they're doing, and I have to believe they're scared to death. The rest simply have their heads in the sand, hoping it will all just go away.
I vote we reinstate the old practice of tar and feathering.
How about duels on the Whitehouse lawn?
ReplyDeleteExpanding the money supply, as I've argued on B4V isn’t in and of itself the prime culprit in inflation. As the economy expands and in anticipation of expansion new currency must be added to keep up with demand. New money is needed as goods and services expand and new purchasers of these products enter the market.
Where we're in scary territory is the expansion of the deficit at a time when the economy is contracting, add the expanding money supply and we’ve devalued the ability to ever get ahead of the deficit as long as the additional money supply is chasing the same amount of goods.
If these knuckleheads want a history lesion, look to Volker and the money contraction that happened in the early 80’s; it was painful when it happened during a recession but it set the stage for economic expansion.
Count Taly d'Haricots
RS,
ReplyDeleteThanks for the link about Obama's incompetence and inability to grasp reality. I heard the gist of it a little earlier on the radio, but hadn't had a chance to check the Net for the details.
TOTAL INSANITY! I couldn't believe it. Just further evidence that Obama and his Liberal Democrats don't care one bit about America or it's people. The only thing that interests Obama, Pelosi, Reid and the rest of their gang is forcing Socialism and their Liberal agenda on America -- no matter who it hurts or who it kills!
Below are a couple of AP extracts...
March 20, 2009: WASHINGTON (AP) — President Barack Obama's budget would generate unsustainably large deficits averaging almost $1 trillion a year over the next decade, according to new estimates released Friday.
The new Congressional Budget Office figures predict Obama's budget will produce $9.3 trillion worth of red ink over 2010-2019. That's $2.3 trillion worse than the administration predicted in its budget just last month.
Worst of all, CBO says the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.
March 20, 2009: WASHINGTON (AP) — Despite new estimates that say President Barack Obama's budget would generate unsustainable large deficits averaging almost $1 trillion a year, the White House insisted Friday that the flood of red ink won't swamp its costly agenda. The Congressional Budget Office figures released Friday predict Obama's budget will produce $9.3 trillion worth of red ink over 2010-2019. That's $2.3 trillion worse than the administration predicted in its budget just last month.
It's apparent that nothing is going to stop or deter Obama and the Democrats from trying to destroy our nation in their effort to impose their Socialism and Liberal agenda.
The GOP should work on the more moderate and conservative leaning Democrats in the House and Senate, appealing to their constituents, and asking them to contact their Democrat Representatives and Senators and stop the Democrat's insanity!
AAR