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Weimar 1920-21 : "It felt like deflation was underway"

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As Turk says, nothing like Weimar.... so you better start studying Argentina instead, and see if there are parallels. :)

But studying Japan might be a better use of time.

Instead, we need to study human psychology -

What causes panics, and how people react.

 

If the (imminent?) crash is deep enough, the Powers-that-Be will be asked to save us.

And they will be asked to find a way to get the money out to people - who can say what that will be?

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Instead, we need to study human psychology -

What causes panics, and how people react.

 

If the (imminent?) crash is deep enough, the Powers-that-Be will be asked to save us.

And they will be asked to find a way to get the money out to people - who can say what that will be?

Sure, politics always impinges on economics, it's a politcal economy afterall. But the politics can cut both ways and you have to ask not what's politically possible, but what is most plausible or probable... and then also keep some time hoizon in mind. There could be years of "tea party austerity" before some backlash. Then again, sanity could eventually prevail in a new Bretton Woods.

 

Anyway, the status quo is all looking very deflationary.

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DEFLATION vs. HYPERINFLATION - It is Silly to argue.

Just ride the Big Swings

 

Politics always impinges on economics, it's a politcal economy afterall. But the politics can cut both ways and you have to ask not what's politically possible, but what is most plausible or probable... and then also keep some time hoizon in mind. There could be years of "tea party austerity" before some backlash. Then again, sanity could eventually prevail in a new Bretton Woods.

 

Anyway, the status quo is all looking very deflationary..

Indeed.

As I have said before: No deep crash, no panic QE leading to hyperinflation.

 

As you may know, I am now playing the current Deflationary Swing:

Plenty of cash, big positions in short-side-options (recently acquired), and some longs in Gold and mining shares.

 

If we get a big drop here, I am well-prepared for it,

and understanding that Swings are what we would be seeing, have helped me to get here, and make money

while getting set up for it. (Example: I rode Gold up from $1088 to $1200-50, and then sold of it.)

 

I think those people who are taking "one way bets" on Deflation or Inflation, are going to get frightened out

at the wrong time.

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Indeed.

As I have said before: No deep crash, no panic QE leading to hyperinflation.

 

As you may know, I am now playing the current Deflationary Swing:

Plenty of cash, big positions in short-side-options (recently acquired), and some longs in Gold and mining shares.

 

If we get a big drop here, I am well-prepared for it,

and understanding that Swings are what we would be seeing, have helped me to get here, and make money

while getting set up for it. (Example: I rode Gold up from $1088 to $1200-50, and then sold of it.)

There seems some ambiguity towards gold here. You say you're long [is that a token long?] yet elsewhere are looking for a drop to 1000/ 1100 before presumably loading up a core position?

 

I'm just sitting on the same core position of 50/ 50 gold and dollars. I don't think the two have to be anti-thetical.... they may just be the two best currencies which continue to strengthen in a renewal of the global liquidity/ solvency crisis. I'll spare you from my posting Exter's reverse triangle yet again.

 

I think those people who are taking "one way bets" on Deflation or Inflation, are going to get frightened out

at the wrong time.

Yes, the way I see it, the reason why investors are so confusd about inflation or deflation is they remain "price-centric". This made sense as long as you had one currency operating within an economy [it's also the abstract view of an economy]. Today it's actually quite different, you not only have open economies, but "open" currencies.... currencies freely exchanging in the market. In this brave new world of floating currencies, the investor needs to retreat to a "value-centric" approach. Though this is more nebulous, it is necessary as otherwise you'd be trapped in money illusion where money units are equated with the real value of money.

 

I think gold is performing well today because of this confusion and uncertainty towards the value and stability of money today. It provides the basis for the "value-centric" approach that savvy investors [not to mention CBS] are looking for. If this is the case, then gold may be relatively unaffected by large swings that may be seen in other markets.

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There seems some ambiguity towards gold here. You say you're long [is that a token long?] yet elsewhere are looking for a drop to 1000/ 1100 before presumably loading up a core position?

Yes, a residual long, of Gold AND GOLD Shares. Maybe just 20-25% of what I had at the peak, held as:

+ Gold mining shares, like GLW.t, and many smaller companies

+ Option Spreads on GLD, which I have basically "neutralised"

+ A few Taels of Gold (about 25 oz. worth), representing my profit on a Gold position acquired below $1100

 

With these in hand, if gold starts moving up, I have a nice little base to "average up" from.

But I would prefer to be doubling or tripling the size of these holdings at lower prices.

 

The "NUMIER ISSUE" : How does one measure wealth ?

 

Are investors too "price centric" - prefering to use only their own currencies?

Yes, the way I see it, the reason why investors are so confusd about inflation or deflation is they remain "price-centric". This made sense as long as you had one currency operating within an economy [it's also the abstract view of an economy]. Today it's actually quite different, you not only have open economies, but "open" currencies.... currencies freely exchanging in the market. In this brave new world of floating currencies, the investor needs to retreat to a "value-centric" approach. Though this is more nebulous, it is necessary as otherwise you'd be trapped in money illusion where money units are equated with the real value of money.

I think I see your point, and that sounds like how I operate.

 

In a way, this thinking took me into an exploration of: What is weath? How should we measure it?

And that's an exploration that I am still engage in.

Maybe we can discuss this concept on the "About Wealth" thread :

http://www.greenenergyinvestors.com/index....showtopic=10400

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It's not "cash", its capital.... recapitalization of banks. It is really just rearranging the deck chairs on a sinking/ deflating ship; capital is being destroyed faster in the banks as collateral values erode than can be replaced by Fed injections of capital. The capital is not going to be turned/ multiplied into cash in the economy as banks will continue to restore their balance sheets. With further downturns in residential and commercial property this process is only going to worsen.

 

As Turk says, nothing like Weimar.... so you better start studying Argentina instead, and see if there are parallels. :)

Of course it's cash. It is given to banks by means of them selling MBSs at outrageously over-inflated prices to the corresponding central banks. Maybe what you want to say is that the difference to Weimar so far is that back then more governments bonds got monetized than today? But keep in mind, we are just getting started. No HI is exactly like any another. So, no surprise there, and maybe Argentina is the better example, who knows.

 

But frankly, I think your time would be better spent studying Japan.

I thought it had been discussed to exhaustion before why Japan (as a succesful exporter and with very special investment demographics) can't really be compared to the present situation.

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Of course it's cash. It is given to banks by means of them selling MBSs at outrageously over-inflated prices to the corresponding central banks.

Thats not true though is it?

Is it not just that they are sold to the central bank at 0.5% yield?

Kind of like a normal investor buying an 8.75% Treasury bond with a face value of £100 maturing in 2017, for £138 ("over inflated" by 38%) in a 0.5% interest rate environment.

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Thats not true though is it?

Yes it is. The central banks are purposefully overpaying for these mortgages.

 

If a mortgage is worth zero since no one in the freee market is willing to buy it, but the Fed buys it "at face value" with freshly printed money, then this is inflation at its best - in money supply terms, since money got created, but also in terms of paying outrageously high prices.

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At some stage all this printed money will come into circulation. All the numbers on computer screen will be converted into paper. Inflation it is. Goldfingers analysis seems more plausible and believable.

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Here is some background about the Weimar repubic from the Book THE GREAT INFLATION : GERMANY 1919-1923 William Guttmann and Patricia Meehan

 

 

 

The Great Inflation : Germany 1919-1923

 

From the dust-jacket:

 

 

Inflation and the depreciation of money is an age-old phenomenon. No less so than in this present age. But never in the history of mankind has it reached such bewildering dimensions as in Germany in the years that followed her defeat in the First World War.

 

In the Germany of 1923 it was clear that something mysterious and frightening was happening. Money as one of the foundations of society was dying and its death was producing chaos, despair and a kind of collective insanity.

 

The collapse of the country's currency all but ruined the fabric of German society, produced a social revolution and was at least partly responsible for a political development culminating in the rise of Nazism. Hitler, it has been said, was the foster child of inflation. The great Inflation in Germany was, as indeed inflation is today, the warp and woof of daily life, and it is with the human aspect of the Inflation that this book is largely concerned. The book also plots the actual course of the phenomenon, its acceleration - spinning away into disaster - and then, almost overnight, coming to an end. An incredible recital.

 

----------------------

 

The Great Inflation : Germany 1919-1923

 

The Road to Ruin

 

In the classic words of the advice Marshal Trivulzio gave to his master, King Louis XII of France, "There are three things you need to wage war: money, money, and more money." To wage the war that engulfed Europe in 1914 required a very great deal of money indeed.

 

Wars have a way of producing inflation. A nation at war has to divert its resources and to spend a fabulous sum of money to keep its armies supplied and to satisfy their insatiable appetite for the weapons of destruction, which are themselves destined to be destroyed. As these go up in the smoke of the battlefields and have to be replaced again and again, money pours out to pay for the wasteful and unproductive war effort, while the ordinary needs of the economy have to take second place. The consequence is, that the demand for scarce and urgently needed goods drives prices up and more money has to be created to meet them. This is the climate in which inflation flourishes.

 

True to tradition, the great German Inflation started almost exactly at the moment the First World War broke out.

 

Before the fateful August of 1914, the civilised world had lived under the gold standard in a golden age in which a smoothly working system assured, almost without exception, the stability of prices and exchange rates.

Germany, an industrial power ranking high among the trading nations and, in consequence, extremely prosperous, had until then lived under the monetary rules laid down by the Bank Law of 1875. The central bank, the Reichsbank, issued the money required by the economy, and the stability of the currency in circulation was secured by ensuring that a third of the total was backed up by gold, and the remaining two thirds by commercial bills guaranteed by persons of proven solvency. The number of commercial bills taken up by the bank was logically in proportion to the activity of the economy — the resulting circulation expanding or shrinking in accord with the demands of the market. In other words, the money in circulation represented either gold or what later became referred to as Sachwerte— the actual goods that had been exchanged for the bills in the bank's portfolio.

 

The outbreak of war immediately confronted the German economy with a critical situation. The blockade of the country imposed by the Allies all but killed the international trade on which it had come to rely so much for its prosperity. It was cut off from the sources of most of the imported food and raw materials needed to ensure the productivity and welfare of the nation.

 

Oddly enough, the Germans, for all their proverbial thoroughness, had not made any provisions or plans for such a contingency. Yet perhaps this was not so odd, for, in common with the other belligerents, Germany believed firmly that the war — the first modern war in which the achievements of war technology were to be used on a massive scale with all the array of deadly weapons, from the super guns like the Big Bertha to Zeppelins, aircraft and poison gas — would be a short one. The slogan "Home by Christmas" was not peculiar to any one of the warring nations. Of course, the Germans thought it would end in victory for them, and victory would solve all the problems.

 

Germany's certainty of victory was naturally based on her military readiness and planning, which, in contrast to what had been done in the purely economic field, was meticulous. It was confidently expected that the war would be won long before any economic troubles could develop.

 

Naturally, German planners counted money as a type of ammunition, and the mobilisation of financial resources was planned in the same way as its military counterpart. In 1905 an international crisis had arisen over the question of which European powers should play a dominating role in Morocco. Germany felt slighted by certain Anglo-French arrangements and the danger of a conflagration seemed imminent. This was followed by a second Moroccan crisis in 1911. It was in that context that Rudolf Havenstein, the man who as President of the Reichsbank was the protagonist in the tragedy of the great German Inflation, drew up the financial contingency plans for war.

 

When, at the end of July 1914, the war fever reached its height and the great powers began to mobilise their armies, certain sections of the German public began to panic and started a run on the Reichsbank to convert their money into gold, as they were then entitled to do under existing legislation. The gold reserves were rapidly drained of over 100 million marks. That was the danger signal; but though, from 31st July onwards, the banks in fact refused to exchange notes for gold coins, it was not until 4th August, when war had been declared and the Reichstag met to put into execution the plans for financial mobilisation in wartime, that legislation was passed to abolish convertibility into gold. That was the opening of the path to inflation.

 

The German government decided to finance the war by borrowing, and its cynical justification for this decision was that the beaten enemy would pay for everything. Karl Helfferich, Secretary to the Treasury, declared, in a speech before the Reichstag, "After the war we shall not forgo . . . our claim that our enemies shall make restitution for all the material damage (quite apart from everything else) they have caused by the irresponsible launching of the war against us."

 

The Reichstag approved war credits to the amount of 5,000 million marks. At the same time it was decreed that, henceforward, three-month Treasury bills would be allowed to play the same role as commercial bills, namely to serve as backing for the issue of banknotes. In fact, the Reichsbank was authorised to take up and discount unlimited amounts of these Treasury bills (which, unlike the commercial bills, did not represent any underlying Sachwerte, but simply government obligations, bonds, sold to the Bank and enabling it to create money). In addition, so-called Darlehnskassen (loan banks) were set up for the purpose of giving credit and issuing currency in the form of Darlehnskassenscheine (loan-bank notes) to circulate side by side with the notes issued by the Reichsbank. All these new credit instruments were considered as "backing" for the issue of notes — indeed, the Reichsbank was proud to maintain that the paper money in circulation was properly backed according to the law.

 

Thus, with the notes issued on the strength of the Treasury bills and the loan-bank credits, the inflation of the currency showed up very early. On 7th August 1914 the amount of money in circulation was 2,000 million marks higher than it had been two weeks before.

 

In passing, it is interesting to note what happened to the gold coins. Difficult though it is to imagine now, in pre-1914 Europe gold pieces circulated freely as ordinary money; in Germany, 10 or 20 mark gold coins were almost considered a nuisance on account of their weight. Not only did the Reichsbank suspend the convertibility — that is, the sale — of gold, but strenuous efforts were also made to draw as many gold coins as possible out of circulation or private hoards and redirect them into the coffers of the Reichsbank. A vast propaganda machine was set in motion for this purpose with appeals to the patriotism of the citizens — "The gold belongs to the Reichsbank" — and schoolboys were proud of receiving solemn certificates acknowledging that they had collected and delivered to the Reichsbank so many thousands in gold and deserved well of the Fatherland.

 

Later, patriotism was not enough to ensure the inflow of gold coins, and drastic measures were taken: soldiers, for instance, were promised extra leave in return for the delivery of so many gold coins, something unheard of in militarist Germany. The idea behind this was quite simple: in the first years of the war, a third of the value of banknotes had to be backed by its equivalent in gold, so that, for every 20 gold-mark piece the Reichsbank took in, it was entitled to issue 60 paper marks — a procedure that was not thought likely to endanger the stability of the currency.

 

Germany's total expenditure during the First World War amounted to the colossal sum of 164,000 million marks, some 147,000 millions of which represented the actual cost of the war. Against this, the accounts show a total income of 121,000 million marks, which leaves a gap of some 40,000 millions, covered by Treasury bills. Some of these bills ended up in the hands of banks, institutions and other bodies, but the remainder were discounted by the Reichsbank, which in turn issued paper money. By the end of 1918, the amount of money in circulation had reached the sum of 35,000 million marks, about five times as much as before the war.

 

As for the above-mentioned "income", a full 100,000 million marks of this derived from the proceeds of several issues of war loan, which were made at regular intervals, beginning in September 1914. The first four issues, which still benefited from spontaneous or propaganda-inspired patriotic fervour, were successful in mopping up the purchasing power created by the Treasury bills and the ensuing increased circulation of money. (In 1916, the Treasury bills discounted by the Reichsbank amounted to nearly 9,000 million marks' worth, and the currency in circulation had approximately doubled.) But it became increasingly difficult to keep up the public investment in war loans, quite apart from the fact that the ever-rising nominal amounts of successive loans did not compensate for the lower real value of the inflow. The government had to exert more and more pressure to persuade such public bodies as savings banks and local authorities to do their patriotic duty; and they did this, not having sufficient funds of their own, by borrowing on the security of bonds they had had to take up in the past, and merrily adding their own deficit spending to that of the Reich. From the fifth war loan onwards, the proceeds from the subscriptions were regularly less than the value of the Treasury bills issued, and the resulting difference could not fail to exert further inflationary pressure. Shortly before the end of the war, the deficit — that is, the unfunded indebtedness of the Reich — was in the region of 50,000 million marks.

 

In these circumstances the government retracted its promise to finance the war entirely by borrowing and not by taxation. From 1916 onwards several Acts were promulgated instituting some new direct and indirect taxes, among them taxes on war profits, coal and transport, and a turnover tax. But the results were disappointing, partly owing to the low rates of taxation, due perhaps to the fact that the government only half-heartedly agreed to modify its principles. The total revenue from taxation, old as well as new, was not even sufficient to cover the ordinary, as distinct from war, expenditure of the Reich. To be sure, taxation alone could not have paid for the war — none of the belligerents adopted this method. In Britain only one third of the war expenditure was paid for by taxation. If Germany had resorted to taxation, in preference to the issue of war bonds, for the purpose of skimming off purchasing power, at least the inflationary effect of interest payments would have been avoided. Drastic taxation would also have had important psychological and political consequences in the short as well as the long term. In the first place, by taking away excessive war profits it would have created the impression that all classes were making an equal sacrifice on behalf of the war effort, and therefore mitigated the resentment against those who had benefited from the inflationary boom, a resentment that was carried over with such dire results into the post-war inflation. In the second place, and perhaps with even more importance in view of later . . .

 

-------------------------

 

There is some more info and pictures at the ebay link, but it won't be there for long because I just bought it.

 

http://cgi.ebay.co.uk/ws/eBayISAPI.dll?Vie...ht_20075wt_1112

 

 

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Yes it is. The central banks are purposefully overpaying for these mortgages.

 

If a mortgage is worth zero since no one in the freee market is willing to buy it, but the Fed buys it "at face value" with freshly printed money, then this is inflation at its best - in money supply terms, since money got created, but also in terms of paying outrageously high prices.

If a mortgage backed security was supposed to pay 6%

But is only paying 5%

 

for a 25 year maturity instrument they still have a saleable value significantly above (the £138 in the treasury case) the "face value" (the £100 in a treasury case) in a 0.5% interest rate environment, this has sweet f' all to do with "overpaying", its just basic finance.

 

The point is, even with record low interest rates, lenders are still struggling to find people who will borrow off them.

 

£220Bln is barely enough to cover the money that used to be created by RBS all on its own, must be even worse in the US with the actual loss of Lehman.

 

So if the BoE creates £220Bln

and RBS stops creating £400Bln

 

There is still less money than there was before.

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.

Not sure what you are trying to say.

 

The Fed is accounting for mortgage-backed securities that they bought at face value (see: http://www.federalreserve.gov/releases/h41/Current/

point 1. and notes 2. and 4.).

 

This means that the Fed assumes that there will be no default, not even of any interest payments. ("Current face value of the securities, which is the remaining principal balance of the underlying mortgages.")

 

This is clearly a grossly optimistic pricing fantasy that is going on here, because the market did not want any of these mortgages anymore (i.e. value was small, without the Fed it would possibly have been zero).

 

Hence, this is the equivalent to pay for used toilet paper in equal amounts of, say, twenty pound bills, where the important part is that the twenty pound bills simply get printed to do so.

 

OK, now your telling me that this is not inflationary. :blink:

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TAKE ME BACK to the Summer of 1920 ... before the Hyperinflation hit

 

0.jpg

Jazz

weimar-fashion.jpg

Fashion

dix_stadt.jpg

Art

 

This doesn't look like a "depressed" time, does it? More decadent than 2010.

 

Strengthening currency in the first half of 1920 .. whole chart

xxxwk.jpg

"Gold marks" fell into mid-year, before the hyperinflation took off

 

Weimar : "a period of tremendous social and cultural creativity"

 

Here's an interview with a historian/ writer:

http://www.writersvoice.net/2008/03/eric-w...weimar-germany/

 

historian Eric Weitz about WEIMAR GERMANY: Promise and Tragedy.

On the one side, there was Bauhaus, Expressionism, Magnus Hirschfeld and new freedom for gays and women, a vital and experimental theater–in short, an explosion of intellectual and artistic creativity. On the other: hyperinflation, economic depression, and bullies of the left and right rampaging in the streets, setting the stage for the Nazi seizure of power in 1933.

We explore both sides of Weimar Germany and what lessons it may hold for us today.

 

One of the pictures shows a soldier with no legs - presumably begging. I wonder what the untold thousands of maimed ex servicemen thought about the 'explosion of intellectual and artistic creativity' while trying to live by begging.

 

Edit: The National Socialists did not seize power - they were elected - but that is just a detail that gets lost by 'historians'.

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DEFLATION vs. HYPERINFLATION - It is Silly to argue.

Just ride the Big Swings

 

 

Indeed.

As I have said before: No deep crash, no panic QE leading to hyperinflation.

 

As you may know, I am now playing the current Deflationary Swing:

Plenty of cash, big positions in short-side-options (recently acquired), and some longs in Gold and mining shares.

 

If we get a big drop here, I am well-prepared for it,

and understanding that Swings are what we would be seeing, have helped me to get here, and make money

while getting set up for it. (Example: I rode Gold up from $1088 to $1200-50, and then sold of it.)

 

I think those people who are taking "one way bets" on Deflation or Inflation, are going to get frightened out

at the wrong time.

 

I agree with your analysis. Inflation / deflation depends upon the decisions made by corrupt politicians, erm, I mean bankers. If they leave alone we'd have deflation

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I agree with your analysis. Inflation / deflation depends upon the decisions made by corrupt politicians, erm, I mean bankers. If they leave alone we'd have deflation

I agree too. But Bubb's 'ride the swings' is simply the strategy of how best to profit from the decisions of the politicians/bankers. I feel the trend is deflationary and the policies are desperately inflationary (no shit). We will keep going one way and then the other till overwhelmed by...one or the other. :P

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I agree too. But Bubb's 'ride the swings' is simply the strategy of how best to profit from the decisions of the politicians/bankers. I feel the trend is deflationary and the policies are desperately inflationary (no shit). We will keep going one way and then the other till overwhelmed by...one or the other. :P

 

Deflation would happen if the government left alone. However, deflation would mean the end of the banks. Therefore the final result will be inflation. Turkeys don't vote for christmas

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Deflation would happen if the government left alone. However, deflation would mean the end of the banks. Therefore the final result will be inflation. Turkeys don't vote for christmas

There are things such as political realities. Here is Obama today on FinReg:

 

"Because of this bill there will be no more tax-funded bailouts! Because of this bill the American people will no longer bail out the banks! Period!"

 

Looks like they've painted themselves into a corner. The government will be ripped to pieces [at the polls] by a very angry populist movement if they went against this.

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I agree too. But Bubb's 'ride the swings' is simply the strategy of how best to profit from the decisions of the politicians/bankers. I feel the trend is deflationary and the policies are desperately inflationary (no shit). We will keep going one way and then the other till overwhelmed by...one or the other. :P

I think it is a receipe for disaster for non-professional traders (and we have more than enough of those on here). They'll most likely get wiped out by see-sawing, and being positioned for deflation when hyperinflation will hit swift and merciless.

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Not sure what you are trying to say.

 

The Fed is accounting for mortgage-backed securities that they bought at face value (see: http://www.federalreserve.gov/releases/h41/Current/

point 1. and notes 2. and 4.).

 

This means that the Fed assumes that there will be no default, not even of any interest payments. ("Current face value of the securities, which is the remaining principal balance of the underlying mortgages.")

 

This is clearly a grossly optimistic pricing fantasy that is going on here, because the market did not want any of these mortgages anymore (i.e. value was small, without the Fed it would possibly have been zero).

 

Hence, this is the equivalent to pay for used toilet paper in equal amounts of, say, twenty pound bills, where the important part is that the twenty pound bills simply get printed to do so.

 

OK, now your telling me that this is not inflationary. :blink:

Its Anti deflationary

As oppossed to "inflationary"

 

http://www.ny.frb.org/markets/mbs_faq.html

 

These securities were trading in the open market (where the fed bought them) at double digit percentage rates of interest (excluding defaults), The premise is high interest rates are deflationary.

_____

As a caveat, there is a "not disproven" theory that medium to long term high interest rates are inflationary, and low interest rates are deflationary, I plan to "prove" it either way if we enter deflation proper (which if its going to occur will start around the beginning of 011)

using what I refer to as the "money in the pot" model part of http://www.theborgmatrix.com/ltk/index2.php/milliEcon-v2/29.

 

_______

Also, beware of the use of "Guaranteed" and "as security" - these aren't purchases but collateral which is something different.

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Here is some background about the Weimar repubic from the Book THE GREAT INFLATION : GERMANY 1919-1923 William Guttmann and Patricia Meehan

 

There is some more info and pictures at the ebay link, but it won't be there for long because I just bought it.

http://cgi.ebay.co.uk/ws/eBayISAPI.dll?Vie...ht_20075wt_1112

Thanks for that !

Nice photos, etc

001bkv.jpg

 

001ee.jpg

 

001vgq.jpg

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I think it is a receipe for disaster for non-professional traders (and we have more than enough of those on here). They'll most likely get wiped out by see-sawing, and being positioned for deflation when hyperinflation will hit swift and merciless.

Well, er, yes... I wouldn't like to try it myself.

 

Can you gently talk me through the stokes of being positioned for hyperinflation?

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There are things such as political realities. Here is Obama today on FinReg:

 

"Because of this bill there will be no more tax-funded bailouts! Because of this bill the American people will no longer bail out the banks! Period!"

 

:rolleyes: yay, another bullshit promise for him to break.

 

Looks like they've painted themselves into a corner. The government will be ripped to pieces [at the polls] by a very angry populist movement if they went against this.

 

the political reality is that the US gov't has crushed every populist uprising since the american revolution, staring with the Whiskey Insurrection in 1791.

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I thought it had been discussed to exhaustion before why Japan (as a succesful exporter and with very special investment demographics) can't really be compared to the present situation.

Well, that was the assumption that hyper-inflationists were making. I'd recommend Richard Koo's "The Holy Grail of Macro-economics; Lessons from Japan's Great Recession". Koo's argument is that developed countries are facing a "balance sheet recession", very similiar to Fisher's debt deflation. This is the primary over-riding factor. Demand for debt evaporates as corporates in the case of Japan, and consumers in the case of the west, restore their balance sheets [destruction of demand for debt..... yet another plank of monetarism goes by the wayside] in this kind of recession/ depression. What happens in the demand side completely negates what goes on in the supply side [of money]. The main point of the book is to draw parallels between Japan's experience and what western countries are now going into.

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:rolleyes: yay, another bullshit promise for him to break.

 

the political reality is that the US gov't has crushed every populist uprising since the american revolution, staring with the Whiskey Insurrection in 1791.

There is a process. Last time Paulson had to go begging cap in hand for his bazooka. What is Geithner to ask for this time? A tank? And at a time political opposition is effectively mobilized. This is why there is only talk of QE2 [jaw-boning the market], but the Fed knows they're on thin political ice. There would be one hell of a fight in Congress over it.

 

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