Where is the inflation?

[Moonglow]

View attachment 44439

Damn you people sure pay high prices in the city for food...Around here, butter$2.48, pound of beef $3.30, 10 pounds of bacon $19.90
10 pounds of taters $2.49....

 

[Obiwan]

 

[HenryBHough]

Damn you people sure pay high prices in the city for food...Around here, butter$2.48, pound of beef $3.30, 10 pounds of bacon $19.90
10 pounds of taters $2.49....

And those prices will persist until Castro removes the subsidies and/or there are any of those things actually in stock!

 

[Toddsterpatriot]

Once the velocity of money picks up, the trick the Fed will need to perform is to take all that cash they printed back out of the economy.

The problem is that the Fed put cash into the economy by paying top dollar for assets. Because of ZIRP, they paid the maximum possible price for those assets, which means they will not be able to get the same price when they sell them. No one is going to pay more for those assets than the Fed paid for them, and that means they will not be able to pull out all that cash they printed. And that means inflation.

Imagine a bond with a $100 face value. If you were an investor, you might bid $50 for that bond, and then you would collect the full $100 when that bond matured.

But imagine if another player came into the market and offered $99.999 for that bond? Clearly, you won't outbid them. So they get the bond.

That is what the Fed has done. They put $99.999 into circulation with that bond. They printed that money from nothing. If you had bought the bond for $50, you would have paid with existing money, and therefore no extra money would have been put into circulation.

To get new money into circulation, and a lot of it, the Fed had to outbid everyone else.

But now they have a $100 bond they paid $99.999 for. When it comes time to sell that bond so they can soak up cash and burn it, who is going to buy it for $99.999 or greater?

Nobody. That's who.

They will have to sell it for less than $99.999 to get people to buy it.

Let's say they are able to sell it for $95.00. The end result is an extra $4.999 in circulation they can't get back out.

Inflation. But you won't see it until the economy begins heating up. As long as things are sluggish, all that extra cash is buried in back yards.

The problem is that the Fed put cash into the economy by paying top dollar for assets.

They paid market prices. Prices when rates were higher. They have some decent unrealized gains on their bonds.

If you were an investor, you might bid $50 for that bond...another player came into the market and offered $99.999 for that bond...
That is what the Fed has done.

Bullshit.

To get new money into circulation, and a lot of it, the Fed had to outbid everyone else.

They only bought about 20% of new debt since 2008. They didn't have to outbid everyone.

If you had bought the bond for $50

You'd have been dreaming, because they weren't trading at that level.

Let's say they are able to sell it for $95.00. The end result is an extra $4.999 in circulation they can't get back out.

They could use $4.999 of their huge annual profit to make up the difference.
Even assuming they sell at a loss.

 

[buddhallah_the_christ]

It should be pointed out that the velocity of money in the U.S. is at just about great depression levels right now.
You must be fool to believe in the bright future for American economics. A new crisis is coming. And inflation is not the worst thing.

 

[Mac1958]

Still too much slack in the economy, we're still not growing fast enough to worry about inflation.

The 10-year Treasury is back up to 2.40%, but it's not very stable.

The trick will be whether the Fed can effectively suck the massive liquidity back out of the system. Too fast and we stall again. Too slowly and we get rapid inflation.

Any bets?

.

I'm guessing that things will either get better or they will get worse.

I'm also predicting that tomorrow will either be hotter or colder.

I think you've nailed it.

JP Morgan (himself) was once asked by a reporter what he expected the market to do. He paused for a moment and said:

"I believe it's going to fluctuate".



.

 

[g5000]

Once the velocity of money picks up, the trick the Fed will need to perform is to take all that cash they printed back out of the economy.

The problem is that the Fed put cash into the economy by paying top dollar for assets. Because of ZIRP, they paid the maximum possible price for those assets, which means they will not be able to get the same price when they sell them. No one is going to pay more for those assets than the Fed paid for them, and that means they will not be able to pull out all that cash they printed. And that means inflation.

Imagine a bond with a $100 face value. If you were an investor, you might bid $50 for that bond, and then you would collect the full $100 when that bond matured.

But imagine if another player came into the market and offered $99.999 for that bond? Clearly, you won't outbid them. So they get the bond.

That is what the Fed has done. They put $99.999 into circulation with that bond. They printed that money from nothing. If you had bought the bond for $50, you would have paid with existing money, and therefore no extra money would have been put into circulation.

To get new money into circulation, and a lot of it, the Fed had to outbid everyone else.

But now they have a $100 bond they paid $99.999 for. When it comes time to sell that bond so they can soak up cash and burn it, who is going to buy it for $99.999 or greater?

Nobody. That's who.

They will have to sell it for less than $99.999 to get people to buy it.

Let's say they are able to sell it for $95.00. The end result is an extra $4.999 in circulation they can't get back out.

Inflation. But you won't see it until the economy begins heating up. As long as things are sluggish, all that extra cash is buried in back yards.

The problem is that the Fed put cash into the economy by paying top dollar for assets.

They paid market prices. Prices when rates were higher. They have some decent unrealized gains on their bonds.

If you were an investor, you might bid $50 for that bond...another player came into the market and offered $99.999 for that bond...
That is what the Fed has done.

Bullshit.

It's an allegory, dumbass. The Fed most certainly did outbid everyone else. That's how the market works. Bonds go to the highest bidder. This is how the Fed controls interest rates.

 

[g5000]

Let's say they are able to sell it for $95.00. The end result is an extra $4.999 in circulation they can't get back out.

They could use $4.999 of their huge annual profit to make up the difference.
Even assuming they sell at a loss.

The annual profit goes to the US Treasury. It doesn't get destroyed.

The Fed are paying top dollar for their bonds, just like all those idiots who paid top dollar for houses ten years ago. And just like those idiots then, you think the party is going to go on forever.

When the bubble pops, the Fed's bonds are all going to be underwater and they will be taking a huge loss. And that huge loss will be paid for by all of us in the form of inflation.

 

[Contumacious]

Interests rates have been near 0 for close to 5 years as the Fed has been pumping trillions of dollars into the economy each year. Why hasn't this caused inflation? Where is the inflation? When can I expect inflation?
Are you sure that American economics will stay stable?
Is dollar reliable value??

Mr dingle berrry, sir:


Are you familiar with the Federal Reserve Board?

Has it been abolished?

Isn't its main purpose to inflate the fuck out of the currency, or in bureaucratese , to create an "elastic currency"

Isn't that what caused the US to declare bankruptcy in 1935?
So , STFU, delete the post and start one about basketweaving.

 

[Bombur]

As others said it is a velocity thing. The real question is why there isn't more velocity and the most obvious answer is that there isn't strong demand for US production and US producers are not going to invest as much if they are not confident there will be future demand. Our economic problems all tend to come back to the problems associated with large trade deficits and the fact the labor force is losing bargaining power.

The US government has not adapted to globalization well and the two parties are stuck in the past.

 

[Toddsterpatriot]

Let's say they are able to sell it for $95.00. The end result is an extra $4.999 in circulation they can't get back out.

They could use $4.999 of their huge annual profit to make up the difference.
Even assuming they sell at a loss.

The annual profit goes to the US Treasury. It doesn't get destroyed.

The Fed are paying top dollar for their bonds, just like all those idiots who paid top dollar for houses ten years ago. And just like those idiots then, you think the party is going to go on forever.

When the bubble pops, the Fed's bonds are all going to be underwater and they will be taking a huge loss. And that huge loss will be paid for by all of us in the form of inflation.

The annual profit goes to the US Treasury. It doesn't get destroyed.

Right. And if they took a loss on a sale, they could cover it by reducing what they send to the Treasury.

The Fed are paying top dollar for their bonds

They pay the market rate, not the double you pretended upthread.

you think the party is going to go on forever.

I'd love to see where I ever claimed that.

When the bubble pops, the Fed's bonds are all going to be underwater and they will be taking a huge loss.

Since their average cost of funds is around 0.15% and their bonds run off at a pretty decent clip, I don't see why they'd ever have to realize any huge losses.
Their remittance to the Treasury will certainly shrink.

 

[Soggy in NOLA]

Still too much slack in the economy, we're still not growing fast enough to worry about inflation.

The 10-year Treasury is back up to 2.40%, but it's not very stable.

The trick will be whether the Fed can effectively suck the massive liquidity back out of the system. Too fast and we stall again. Too slowly and we get rapid inflation.

Any bets?

.

I'm guessing that things will either get better or they will get worse.

I'm also predicting that tomorrow will either be hotter or colder.

I'm betting today will be yesterday tomorrow.

 

[g5000]

The annual profit goes to the US Treasury. It doesn't get destroyed.

Right. And if they took a loss on a sale, they could cover it by reducing what they send to the Treasury.

Do you hear yourself?

How do you reduce what you are sending to the Treasury if you are taking a loss!?!

The Fed are paying top dollar for their bonds

They pay the market rate, not the double you pretended upthread.

They pay above the market rate by outbidding everyone else to manipulate interest rates.

When the bubble pops, the Fed's bonds are all going to be underwater and they will be taking a huge loss.

Since their average cost of funds is around 0.15% and their bonds run off at a pretty decent clip, I don't see why they'd ever have to realize any huge losses.
Their remittance to the Treasury will certainly shrink.

If they bought a 5 year bond that pays 1.5 percent interest, and interest rates for 5 year bonds goes up to 3 percent, they will have to take a loss when they sell those 1.5 percent bonds. Their bonds will be underwater.

Simple economic principle.

P.S. You need to learn how to use the quote function. It isn't that hard. It's a pain in the ass trying to unfuck your ignorance in this area.

 

[g5000]

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds. And neither is anyone else. To make a decent profit on safe investments these days, you need TRILLIONS in a massive carry trade. And that forces even billion dollar investors to take risky investments in order to make any decent returns, such as lending money to Greece.

That's what I mean about paying top dollar. The Fed is paying pretty damned close to the theoretical limit of bond prices. Under ZIRP, there is nowhere for interest rates to go but up, which means there is nowhere for bond prices to go but down. Which means all those bonds the Fed bought will be like those $500,000 houses bought during the bubble being worth only $300,000 now.

Underwater.

So when it comes time to sell bonds to soak up inflationary cash, they won't be able to soak up as much as they put in.

 

[bendog]

The increase in food and commodities has zero to do with Fed policy, and it's stupid bs to imply otherwise.

 

[Toddsterpatriot]

The annual profit goes to the US Treasury. It doesn't get destroyed.

Right. And if they took a loss on a sale, they could cover it by reducing what they send to the Treasury.

Do you hear yourself?

How do you reduce what you are sending to the Treasury if you are taking a loss!?!

The Fed are paying top dollar for their bonds

They pay the market rate, not the double you pretended upthread.

They pay above the market rate by outbidding everyone else to manipulate interest rates.

When the bubble pops, the Fed's bonds are all going to be underwater and they will be taking a huge loss.

Since their average cost of funds is around 0.15% and their bonds run off at a pretty decent clip, I don't see why they'd ever have to realize any huge losses.
Their remittance to the Treasury will certainly shrink.

If they bought a 5 year bond that pays 1.5 percent interest, and interest rates for 5 year bonds goes up to 3 percent, they will have to take a loss when they sell those 1.5 percent bonds. Their bonds will be underwater.

Simple economic principle.

P.S. You need to learn how to use the quote function. It isn't that hard. It's a pain in the ass trying to unfuck your ignorance in this area.

How do you reduce what you are sending to the Treasury if you are taking a loss!?!

They sent almost $98 billion to the Treasury last year.
If they sell a chunk of their Treasury holdings at a $50 billion loss, maybe they send $48 billion to the Treasury this year. BFD.

They pay above the market rate by outbidding everyone else to manipulate interest rates.

They aren't bidding against everyone else, they order the Primary Dealers to sell them bonds.
They aren't buying bonds trading at $50 for the price of $100.
If you want to claim they're paying $98.01 for bonds trading at $98, you'd be more believable.

If they bought a 5 year bond that pays 1.5 percent interest, and interest rates for 5 year bonds goes up to 3 percent, they will have to take a loss when they sell those 1.5 percent bonds.

Sure. And what will the loss be now that those bonds are 3 years from maturity?
And how much did they already make on them over the last 2 years?
And if they break even over the next 5 years or even lose a bit of their profit from the last several years, that's not a big concern for me.

You need to learn how to use the quote function.

You comments are bolded, mine are not.
Is that too hard for you to follow?

 

[Toddsterpatriot]

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds. And neither is anyone else. To make a decent profit on safe investments these days, you need TRILLIONS in a massive carry trade. And that forces even billion dollar investors to take risky investments in order to make any decent returns, such as lending money to Greece.

That's what I mean about paying top dollar. The Fed is paying pretty damned close to the theoretical limit of bond prices. Under ZIRP, there is nowhere for interest rates to go but up, which means there is nowhere for bond prices to go but down. Which means all those bonds the Fed bought will be like those $500,000 houses bought during the bubble being worth only $300,000 now.

Underwater.

So when it comes time to sell bonds to soak up inflationary cash, they won't be able to soak up as much as they put in.

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds.

The Federal Reserve released its annual income report Friday and the central bank says it will transfer approximately $98.7 billion to the U.S. Treasury, a record.

Fed Sending 98.7 Billion Of 2014 Profits To U.S. Treasury

 

[Bombur]

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds. And neither is anyone else. To make a decent profit on safe investments these days, you need TRILLIONS in a massive carry trade. And that forces even billion dollar investors to take risky investments in order to make any decent returns, such as lending money to Greece.

That's what I mean about paying top dollar. The Fed is paying pretty damned close to the theoretical limit of bond prices. Under ZIRP, there is nowhere for interest rates to go but up, which means there is nowhere for bond prices to go but down. Which means all those bonds the Fed bought will be like those $500,000 houses bought during the bubble being worth only $300,000 now.

Underwater.

So when it comes time to sell bonds to soak up inflationary cash, they won't be able to soak up as much as they put in.

They sell bonds to get interest rates higher but the rates are already high in your scenario.

 

[Contumacious]

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds. And neither is anyone else. To make a decent profit on safe investments these days, you need TRILLIONS in a massive carry trade. And that forces even billion dollar investors to take risky investments in order to make any decent returns, such as lending money to Greece.

That's what I mean about paying top dollar. The Fed is paying pretty damned close to the theoretical limit of bond prices. Under ZIRP, there is nowhere for interest rates to go but up, which means there is nowhere for bond prices to go but down. Which means all those bonds the Fed bought will be like those $500,000 houses bought during the bubble being worth only $300,000 now.

Underwater.

So when it comes time to sell bonds to soak up inflationary cash, they won't be able to soak up as much as they put in.

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds.

The Federal Reserve released its annual income report Friday and the central bank says it will transfer approximately $98.7 billion to the U.S. Treasury, a record.

Fed Sending 98.7 Billion Of 2014 Profits To U.S. Treasury

EXACTLY.

THE FRB CREATED OUT OF THIN AIR - 98.7 BBBBBBBBBBBBBBBBBBBBBBBBBBBBBillions - a record - yet the dingle berry is asking where is the inflation.


The narcotized never cease to amaze me.


.


.

 

[Toddsterpatriot]

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds. And neither is anyone else. To make a decent profit on safe investments these days, you need TRILLIONS in a massive carry trade. And that forces even billion dollar investors to take risky investments in order to make any decent returns, such as lending money to Greece.

That's what I mean about paying top dollar. The Fed is paying pretty damned close to the theoretical limit of bond prices. Under ZIRP, there is nowhere for interest rates to go but up, which means there is nowhere for bond prices to go but down. Which means all those bonds the Fed bought will be like those $500,000 houses bought during the bubble being worth only $300,000 now.

Underwater.

So when it comes time to sell bonds to soak up inflationary cash, they won't be able to soak up as much as they put in.

By the way, Todd. Thank to their ZIRP bank bailout program, the Fed isn't making much profit on its bonds.

The Federal Reserve released its annual income report Friday and the central bank says it will transfer approximately $98.7 billion to the U.S. Treasury, a record.

Fed Sending 98.7 Billion Of 2014 Profits To U.S. Treasury

EXACTLY.

THE FRB CREATED OUT OF THIN AIR - 98.7 BBBBBBBBBBBBBBBBBBBBBBBBBBBBBillions - a record - yet the dingle berry is asking where is the inflation.


The narcotized never cease to amaze me.


.


.

THE FRB CREATED OUT OF THIN AIR - 98.7 BBBBBBBBBBBBBBBBBBBBBBBBBBBBBillions - a record

Wrong. They created much, much more to buy trillions in Treasuries and MBS.
The $98.7 billion is the difference between their interest expense, 0.25% paid on reserve balances, and their interest income on their bond holdings. After all other Fed expenses are taken out.