If and when will the money printing stop?

[FlyingFox]

If the following is correct, what will be the implications?

....
The elegance of this scam is breathtaking. Central banks print money to 'stimulate the economy'. It doesn't stimulate the real economy. It just makes it look as though there is real growth. Asset prices go up... just as they would in a real boom.

But in a real boom, most people would become wealthier and better off. In a phoney boom, only a few become wealthier. A phoney boom does not create wealth, it just transfers existing wealth. Central bankers give new money to their friends. The friends use it to capture a larger share of the real wealth in the nation".
...

Some very good points. Property and stock markets of late have been some of the greatest vehicles of money transfer.

....

I've just finished 2 great reads

(1) The Great Crash Ahead Harry Dent.

This will give you a broad idea of where we are at and where we are going. What many fail to include in their debt discussion is UNFUNDED liabilities Social security/Health Care/Pensions.

(2) The Crisis of Crowding.Ludwig Chincarini

This is a must read in culmination with (1) as it will describe why they keep printing money.
The unwinding of manufactured derivatives with no physical is frightening.
You can bet this current bull run before May when it is likely there will be no further Q/E is about unwinding.
Smart money selling into Dumb Money.


This is an fantastic topic and one which I'm glad I will live to see.
As hard as it is it won't happen again for another lifetime.

Thanks for the books. Will have to look them up. A few points too add.

1) Demographic and population changes. Baby Boomers are not a problem if the population had been increasing a >> 1.5-2%. Not the case and therefore money printing needed to fill the demand gap.
2) Financial Instruments advertently or inadvertently used to keep the price of some real assets down. e.g fractional lending for money and paper precious metals for real precious metals.
3) Sovereign Debt and the unwillingness to change some flawed models.

I never understood this unfunded liability hysteria. It's such a long dated liability (75 years or infinite depending on which measure you take), it's not going to go bang overnight. The tax system will adjust sometime between now and 2087.

It's just another way for Harry to sell his rubbish.

The severity of this will depend on the demographics of the particular country but for most it's now to next 10 yrs. See tech/a's later comments for a good explanation.

There are more baby boomers than ever retiring or un able to continue to work
As it gets more difficult they are likely to be the ones retrenched.
The liability is NOW. Dont know where you get the 75 yrs from?? They will be retiring En mass over the next 10 yrs.
Only about 3% are self funded. So they go from TAX PAYERS to SOCIAL SECURITY TAKERS/ PENSIONERS.
Same goes for Medicare. This isnt some fictitious amount--this IS the liability which ISNT FUNDED.
In the USA its is trillions and it just isnt there!

Print more money eh!!

Seriously you think Dent is writing Rubbish?
Have you read it?

+10. Not just in the US but I believe its the case in parts of Europe such as Italy and Greece as well.

 

[FxTrader]

Seems like Krugman has a better record than his detractors. According to many of them the US should already be experiencing high inflation and interest rates on US bonds should have spiked.

Krugman is just one of the better known (and widely followed) Keynesian fanatics who simply have no regard for the consequences of creating debts that can never be repaid (except with truck loads of almost worthless paper currency). The primary reason that the US is not experiencing the same inflation as Zimbabwe is the reserve status of the USD - this will not be the case forever. The global currency wars, a race to devalue by massive money creation, must end at some point and I don't believe US citizens will be the winners.

BTW, the fact the minting of a trillion dollar coin to stave off the debt ceiling deadlock was considered by anyone as a viable solution tells you just how perilous the financial position of the US govt is.

 

[sptrawler]

So let's think about this
The fed prints trillions knowing that will flood the market with money
Interest rates fall great so does the dollar.
So US goods look more attractive so increase in demand.--- all good.
But wait imports like fuel,oil,clothes toyotas --- the list is endless --- now cost more---not good.
But worse Chinas currency is based on USD so when the UDS falls so does Chineese currency
Making them even more competitive in a market the US want to increase market share---- Good?

So just with this evidence what do you think? Working?

Americans buy American, it's a consumer society, the minimum wage is $7/hr moving that up $2 is a major stimulus.IMO

 

[banco]

Krugman is just one of the better known (and widely followed) Keynesian fanatics who simply have no regard for the consequences of creating debts that can never be repaid (except with truck loads of almost worthless paper currency). The primary reason that the US is not experiencing the same inflation as Zimbabwe is the reserve status of the USD - this will not be the case forever. The global currency wars, a race to devalue by massive money creation, must end at some point and I don't believe US citizens will be the winners.

BTW, the fact the minting of a trillion dollar coin to stave off the debt ceiling deadlock was considered by anyone as a viable solution tells you just how perilous the financial position of the US govt is.

I've yet to hear a good alternative. Of course Krugman's approach has risks but there aren't any fantastic options left. UK has tried a mild version of austerity and it hasn't exactly been a roaring success.

 

[FlyingFox]

I've yet to hear a good alternative. Of course Krugman's approach has risks but there aren't any fantastic options left. UK has tried a mild version of austerity and it hasn't exactly been a roaring success.

I don't know if there is an alternative let alone a good one. I suspect we are so far down the path that there is no way to return.

 

[FxTrader]

I've yet to hear a good alternative. Of course Krugman's approach has risks but there aren't any fantastic options left. UK has tried a mild version of austerity and it hasn't exactly been a roaring success.

True, in an era where financial prudence, fiscal responsibility and proper economic and central bank management are punished by high relative exchange rates it's easier to capitulate and fire up your own printing press to defend your currency and join the debt binge. Is this "alternative" really the key to a future of sustained world economic prosperity? Not if history is any guide.

 

[Smurf1976]

The unfunded liabilities thing isn't limited to the US or even to national governments.

I know that some of the Australian state governments have some pretty huge liabilities there. I don't have the figures, but I understand it to be $ billions each for several states and a huge sum in total.

 

[craft]

I wish somebody could explain this money printing theory in a way that a simpleton like me can understand.

For the life of me I can’t see any NET money creation occurring.

I can see plenty of liquidity creation, plenty of balance sheet shuffling and plenty of suppressing interest rates but the net result is still deleveraging.

There is no government printing without obligation and private debt/GDP is diminishing. So I just don’t understand the money printing theory.

 

[FxTrader]

I wish somebody could explain this money printing theory in a way that a simpleton like me can understand.

I found Dyson's explanation of money creation and it's consequences, from a UK perspective, a good one...

 

[sptrawler]

I wish somebody could explain this money printing theory in a way that a simpleton like me can understand.

For the life of me I can’t see any NET money creation occurring.

I can see plenty of liquidity creation, plenty of balance sheet shuffling and plenty of suppressing interest rates but the net result is still deleveraging.

There is no government printing without obligation and private debt/GDP is diminishing. So I just don’t understand the money printing theory.

From what you said you had in super, don't worry about it kick back and enjoy life.

 

[craft]

I found Dyson's explanation of money creation and it's consequences, from a UK perspective, a good one...

His main proposition is private debt equals money creation.

Private debt to GDP is shrinking – How does the video explain the money printing everybody is referring too? – Surely it undermines it.

 

[McLovin]

There are more baby boomers than ever retiring or un able to continue to work
As it gets more difficult they are likely to be the ones retrenched.
The liability is NOW. Dont know where you get the 75 yrs from?? They will be retiring En mass over the next 10 yrs.
Only about 3% are self funded. So they go from TAX PAYERS to SOCIAL SECURITY TAKERS/ PENSIONERS.
Same goes for Medicare. This isnt some fictitious amount--this IS the liability which ISNT FUNDED.
In the USA its is trillions and it just isnt there!

Actually I was wrong, the 75 year liability is $8t, the infinite horizon is $20t.

The tax system can and will adjust to meet the shortfall...

Because $20.5 trillion is equal to 31 percent of the projected taxes, the system is 31 percent underfunded. To pay all promised benefits would require immediately and permanently raising Social Security’s 12.4 percent payroll tax (split evenly between employer and employee) by 31 percent, or 3.9 percentage points.

http://www.bloomberg.com/news/2012-07-11/social-security-hole-overwhelms-taxes-cuts.html

The US needs higher taxes, it's waking up to that fact. The problem with doomsday scenarios like Dent's is that they assume a) no one is aware of the problem b) we're on a course the direction of which cannot be altered c) the "liability" actually a liability. There's no contractual obligation to provide Medicaid, Medicare or social security.

Seriously you think Dent is writing Rubbish?
Have you read it?

About as much rubbish now as he was in his 2006 book that predicted the Dow would hit 40,000 by 2010. Or his predictions that the S&P would fall by 40% in 2012. I wouldn't waste my time.

He's also predicting the crash of the Australian property market. Do you think that's rubbish or do you pick and choose?

The severity of this will depend on the demographics of the particular country but for most it's now to next 10 yrs. See tech/a's later comments for a good explanation.

The liability is created when a child is born in the US, that's why the liability is so long dated. The liability takes into account current taxation and current demographics. Change one or the other, or both and the equation changes. Taxation will increase in the US. They may not like it but they like it more than the alternative.

 

[CanOz]

Taxation in the us will improve, they're just about to expand their taxable population by 2-3% and the workforce vs the retiree is expanding as well, unlike most other nations. The US should be in pretty good shape in another 30 years or so...

CanOz

 

[FlyingFox]

.....Taxation will increase in the US. They may not like it but they like it more than the alternative.

Taxation in the us will improve, they're just about to expand their taxable population by 2-3% and the workforce vs the retiree is expanding as well, unlike most other nations. The US should be in pretty good shape in another 30 years or so...

CanOz

Not disputing this but the question is will it rise enough (taxation) and in a timely manner to meet all (most of) their debt? Moreover will the policy makers decide to take this route vs the inflation one?

Agree with CanOZ that US are relatively ok in terms of population etc. Many other countries unfortunately are not and may never be.

 

[sptrawler]

Not disputing this but the question is will it rise enough (taxation) and in a timely manner to meet all (most of) their debt? Moreover will the policy makers decide to take this route vs the inflation one?

Who do they owe the money to? They are the reserve currency, what a hoot.

 

[young-gun]

There are more baby boomers than ever retiring or un able to continue to work
As it gets more difficult they are likely to be the ones retrenched.
The liability is NOW. Dont know where you get the 75 yrs from?? They will be retiring En mass over the next 10 yrs.
Only about 3% are self funded. So they go from TAX PAYERS to SOCIAL SECURITY TAKERS/ PENSIONERS.
Same goes for Medicare. This isnt some fictitious amount--this IS the liability which ISNT FUNDED.
In the USA its is trillions and it just isnt there!

Print more money eh!!

Seriously you think Dent is writing Rubbish?
Have you read it?

Are you finally transitioning to the dark side tech?!

The only thing that annoys me about this book, and many like it, is how dam repetitive they are. Harry could have got his point across in 50 pages.

There's no arguing with his logic. I don't like the guy, and he naturally tends to predict extremes to sell books, but his demographic research is great and can't be ignored IMO. The US is done for, there is no way out. In fact it was this book alone that led me to so many others, that have opened my eyes to see that this dodgy **** debt based economy is on its last legs. No fiat currency has ever lasted this long.

The other thing is the fed will never allow deflation to the extent he outlines.

 

[CanOz]

No fiat currency has ever lasted this long.

WTF


PMSL

 

[craft]

Harry Dent’s demographics stuff has a reasonably foundation but some of his extrapolations are crazy.

Real GDP growth is made up of Population Growth and Productivity improvement. Over the last 110 years USA population growth has compounded at 1.3% and productivity at 2%. The projections for population still look to be on trend to me.

Productivity is the issue not population growth.

I’m with Mclovin on the unfunded liabilities. A political storm in a tea cup. USA’s GDP per capita is $50,000 affordability is not the issue – they are just arguing about how to slice the cake. The only truly relevant question is – will how the cake be sliced impact on productivity.

Real GDP numbers are all well and good but its nominal growth that effects valuations. Nominal GDP is real GDP plus inflation. Its inflation where monetary policy has its biggest impact. I’m still waiting for this money printing theory that’s creating certain inflation (at some point) to be explained to me because I see NET money destruction not printing going on now.

The time to sing the’ it’s raining money’ song was pre-GFC, we are having a downstream flood now but it’s not still raining.

 

[craft]

The jump in commodity prices is on average around 30 %
Page 137 Dents book.

So no inflation here.

The price of anything that is consistently wanted but not in unlimited supply, should over the very long run imbed nominal growth +/- any efficiency/deficiency gains in finding or producing.

How much of the 30% is represented by long term imbedding of nominal growth?

How much of the 30% is due to depletion of high grade easily accessible deposits?

How much is simply cyclical price movement to balance off relatively short run supply/demand imbalances? What time period has he referenced to come up with 30%?

 

[McLovin]

Not disputing this but the question is will it rise enough (taxation) and in a timely manner to meet all (most of) their debt? Moreover will the policy makers decide to take this route vs the inflation one?

They've shown zero desire so far to take the inflation route so why would you anticipate they will start now? US debt today is entirely manageable. What needs to be contained is the level of debt to GDP as a %. That can't keep accelerating.