1932 propaganda - inflation will save us

[muldoon]

I was just forwarded a link to this fascinating piece of american history.   It is 1932 newsreel, and they are selling propaganda on why "Inflation" is the best thing. 

http://www.liveleak.com/view?i=3e0_1235601005

A few things come to mind when watching it.
around 3:40 - good charts come forward with value of dollar (increasing), wages (decreasing), and cost of living (decreasing) - all generic deflation.  And I contrast that with our situation today with the same cost of living and wage decrease only we now have falling dollar as well.  This is much worse footing than we had in 1932 because we cannot force any inflationary dollars into wages these days. 

(If a company were to try to raise wages, competition would simply push those jobs back to china at cheaper and put them out of business - wage increases simply cannot be done like that these days.)  All that can be done is devaluing of the dollar.  And they are making the same BS case for it now as this clip shows from 1932.   

History students will knows that the great depression lasted until the early 40s - or nearly a decade after this train wreck played out.   I wonder how many people understood the correlation of these policies and the prolonged length of the depression.  I doubt it was many, no one seems to understand the correlation between our polices today and our economy right now. 

For what it's worth, I don't know a single person in my work circles who believes we are in a lowering interest rates environment.   Some are QE related, some are monetizing of debt related, all lead the same road.  I have talked enough about the eventual inevitability of the federal governments inability to fund itself for everyone to know where I am going with this. 

[ScottA]

So basicly our government is taking it's playbook from 1930's news reels? I can recall seeing a few other news reels from like say 1939 that wheren't so cute.

[waggin]

Well, inflation is good for paying off our ludicrous, unsustainable national debt ala Weimar Germany after WWI.  Remember the photo of the woman feeding bricks of currency into the stove for heat?  The printed bills had more value as fuel for the fire than spending them.  It's also a great way to avoid actually being able to pay for bureaucracy.  Can't pay for something?  Just print more!  Look how well inflation is working for Zimbabwe currently, with an inflation rate of 89.7 sextillion % as of November 2008.  Of course there is the teensie, weensie fly in the ointment downside of the rest of the world not trusting the value of the dollar any more and not being willing to finance us going forward. 

In contrast to the 1930's, we now have Ben Bernanke of the (not-even-remotely federal) Federal Reserve telling us with the bogus CPI that we have no inflation, and it's deflation that's the big, scary monster we all have to be afraid of.  All of the debt monetization/QE can be pulled back quickly when the economy improves to keep those inflation expectations in check.  Of course, this is the same clown who said the subprime issues wouldn't have any effect on the rest of the economy.

Got gold?

[peternap]

It just kee[s you watching....doesn't it Muldoon?

I wish I had a crystal ball because I just can't tell where this is going. Wherever...It doesn't look good and hasn't for a long time now!

[Bishopknight]

Chinas warning the US not to run the printing presses

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5379285/China-warns-Federal-Reserve-over-printing-money.html

[muldoon]

For what it's worth, I don't know a single person in my work circles who believes we are in a lowering interest rates environment.   Some are QE related, some are monetizing of debt related, all lead the same road.  I have talked enough about the eventual inevitability of the federal governments inability to fund itself for everyone to know where I am going with this. 

bond market told Ben a big FU today.  money is going into the short end of the curve. 
Note the mortgage rate reaction.. 

http://www.erate.com/six_month_libor_index.6-months-libor.htm

30 Year Fixed Rate Mortgage
Previous 26-May-09 - 5.08%
Current  27-May-09 - 6.52%
ONE DAY change    28.2% = the end of any housing market recovery. 

from mbsonline, this is a waterfall move.   30 year FNMA'a 4.5% are trading 99-28 (thats 28/32's) 6.52%? omg.



--
this could be the start of something really big.  the trend is unload MBS and long term bonds.  Todays auction was the 5 year, it went well - everyone is dumping from the 10 and 30s to go into short term.  It's a vote of no confidence. 

[peternap]

For what it's worth, I don't know a single person in my work circles who believes we are in a lowering interest rates environment.   Some are QE related, some are monetizing of debt related, all lead the same road.  I have talked enough about the eventual inevitability of the federal governments inability to fund itself for everyone to know where I am going with this. 

bond market told Ben a big FU today.  money is going into the short end of the curve. 
Note the mortgage rate reaction.. 

http://www.erate.com/six_month_libor_index.6-months-libor.htm

30 Year Fixed Rate Mortgage
Previous 26-May-09 - 5.08%
Current  27-May-09 - 6.52%
ONE DAY change    28.2% = the end of any housing market recovery. 

from mbsonline, this is a waterfall move.   30 year FNMA'a 4.5% are trading 99-28 (thats 28/32's) 6.52%? omg.



--
this could be the start of something really big.  the trend is unload MBS and long term bonds.  Todays auction was the 5 year, it went well - everyone is dumping from the 10 and 30s to go into short term.  It's a vote of no confidence. 

Too early to see what's going to happen yet IMHO. The Obama Adm. Has a lot more smoke to blow at the mirrors. I'm looking for the roller coaster to keep going for another month before the ship takes on too much water to stay afloat.

[muldoon]

Too early to see what's going to happen yet IMHO.

with all due respect, that balderdash.  it has been painfully obvious what is going to happen for nearly 2 years. 

The Obama Adm. Has a lot more smoke to blow at the mirrors.

the rest of the world and those that fund his actions disagree with this.  what else can you call a 30% rise in the cost of debt in a single day? 

I'm looking for the roller coaster to keep going for another month before the ship takes on too much water to stay afloat.

this is the roller-coaster I am watching.  (image via market-ticker)


It portends a rising cost in USG funding and is calling Ben and Tims bluff.   The flight is into the short end of the curve, meaning people are selling the 10 and 30 year maturities and buying the shorter durations.  This creates two problems, the rates or coupon they must offer to attract investors must go up (money cost more), and it concentrates the debt into very short term durations they must continually "roll over".   The more frequently these large numbers must be rolled over, the more the rates must increase and the greater the risk of a no bid situation occurs. 

next up as I see it -
rebalance after this run - nothing moves up or down in a straight line.  this will revert back to somewhat of a mean, the trend is what is scary here.

next flight is into the IRX, or 13 week - additional pressure on long bonds, huge rollover risk to us.

next flight is directly into us dollars.  dollar index goes sky high, those holding gold get slaughtered.  cash is king and will be for some time.  flight to safety. 

The majority of the debt collapsing is denominated in US dollars.  Have you seen anyone rolling around with a wheelbarrow full of money?  dollars are still very precious - and even if they printed a trillion (which they cant see above rise in rates) - without a way to get those dollars into wages, it simply cannot happen.  And with globalization there is no way those wages can significantly increase here.