Inflation coming sooner than we think?

Just wondering what about that post led to your choosing of the thread title?

Historically the lag from printing to inflation is about 18 months. That is why the Government and big banks want to be at the head of the line. When they use the 'newly printed money' it has not yet lost purchasing power.

But, and this is a big but, this is not a normal inflation attempt. As you can see in the little depiction at the site there is weak aggragate demand, a credit crunch and a debt implosion on one side and the Federal Reserve, Treasury and Congress on the other.

From the governments point of view all the 'problems' (left side of rope) are in the private sector. All the potential 'rescuers' (right side of rope) are in the public sector.

What have the potential 'rescuers' done so far? They have made attempts to hide Wall Sts bad assets using level 2 and 3 capital rules. They have dropped Fed interest rates to effectively zero. They have provided treasury issues to Wall St in exchange for (who knows?) to maintain the illusion of Wall St solvency. They have attempted to get new accounting rules implemented that would allow Wall St garbage to be marked to an unknown fantasy price...this would help Wall St banks maintain the illusion of solvency. They have quickly come to the rescue of any institution who's failure would impair Wall St (like AIG). They have opened conduits to foreign CBs to lessen the strain on foreign CBs needing dollars for trade and exchange. They have gone all out with a media blitz, PPT, limiting shorts on financials, etc, to keep the DJIA above 800 (800 is an important number for insurance companies and many other entities). They have allowed everybody and his cousin to become a bank to gain access to the ABC Fed windows. They have made enormous sums available to Wall St banks to 'ease credit conditions'...odd, these banks are not loaning the money the Fed provided and there were no stipulations about how the funds were to be used. They have etc, etc, etc...And, they very reluctantly threw Detroit a small bone.

Obama claims that his administration is going to change the thrust of the rescue from Wall St to the private sector. Build infrastructure, increase unemployment payment periods, put people to work doing stuff (?), run enormous deficits, bail out some state governments, etc.

Agency debt has not been selling. How long will it be untill the foreigners realize that our government is hell bent on saving Wall St even if it wrecks the credit rating of the US, wrecks the Treasury bond markets, and destroys the dollar? What will the foreigners do when they realize what the intent of the US Government is?

We will soon see what Obama does but right now I will go with Jesse's opinion. We will be thrown under the bus and the focus will remain on saving insolvent Wall St banks and getting consumers spending again. What the consumers are supposed to use for money or credit to spend with is anybody's guess.

If this situation proceeds the way I think it will I will not have any dollars in the very near future (less than 18 months)...except enough to cover our normal bills.

I am doing something that I have never done before. Here are comments that I made in a post at Naked Capitalisim. The reason I am doing this is I feel that people really do not have a clue how tight the relationship between major banks and the governments are. It is a symbiotic relationship and has been for centuries. The following may seem a little out of context but the primary points are relevent.

'River said...
If 'old fashioned' liberal education had not gone out of vogue many posters would realize that Muslim banking is no different than Jewish and Christian banking. All three religions take a dim view of loaning money at interest, although these religious rules have been relaxed they have not gone away. The only documented time that Jesus lost his temper was when he 'threw out the tables of the money changers from the temple'. The rules for each religion remain the same today as they were in the time when Venice was a great power. The character 'Shylock' in Shakespears 'Merchant of Venice' was confronted with the same problems when loaning money at interest back then as Muslims are today. For Shylock, a Jew, to loan money at interest to a Christian, was punishable and sometimes by death by the Christian church. For Shylock to loan money at interest to another Jew was forbidden by the Jewish religion.

People in general do not understand the close relationship between banks and governments. In days of yore when a secular ruler refused to repay a loan to a Medici (or most other) banks the bank simply closed up shop in that country and then the king would have a tough time raising money for any purpose, even a war to assuage his ego. It was much more desireable for the king to turn the screws on the peasants and raise taxes to repay the banks so the banks would be around in case of a challenge to the kings throne. Does this sound different from what is happening today?

The Medicis used a mechanisim of currency arbitrage to get around the usuery laws of religions. Instead of charging interest the early Medici banks charged a fee for capital exchange rate. The longer period of time that passed prior to currency exchange settlement the higher the fee charged by the Medici banks. Voila! no interest was charged, so a technicality was used to circumvent the religious interest prohibitions. Once again the regulators were behind the curve. Not only did the Medici banks use cunning in their banking practices they also provided several Catholic Popes over time. To say the Medicis had a close relationship to government, which was the Catholic Church, would be a vast understatement.

So, what difference is there today than in the time of the Medicis? Wall St provides bankers to fill government positions and government provides individuals to manage Wall St. The close relationship between bankers and government still exists. I see little change from the thirteenth century.'

The very best spooks are those that are never suspected, even by their supervisors or co workers. I have no information that would make me think Setser is anything but another CFR employee but he does seem to get any amount of help he requires from other CFR employees to prepare charts, graphs, stats, etc. In addition, exactly why is the CFR offering up a daily blog when most of the stats are available at other government sites?

Setser's blog spends much effort examining soverign wealth funds, hot money flows (as you pointed out), Chinese and other Asian imports/exports and banking, Asian manufacturing and employment, etc.

Here is a partial compilation of Setser's blogs by subject and quantity from the right hand column of his home blog page: central bank reserves 219, China 300, emerging economies 99, Europe 20, fiscal policy 38, housing 12, IMF 3, monetary policy 6, oil 73, US politics 9.

It strikes me as a bit of a stretch that Setser's blogs regarding China received 15 times more attention than all of Europe. 300 : 20.

It also seems odd that Setser blogged 3 times on the IMF (while Iceland and several European countries melted down), 9 times on US politics (while fiscal policy ran amok) and 6 times on monetary policy (while monetary policy ran amok), and only 12 times on housing while targeting emerging economies 99 times.

I realize that part of the CFRs mission is to track foreign economies, especially those that might have negative impact on the US, but shouldn't the focus on China:Europe be a little more balanced? And, if Setser were really concerned about the US economy why doesn't he take Greenspan to task for his role in the interest rate/housing debacle? Setser does a very good job of shifting the attention from the root causes of the credit crisis, the US, to the results of the credit crisis, that is, what is going on in economies elsewhere in the world. That is his job.

At the same time we comment about the US role in the credit debacle we have to keep in mind that Europe and Asia were enablers in this mess. Without the help of foreigners buying US debt instruments to aid their domestic production and export the US could never have gotten so deeply in debt on consumer and government levels. I believe that Setser could point this out while discussing the US role and present a more complete picture of who shot John.

I am not trying to single out Setser for condemnation but you brought up his name and blog. I am saying that I turn on my bull shite detector everytime I read any blog.

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So, what difference is there today than in the time of the Medicis? Wall St provides bankers to fill government positions and government provides individuals to manage Wall St.

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Interesting post. Le plus ca change...