TakeYouToTasker Posted May 21, 2014 Share Posted May 21, 2014 (edited) http://blogs.marketw...omb-at-the-fed/ Highlights: The Philadelphia Fed president... is worried about some $2.5 trillion in “excess” reserves. “These reserves are not inflationary right now,”(yet if borrowing begins to surge and those reserves start to pour out of the banking system) “that’s going to put pressure on inflation.” The Fed tried to avoid such a problem in the past simply by not creating so much excess reserves in the first place. If the excess reserves did not exist, banks could not lend out too much money and trigger an inflationary spiral. What’s different now is the reserves have already been created. “One thing I worry about is that if we are late, in this environment, with all these excess reserves, the consequences might be … more dramatic than in previous times,” In regards to a draw-down: Go too fast and economic growth could get stunted. Go too slow and inflationary pressures would build rapidly. Plosser asserts: the Fed has almost always reacted too late. “If you study the Fed over the years, over its history, its always behind the curve.” Thoughts? Edited May 21, 2014 by TakeYouToTasker Link to comment Share on other sites More sharing options...
Tiberius Posted May 21, 2014 Share Posted May 21, 2014 Deflation sucks! Link to comment Share on other sites More sharing options...
OCinBuffalo Posted May 22, 2014 Share Posted May 22, 2014 (edited) Reports? Yes, I got the memo. The new coversheets. I'll go ahead and try to remember that. Edited May 22, 2014 by OCinBuffalo Link to comment Share on other sites More sharing options...
Tiberius Posted May 22, 2014 Share Posted May 22, 2014 (edited) Reports? Yes, I got the memo. The new coversheets. I'll go ahead and try to remember that. Ha ha! Ocin with the O-Face? Lol Edited May 22, 2014 by gatorman Link to comment Share on other sites More sharing options...
TPS Posted May 22, 2014 Share Posted May 22, 2014 http://blogs.marketw...omb-at-the-fed/ Highlights: The Philadelphia Fed president... is worried about some $2.5 trillion in “excess” reserves. “These reserves are not inflationary right now,”(yet if borrowing begins to surge and those reserves start to pour out of the banking system) “that’s going to put pressure on inflation.” The Fed tried to avoid such a problem in the past simply by not creating so much excess reserves in the first place. If the excess reserves did not exist, banks could not lend out too much money and trigger an inflationary spiral. What’s different now is the reserves have already been created. “One thing I worry about is that if we are late, in this environment, with all these excess reserves, the consequences might be … more dramatic than in previous times,” In regards to a draw-down: Go too fast and economic growth could get stunted. Go too slow and inflationary pressures would build rapidly. Plosser asserts: the Fed has almost always reacted too late. “If you study the Fed over the years, over its history, its always behind the curve.” Thoughts? First, I had to look up Plosser's background because I couldn't believe someone from banking could be so ignorant about how banks work; but, as I saw, he is not a banker but an academic with training from Chicago and was at U of R. These are the types of academics who base their ideas on unrealistic models and behavior. rant over. My thoughts on inflation: Financed spending is the main source of inflation, so my response is not much different from my previous arguments: inflation won't happen until significant amounts of money get into the hands of the middle class; that is, when banks make loans to middle class consumers. Given flat wages and income, this won't happen in any significant way to influence inflation. Since the corporate sector is flush with cash, there's no reason for them to take out loans either. Most corporate borrowing has funded mergers and takeovers, so no impact on consumer prices there (asset inflation, yes). My thoughts on his points you highlight: - Reserves never "pour out of the banking system;" 95% are electronic credits on the Fed's electronic balance sheet. Banks make loans which create deposits, and bank lending has very little to do with bank reserves, and everything to do with borrowers' ability to repay loans. - The Fed does not restrain bank lending by reducing reserves, it restrains bank lending by raising interest rates. - If inflation pressures do start to build, then the Fed will start to raise its target interest rate; it's as simple as that. [Though there are new complications because the Fed is paying interest on reserves, so there are some interesting questions about how it will proceed.] What isn't simple, is that raising rates will then trigger a slowdown and most likely another financial meltdown that needs to be bailed out... Link to comment Share on other sites More sharing options...
KD in CA Posted May 22, 2014 Share Posted May 22, 2014 (edited) Reports? Yes, I got the memo. The new coversheets. I'll go ahead and try to remember that. Yeah.....It's just that we want the coversheet on ALL the rosy economic forecasts from now on. Edited May 22, 2014 by KD in CT Link to comment Share on other sites More sharing options...
TPS Posted May 22, 2014 Share Posted May 22, 2014 Btw TYtT, I went back to an old inflation thread and found another plosser article posted there from jan 2013 essentially saying similar warnings. If you keep saying it, eventually he'll be right... http://forums.twobillsdrive.com/topic/153530-inflation/page__st__60 Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted May 22, 2014 Author Share Posted May 22, 2014 Btw TYtT, I went back to an old inflation thread and found another plosser article posted there from jan 2013 essentially saying similar warnings. If you keep saying it, eventually he'll be right... http://forums.twobil...on/page__st__60 Are you making a declarative statement that a warning about the possibility of rising inflation due to "excess reserves" that were not yet in circulation, made only six months ago, is invalid because a similar warning was made several days ago because the conditions which elicited the first warning are, at best, unchanged? How does that make sense? Link to comment Share on other sites More sharing options...
Koko78 Posted May 22, 2014 Share Posted May 22, 2014 Reports? Yes, I got the memo. The new coversheets. I'll go ahead and try to remember that. Yeah... we're going to need you go go ahead and come in on Saturday, so, if you could do that, that would be great. Mmmmmkay? Thaaaaaanks. Link to comment Share on other sites More sharing options...
Jauronimo Posted May 22, 2014 Share Posted May 22, 2014 Are you making a declarative statement that a warning about the possibility of rising inflation due to "excess reserves" that were not yet in circulation, made only six months ago, is invalid because a similar warning was made several days ago because the conditions which elicited the first warning are, at best, unchanged? How does that make sense? January 2013 was closer to 18 months ago. Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted May 22, 2014 Author Share Posted May 22, 2014 January 2013 was closer to 18 months ago. Damnit. For whatever reason, "January" read as "December" in my mind. I have no idea why. Still, the larger sentiment is the same, as the expressed warnings were both issued under similar conditions, and with the spectre of the end of quantitative easing on the near horizon. Link to comment Share on other sites More sharing options...
TPS Posted May 23, 2014 Share Posted May 23, 2014 Are you making a declarative statement that a warning about the possibility of rising inflation due to "excess reserves" that were not yet in circulation, made only six months ago, is invalid because a similar warning was made several days ago because the conditions which elicited the first warning are, at best, unchanged? How does that make sense? Isn't it the same refrain we've heard going on 5 years now? QE has been ongoing for 3 years and the price of oil is unchanged and commodity prices in general are lower. Based on my theoretical perspective I think I've been consistently accurate about projections of inflation over the past 4-5 years. I'll take my views over "excess reserves might lead to inflation in the future" any day. At least plosser recognizes that inflation pressures might arise from increased bank lending. The question I would ask him is, who will the banks lend to that will generate excess demand for goods? Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted May 23, 2014 Author Share Posted May 23, 2014 Isn't it the same refrain we've heard going on 5 years now? QE has been ongoing for 3 years and the price of oil is unchanged and commodity prices in general are lower. Based on my theoretical perspective I think I've been consistently accurate about projections of inflation over the past 4-5 years. I'll take my views over "excess reserves might lead to inflation in the future" any day. At least plosser recognizes that inflation pressures might arise from increased bank lending. The question I would ask him is, who will the banks lend to that will generate excess demand for goods? Do you believe this "money" will make it's way into the larger economy? Link to comment Share on other sites More sharing options...
Rob's House Posted May 23, 2014 Share Posted May 23, 2014 I haven't been keeping tabs on this stuff lately, so take it for what it's worth, but food prices have sky rocketed lately. Any idea what's driving them up? Link to comment Share on other sites More sharing options...
TPS Posted May 23, 2014 Share Posted May 23, 2014 I haven't been keeping tabs on this stuff lately, so take it for what it's worth, but food prices have sky rocketed lately. Any idea what's driving them up? the three horsemen of the apocalypse: droughts, disease, and infestations, seriously. A major drought in CA, a pig disease, and some pestilence attacking citrus in Florida. Do you believe this "money" will make it's way into the larger economy? see my question for plosser--who will the banks lend to? Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted May 23, 2014 Author Share Posted May 23, 2014 (edited) TPS: Forecast inflation, or in absence of inflation, the effects of the Fed curbing inflation on the economy, over the next 10 years. If you would, please. And, Given your overly critical nature, stake your professional credentials on them. Edited May 23, 2014 by TakeYouToTasker Link to comment Share on other sites More sharing options...
keepthefaith Posted May 23, 2014 Share Posted May 23, 2014 (edited) I haven't been keeping tabs on this stuff lately, so take it for what it's worth, but food prices have sky rocketed lately. Any idea what's driving them up? Higher fuel, energy and packaging costs also. Edited May 23, 2014 by keepthefaith Link to comment Share on other sites More sharing options...
OCinBuffalo Posted May 23, 2014 Share Posted May 23, 2014 Yeah... we're going to need you go go ahead and come in on Saturday, so, if you could do that, that would be great. Mmmmmkay? Thaaaaaanks. I will be here on Saturday, but only if you will be. Unfortunately, I can only be here for one hour, and I'm not telling you which hour, because I don't know which hour. Deal? Link to comment Share on other sites More sharing options...
/dev/null Posted May 23, 2014 Share Posted May 23, 2014 January 2013 was closer to 18 months ago. Dude, that was like 2 years ago #BringBackOurEconomy Link to comment Share on other sites More sharing options...
Tiberius Posted May 23, 2014 Share Posted May 23, 2014 TPS: Forecast inflation, or in absence of inflation, the effects of the Fed curbing inflation on the economy, over the next 10 years. If you would, please. And, Given your overly critical nature, stake your professional credentials on them. What is your forecast? Do you disagree with his assessment that we will not have inflation until that money ends up in the hands of the middle class? Link to comment Share on other sites More sharing options...
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