Bill Gross says Obama lacks Fiscal Discipline for Budgets

[Magox]

I'm a big fan of Bill Gross, who runs PIMCO, which are one of the most successful and largest Bond managers in the world. They have been pretty much on point, well, since forever.

 

He doesn't subscribe to the partisan politics, he just calls it how it is.

 

http://www.bloomberg.com/apps/news?pid=206...id=aqudhiY9eamQ

 

 

Pacific Investment Management Co.’s Bill Gross said investors should be risk averse until local and federal leaders show the discipline needed to correct the record deficits amassed by the U.S. and states such as California.

 

“Now that our financial system has been stabilized, one wonders whether California’s ‘Governator’ and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around,” Gross, the founder of Pimco and manager of the world’s biggest bond fund, wrote today.

 

When the most respected bond manager in the world doubts your discipline to "turn things around" fiscally , others should as well.

 

edit:

 

I guess they do

 

http://www.gallup.com/poll/122981/obama-ge...st-deficit.aspx

 

Of the seven specific issue approval ratings measured in a Sept. 11-13 USA Today/Gallup poll, President Obama gets his highest rating (56%) on his handling of Iraq, and his lowest (38%) on the federal deficit. Obama's approval ratings on handling the economy and healthcare, at 46% and 43%, respectively, are little changed over the past two months.

[Chef Jim]

Bill Gross has been saying to be risk averse since I've worked with PIMCO funds. The guy's a genious when it comes to bonds but he's been bearish on stocks since I made my career change nearly 9 years ago. I read everything he writes about bonds and nothing he writes about equities. I don't like someone who bases his opinion around trying to sell his securities.

 

I know you're talking about his outlook on the Federal and CA governments but I always shake my head when he says be bearish on equities. Equities should always be part of a portfolio.

[Magox]

Bill Gross has been saying to be risk averse since I've worked with PIMCO funds. The guy's a genious when it comes to bonds but he's been bearish on stocks since I made my career change nearly 9 years ago. I read everything he writes about bonds and nothing he writes about equities. I don't like someone who bases his opinion around trying to sell his securities.

 

I know you're talking about his outlook on the Federal and CA governments but I always shake my head when he says be bearish on equities. Equities should always be part of a portfolio.

I hear ya, but I love reading his outlook on the economy, because he usually is on point. That phrase they came up with recently, "The New Normal" is classic.

 

In regards to stocks being part of your portfolio, I agree, but I will say this, 9 years ago, the stock market was pretty damn close to where it is today, just sayin.

[Chef Jim]

I hear ya, but I love reading his outlook on the economy, because he usually is on point. That phrase they came up with recently, "The New Normal" is classic.

 

In regards to stocks being part of your portfolio, I agree, but I will say this, 9 years ago, the stock market was pretty damn close to where it is today, just sayin.

 

And if you dollar cost averaged into that 9-10 year cycle you're looking pretty good.

[TPS]

I'm a big fan of Bill Gross, who runs PIMCO, which are one of the most successful and largest Bond managers in the world. They have been pretty much on point, well, since forever.

 

He doesn't subscribe to the partisan politics, he just calls it how it is.

 

http://www.bloomberg.com/apps/news?pid=206...id=aqudhiY9eamQ

 

 

Pacific Investment Management Co.’s Bill Gross said investors should be risk averse until local and federal leaders show the discipline needed to correct the record deficits amassed by the U.S. and states such as California.

 

“Now that our financial system has been stabilized, one wonders whether California’s ‘Governator’ and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around,” Gross, the founder of Pimco and manager of the world’s biggest bond fund, wrote today.

 

When the most respected bond manager in the world doubts your discipline to "turn things around" fiscally , others should as well.

 

edit:

 

I guess they do

 

http://www.gallup.com/poll/122981/obama-ge...st-deficit.aspx

 

Of the seven specific issue approval ratings measured in a Sept. 11-13 USA Today/Gallup poll, President Obama gets his highest rating (56%) on his handling of Iraq, and his lowest (38%) on the federal deficit. Obama's approval ratings on handling the economy and healthcare, at 46% and 43%, respectively, are little changed over the past two months.

I'm not so sure linking to a poll that indicates the public doesn't approve of his handling of the deficit says much. Pimco has the most to lose from allowing the economy to reflate a little faster than normal. He's protecting his interest (as I think Chef was implying). I also disagree that PIMCO are.

[Chef Jim]

I'm not so sure linking to a poll that indicates the public doesn't approve of his handling of the deficit says much. Pimco has the most to lose from allowing the economy to reflate a little faster than normal. He's protecting his interest (as I think Chef was implying). I also disagree that PIMCO are.

 

What do you have against PIMCO?

[TPS]

What do you have against PIMCO?

Nothing. Why?

[Magox]

I'm not so sure linking to a poll that indicates the public doesn't approve of his handling of the deficit says much. Pimco has the most to lose from allowing the economy to reflate a little faster than normal. He's protecting his interest (as I think Chef was implying). I also disagree that PIMCO are.

of course you would say that.

 

"Protecting his interest"? are you a moron? It's one thing to just spout sh*t out your mouth, it's another thing to back it up with hundreds of billions of dollars and place it with your convictions.

 

In regards to the polls, all it says is that people don't trust B.O's abilities to reign in spending, and either does PIMCO. That was the point that I was making

 

In regards to your other ill informed comment, "Pimco has the most to lose from allowing the economy to reflate a little faster than normal". Man you really don't understand how bond investments work do you? They just recently were in TIPS very heavily now they are moving into 3 and 5 year treasuries because deflation worries are creeping back again. It's all about rotation. So, if they thought that that the economy was gearing for inflation in the short term, then they would go back into TIPS. Please, just quit while you're behind ok?

[Chef Jim]

Nothing. Why?

 

I misunderstood your last comment then with the toast.

[TPS]

"Protecting his interest"? are you a moron? It's one thing to just spout sh*t out your mouth, it's another thing to back it up with hundreds of billions of dollars and place it with your convictions.

What, yOu don't like puns?

 

In regards to your other ill informed comment, "Pimco has the most to lose from allowing the economy to reflate a little faster than normal". Man you really don't understand how bond investments work do you? They just recently were in TIPS very heavily now they are moving into 3 and 5 year treasuries because deflation worries are creeping back again. It's all about rotation. So, if they thought that that the economy was gearing for inflation in the short term, then they would go back into TIPS. Please, just quit while you're behind ok?

Ok mr genius. So what you are saying is gross was wrong about inflation in the short term, and is now lengthening the duration of his portfolio. Since you and gross is so smart, now that he has moved into medium term maturities, what will happen to his portfolio if interest rates rise? The answer explains the point I was making.

 

Chef, it was a little joke about grammar...

[Magox]

What, yOu don't like puns?

 

 

Ok mr genius. So what you are saying is gross was wrong about inflation in the short term, and is now lengthening the duration of his portfolio. Since you and gross is so smart, now that he has moved into medium term maturities, what will happen to his portfolio if interest rates rise? The answer explains the point I was making.

 

Chef, it was a little joke about grammar...

*sigh* Wrong?? Are you serious? Gross went from TIPS, which btw was a homerun for TIPS investors over the past 6 months rotating to now 3, 5, 7 and 10 year treasuries because he believes the market has overpriced inflation in the short term, the guy hit it out of the park with his TIPS investments (lets not forget that he has outperformed 94% of his peers this year, but hey, why let the facts get in the way of the point you are trying to make right?). They are very clear that they don't believe inflation will be an issue over the next 12 months, which I agree. Rates will most likely not rise over the next year, and that is precisely what he is betting on. However, I wouldn't be surprised if he rotates again out of mid term rates within the next few months. Just because you take a stake in a position doesn't mean that you are entrenched in it for a long period. He is betting that rates will remain low if not lower over the duration of his investment. At some point in the near to mid future you will see him readjust his portfolio again, because thats what the market conditions will warrant.

 

When unemployment claims were higher than expected over the last few weeks, and ISM manufacturing data went back to negative again, it sent a clear signal to investors that we appear to be plateauing in economic activity. This has been my contention all along, that we would see a bounce in economic data and then plateau from there. From here I don't expect data to improve markedly, I would assume that we would bounce along from where we are, some positive and negative economic data will continue to emerge. There will be no clear direction from where we are today.

 

I've argued all along that we will not see significant inflation within the next couple years, I have been adamant about that, I specifically remember telling you that I wouldn't expect to see elevated inflation till around 2012, maybe 2011. However, I would expect to see commodity prices continue to rise before then, mainly attributed to dollar weakness, and that will emerge as a drag on an already subdued consumer beginning pretty damn soon.

[Chef Jim]

What, yOu don't like puns?

 

 

Ok mr genius. So what you are saying is gross was wrong about inflation in the short term, and is now lengthening the duration of his portfolio. Since you and gross is so smart, now that he has moved into medium term maturities, what will happen to his portfolio if interest rates rise? The answer explains the point I was making.

 

Chef, it was a little joke about grammar...

 

Oh, I just thought your grammar was !@#$ed up.

[TPS]

*sigh* Wrong?? Are you serious? Gross went from TIPS, which btw was a homerun for TIPS investors over the past 6 months rotating to now 3, 5, 7 and 10 year treasuries because he believes the market has overpriced inflation in the short term, the guy hit it out of the park with his TIPS investments (lets not forget that he has outperformed 94% of his peers this year, but hey, why let the facts get in the way of the point you are trying to make right?). They are very clear that they don't believe inflation will be an issue over the next 12 months, which I agree. Rates will most likely not rise over the next year, and that is precisely what he is betting on. However, I wouldn't be surprised if he rotates again out of mid term rates within the next few months. Just because you take a stake in a position doesn't mean that you are entrenched in it for a long period. He is betting that rates will remain low if not lower over the duration of his investment. At some point in the near to mid future you will see him readjust his portfolio again, because thats what the market conditions will warrant.

 

When unemployment claims were higher than expected over the last few weeks, and ISM manufacturing data went back to negative again, it sent a clear signal to investors that we appear to be plateauing in economic activity. This has been my contention all along, that we would see a bounce in economic data and then plateau from there. From here I don't expect data to improve markedly, I would assume that we would bounce along from where we are, some positive and negative economic data will continue to emerge. There will be no clear direction from where we are today.

 

I've argued all along that we will not see significant inflation within the next couple years, I have been adamant about that, I specifically remember telling you that I wouldn't expect to see elevated inflation till around 2012, maybe 2011. However, I would expect to see commodity prices continue to rise before then, mainly attributed to dollar weakness, and that will emerge as a drag on an already subdued consumer beginning pretty damn soon.

Thanks for (almost) starting civil this time. My point is that it is in his best "interest" that inflation remains low if he has moved into longer term fixed maturities. If he guessed wrong, yes, he will reallocate, but if there is a surprise in inflation (or rates move up for other reasons) before he moves out, then he will be selling (reallocating) at lower prices--he will take a loss on the current movement. That was my point.

 

As I recall, you started out by talking about how the FED was going to cause hyperinflation from all the liquidity it was creating, then added in future posts that you believed it would happen a few years down the road.

 

My position all along has been: the liquidity that the FED has pushed into the financial system will not cause inflation in a period of high unemployed resources. Since most "money" is created through credit expansion--it's not gold and it's not pieces of green paper, the FED can "unwind" its position when the economy is on more solid footing.

[Magox]

Thanks for (almost) starting civil this time. My point is that it is in his best "interest" that inflation remains low if he has moved into longer term fixed maturities. If he guessed wrong, yes, he will reallocate, but if there is a surprise in inflation (or rates move up for other reasons) before he moves out, then he will be selling (reallocating) at lower prices--he will take a loss on the current movement. That was my point.

 

As I recall, you started out by talking about how the FED was going to cause hyperinflation from all the liquidity it was creating, then added in future posts that you believed it would happen a few years down the road.

 

My position all along has been: the liquidity that the FED has pushed into the financial system will not cause inflation in a period of high unemployed resources. Since most "money" is created through credit expansion--it's not gold and it's not pieces of green paper, the FED can "unwind" its position when the economy is on more solid footing.

I always had the same message, you just picked up on certain parts of it. I have been extremely consistent with my view, that there are way too many headwinds in the economy for there to be signficant inflation right now. I've stated commercial real estate, forclosures, credit shrinking job losses etc. etc. Where have you been? So let's not go there.

 

And where you will be wrong is that the Federal Reserve will not be able to unwind the trillions of dollars that they have spent on MBA purchases. Home prices will not significantly rise for at least 5 years, so no way no how will they be able to effectively unwind those positions.

 

Also, what you are not taking into account, is that unemployment will most likely be above 7% for at least the next 5 years, which is very weak. If I am correct with what I am saying, they will not fully unwind those treasury purchases, nor will congress have the political will to trim the deficit by cutting on spending in a meaningful way. For these reasons we will see elevated inflation in the next 3-5 years with risks of hyperinflation. The other thing you are not taking into account, is that this is a global economy, the BRIC nations are effected by what happens to the U.S but are becoming less dependant every day that passes. These economies WILL grow, and their growth will fuel inflation, specially in the commodity sector, and in my view that is the most important inflation indicator there is. Because at the end of the day, it's high commodity prices such as food, gas, heating/cooling etc that pose the most significant inflation risks to consumers and producers. But of course, the Labor Department has their own way of gauging inflation which in my view don't put nearly as much emphasis as they should on commodity prices.

 

oh and TPS, when you say civil do you mean this: "On the other side of the coin, those of you who believe that all of the "money" that the Fed has created over the past year or so will cause hyperinflation are clueless too. :-) " ?

[TPS]

I always had the same message, you just picked up on certain parts of it. I have been extremely consistent with my view, that there are way too many headwinds in the economy for there to be signficant inflation right now. I've stated commercial real estate, forclosures, credit shrinking job losses etc. etc. Where have you been? So let's not go there.

 

And where you will be wrong is that the Federal Reserve will not be able to unwind the trillions of dollars that they have spent on MBA purchases. Home prices will not significantly rise for at least 5 years, so no way no how will they be able to effectively unwind those positions.

When I say "unwind" their position, I am talking about the level of bank reserves--the monetary base, high powered money. Most people seem to think that a banking system with close to a trillion in excess reserves will cause inflation; I don't, for the very same reasons you mention. When I say high unemployed resources, what do you think that means?

 

Also, what you are not taking into account, is that unemployment will most likely be above 7% for at least the next 5 years, which is very weak. If I am correct with what I am saying, they will not fully unwind those treasury purchases, nor will congress have the political will to trim the deficit by cutting on spending in a meaningful way. For these reasons we will see elevated inflation in the next 3-5 years with risks of hyperinflation. The other thing you are not taking into account, is that this is a global economy, the BRIC nations are effected by what happens to the U.S but are becoming less dependant every day that passes. These economies WILL grow, and their growth will fuel inflation, specially in the commodity sector, and in my view that is the most important inflation indicator there is. Because at the end of the day, it's high commodity prices such as food, gas, heating/cooling etc that pose the most significant inflation risks to consumers and producers. But of course, the Labor Department has their own way of gauging inflation which in my view don't put nearly as much emphasis as they should on commodity prices.

How do you know I don't take those things into account? I have focused on the near term, and have said there are no inflationary pressures--and I've been saying that all year. No inflationary pressures does not preclude a global perspective.

 

I have not made a guess about 3-5 years, other than saying I think you are wrong about hyperinflation. Just my opinion against yours. Only time will tell. Btw, it's not much of a stretch to make a prediction that we will see elevated inflation in the next 3-5 years. When you currently have deflation or zero inflation, the only way you could be wrong is if "Time to Choose" is right and all hell breaks loose.

 

As I recall, your defintion of inflation was something related to the money supply, which is where I disagree the most with you.

 

oh and TPS, when you say civil do you mean this: "On the other side of the coin, those of you who believe that all of the "money" that the Fed has created over the past year or so will cause hyperinflation are clueless too. :-) " ?

Well, let's see, are you saying that all that money the fed created will cause hyperinflation or not?

[Magox]

When I say "unwind" their position, I am talking about the level of bank reserves--the monetary base, high powered money. Most people seem to think that a banking system with close to a trillion in excess reserves will cause inflation; I don't, for the very same reasons you mention. When I say high unemployed resources, what do you think that means?

 

The purchases of Treasuries and MBA all goes on the balance sheet. If that doesn't get drastically reduced it's inflationary. What's so hard to understand about that?

 

How do you know I don't take those things into account? I have focused on the near term, and have said there are no inflationary pressures--and I've been saying that all year. No inflationary pressures does not preclude a global perspective.

 

ok

 

I have not made a guess about 3-5 years, other than saying I think you are wrong about hyperinflation. Just my opinion against yours. Only time will tell. Btw, it's not much of a stretch to make a prediction that we will see elevated inflation in the next 3-5 years. When you currently have deflation or zero inflation, the only way you could be wrong is if "Time to Choose" is right and all hell breaks loose.

 

Well, I have made a guess about 3-5 years, and that's what I am saying.

And, when I say elevated, I mean higher than the FEDS "target". In Layman's terms, pretty damn high. Gasoline above $4, food about 35% higher etc

.

As I recall, your defintion of inflation was something related to the money supply, which is where I disagree the most with you.

 

Yup, that's what I'm sayin

 

Well, let's see, are you saying that all that money the fed created will cause hyperinflation or not?

 

No, I'm saying that when you said "are clueless too" was a condescending comment. Not that I have anything against that, but just wanted to point out your hypocrisy

[TPS]

The Fed's target inflation has always been 2-3%, so higher than that is "pretty damn High"? 4%?

 

Please explain the mechanism of how not reducing the "crap" on the Fed's balance sheet leads to inflation. The Fed can hold that crap until it disintegrates. Then what?

 

Unfortunately most of the debate around here has turned into "you're an idiot." So there is very little real discussion and debate any more. Much name calling--Thanks to the moderators who act that way. Yes, I am guilty, but it stems from those who moderate. They (he) could've tried to keep things civil, but choose not to.

[DELLAPELLE JOHN]

The Fed's target inflation has always been 2-3%, so higher than that is "pretty damn High"? 4%?

 

Please explain the mechanism of how not reducing the "crap" on the Fed's balance sheet leads to inflation. The Fed can hold that crap until it disintegrates. Then what?

 

Unfortunately most of the debate around here has turned into "you're an idiot." So there is very little real discussion and debate any more. Much name calling--Thanks to the moderators who act that way. Yes, I am guilty, but it stems from those who moderate. They (he) could've tried to keep things civil, but choose not to.

 

 

u truly are an idot

[Magox]

The Fed's target inflation has always been 2-3%, so higher than that is "pretty damn High"? 4%?

 

I would guess that by the time we are in the second half of 2011, we'll see the CPI numbers reach 4%. But, I've said it before, the FED's gauges of inflation is a joke, I think a better way of measuring it is through commodity prices, things that actually effect every single consumer and producer in the world.

 

Please explain the mechanism of how not reducing the "crap" on the Fed's balance sheet leads to inflation. The Fed can hold that crap until it disintegrates. Then what?

 

TPS you just don't seem to understand or refuse to believe the relationship between the dollar and inflation. If the value of the US dollar decreases, that IS inflationary. I don't understand how you don't see that. I believe I know what it is, you most likely believe in keynesian economic philosophies and are an absolute believer of the Phillips Curve, which ignores the possibility of Stagflation, and that is your mistake. Although employment is a factor in inflation (sometimes) it is not absolute. The 70's and early 80's was marred with persistent high unemployment, yet inflation was through the roof. How could that be? I'll tell you why, because central banks used excessively stimulative monetary policy to counteract the recession of the mid 70's, which of course led to runaway wage-price spiral. I am not advocating that what is happening today mirrors what occured during the 70's, but there are lessons to be learned.

 

Back to the dollar, and I am going to try to explain this to you in the easiest way possible, and if you don't understand or believe what it is that I am saying, then there is nothing further to add regarding this topic.

 

Let's say there is a trillion dollars in circulation, and there are only X (X being a constant) amount of a certain product available, then X will have a certain price dictated by the market. If now, there are 2 trillion dollars in circulation and there still is only X amount of the same product, what will happen to the price? If now the amount of dollars has been reduced to $100,000 in circulation, and there is only X amount of that same product will happen to the price?

 

Why did the Fed buy treasuries and Mortgage Backed Securities? Maybe they wanted to add liquidity to the markets (banks) so people can have access to funds to buy homes. Maybe they wanted to artificially bring down rates to create more demand. You seem to think that the expansion of the Federal Reserves balance sheet by buying these assets isn't inflationary. You seem to think that this hasn't circulated into the economy, when in fact it has. Although inflation isn't the predominant risk today, the purchases of MBA and Treasuries are already laying the foundation for inflation down the road (as evidenced in the decline of the dollar, $1000 gold and rising commodity prices). Why? Partially because as of now, people are able to buy homes at 5%-5 1/2% 30 year mortgage rates. That is pretty freaking cheap, and the longer the FED keep rates where they are and the longer the FED keeps buying up MBA and Treasury securities the more inflationary implications we will have to deal with down the road. Why? Because that money that was printed from the FED in all actuality will have circulated into the economy through home loans and any other loans that were made possible because of the Treasury purchases. Meanwhile as a result of the expansion of the FED's balance sheet, there will continue to be a systematic devaluation of the dollar that will induce inflationary pressures.

 

I don't care what anyone says, if Oil goes up to $85 a barrel next spring, THAT'S INFLATIONARY. I don't need an economist to tell me what his metrics for inflation says, it's just simple common sense.

 

Why do you think Greenspan just yesterday said this? :

 

Still, the size of the Fed’s balance sheet is “not sustainable” and will eventually have to be reduced to “something just north of $1 trillion,” he said.

 

“My concern is that legislation or other actions on the part of Congress may prevent” the Fed from withdrawing the stimulus, Greenspan said. “Unless we sterilize or unwind the big monetary base we’ve built up, two, three years out inflation really begins to take hold.”

 

So according to you, Greenspan doesn't know what he is talking about. After all you posed this question: "Please explain the mechanism of how not reducing the "crap" on the Fed's balance sheet leads to inflation. The Fed can hold that crap until it disintegrates. Then what?" So what does he mean by having to reduce the FED's balance sheet just north of $1 Trillion or else "inflation really begins to hold"? Hmmm, I wonder.....

 

As of right now, the size of the balance sheet is above $2 Trillion and according to Jan Hatzius Chief Economic Investment officer of Goldman Sachs :

 

A rise in the balance sheet to $4 trillion is a “possibility,” Hatzius said in an interview on Bloomberg Radio in New York. “It is going to depend on not just what inflation does, but also on whether the economy does move back to a slower growth pace.”

 

"Rates need to stay low,” he said. The Fed “could become more aggressive in purchasing assets. They have not gotten a lot of bang for the buck on that policy so far.”

 

And if this happens then what will happen with inflation down the road? Well, I guess the FED can just hold it until it disintegrates right? After all that isn't inflationary

 

Btw, I think this scenario is likely to happen, at least $3 Trillion and very well could reach $4 Trillion. As I've said many many times before we have so many significant head winds facing us with high unemployment, commercial realestate, shrinking credit and tons of homes that will continue to hit the housing market through short sales and forclosures, the FED will most likely have to continue to support these markets. And how? Through more MBA and Treasury purchases and exceptionally low rates for an extended period of time.

 

The reason why the FED won't be able to unwind those MBA purchases is because of the massive oversupply of homes, high unemployment and deterioration of credit, not to mention politicians are looking to get their grubby little fingers in the decisions of the fed which of course would be inflationary because of their lack of will to make the tough decisions. The FED will be forced to stay in an accomodative role for the economy for quite some time, because if they don't, then GDP numbers will remain very low, which means that our deficit will continue to rise and they know that isn't an option for them. In order to reduce the deficit, we will have to see at least 4% GDP growth and of course lawmakers will have to practice effective fiscal restraint (which I highly doubt they will do).

 

The inflation that we will see, will have more to do with the debasement of the US dollar than anything else. Of course the global economy will have a part in it as well, combined this is what will lead to very high inflation over the next 3-5 years. Just imagine high unemployment of 7-8% and gasoline at $5 a gallon. Talk about a nightmare, that's what I foresee.

 

 

Unfortunately most of the debate around here has turned into "you're an idiot." So there is very little real discussion and debate any more. Much name calling--Thanks to the moderators who act that way. Yes, I am guilty, but it stems from those who moderate. They (he) could've tried to keep things civil, but choose not to.

[TPS]

First, yes I am truly an idiot, and someone still needs to make a breathalyzer for computers...

 

M,

I agree with your statement that inflation devalues the $, but your example does not happen in the real world. If "money" were gold, as it was a century or so ago, then you'd be closer to correct; but money is not gold. Most of it is created by the banking system when loans are made. And if it is created when loans are made, then it is destroyed when loans are repaid. You also seem to be confusing "money" in circulation with bank reserves. The $1 trillion swap the FEd made with the financial system is mainly sitting as excess reserves, which the FED now pays interest on. Greenspan and I are saying the same thing: as the economy recovers down the line, those reserves will have to be "unwound." That is the Fed's stated plan. You may be correct, that the fed may not have the political will to restrain inflation below its 2-3% target, but it will not let inflation go any higher than 4-5%; that won't be a bad thing, as it will reduce the cost of outstanding debt held by businesses and consumers.

 

While I also agree that inflation is realized in commodity prices, I disagree with the inclusion of gold. Gold is not a commodity used in production--unless you include weddings; it is a speculative asset. If your definition of inflation includes assets, then we're a bit closer in agreement. Right now commodities have rebounded mainly from speculation on a rebounding economy; there will be a correction very soon, including gold.

 

The biggest problem I see in the US or global economy has been too much money chasing financial investment opportunities, which leads to asset-price speculation: tech bubble, housing bubble, and commodity bubble. If anything needs to be fixed by re-regulation it is to reduce the influence speculators have on commodity prices (I don't care about gold, because I can't eat it or fuel my car with it). If you want to speculate on oil, ag products, minerals, then buy stock in the companies that produce them.

 

Last point for you, it is very possible that we will experience a long period of low growth and somewhat higher prices (not hyperinflation). In my view it will be because of the lack of productive investment within the US. Where will jobs come from? The strongest private sector area is medical--my generation is aging. Finance is shrinking, and should shrink; there will not be a construction bubble again for quite some time; maybe a government directed "green revolution" as some think, but that is a longer term solution. The US is at the end of its superpower reign because we no longer have the economic muscle to support the military one. So we are in somewhat agreement about the possibility of stagflation but for slightly different reasons. We'll see.

 

Concluding remarks:

I've been around these parts since TBD started some 14-15 years ago (?). It's been a good and mostly fun outlet, but it's time to move on. Sometimes I take it a bit too seriously; when, in essence, it's simply an internet posting board where people should be able to say (almost) anything they want. I have posted less and less, in part because I've gotten busier, but in part because I don't find it as entertaining--that's more about me, not about anyone here. There have been some really colorful characters at PPP and TSW--funny and intelligent people. I can't really tell now, but this place was mostly populated by conservatives in the early years, and I've had a lot of arguments and debates with a lot of people over a long period of time--SDS, Gavin, Lamb, Darrin, GG, and many others. To my recollection, no one has ever been wrong here! Seriously, the people and discussions here force you to really think and know your positions--that has been the strength of this place.

 

Thanks for the ride and Go Bills!

Time to find my own bunker...

TPS