# Printing more money



## hanorac (8 Jan 2009)

What would be the effect of a country printing more money? 
Would your ordinary joe soap directly benefit in any way or would it be spend trying to get things back on track?


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## ClubMan (8 Jan 2009)

hanorac said:


> What would be the effect of a country printing more money?


Inflation.


> Would your ordinary joe soap directly benefit in any way or would it be spend trying to get things back on track?


No and yes.


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## Caveat (8 Jan 2009)

Actually happening as a last resort in _Zimbabwe_.

Costs more to print the notes than their nominal value. Chaos.


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## ClubMan (8 Jan 2009)

Do you mean _Zimbabwe_?


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## bond-007 (8 Jan 2009)

Worked well in Germany in the 1920's and in Zimbabwe.
http://en.wikipedia.org/wiki/Hyperinflation


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## Caveat (8 Jan 2009)

Yes of course. That's what I said isn't it? ()

One o dem quare African places anyway.


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## bond-007 (8 Jan 2009)




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## ClubMan (8 Jan 2009)

Only _Chuck Norris _uses cardboard!


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## VOR (8 Jan 2009)

Germany issued €6bn in bonds yesterday and only €4bn were taken up. 
Italy needs €200bn this year. The US needs close on $2tn. 
Good luck Ireland inc!! 

There has to be a serious concern now that hyper inflation is looming. The cash will come back to the market sooner or later. I just hope the governments know what to do when it does.


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## Damian85 (8 Jan 2009)

On a more serious note, currences are now 'fiat currences' which means they are not backed by eg. gold or silver.

If we look at US at the moment we can see the effects printing money has on the ordinary Joe. The Fed has been printing money since the US came off the gold standard in the 1970s. With no gold standard to back the currency, the dollars that are printed are effectively worthless. 

US has been running massive trade deficits in recent decades (currently over $8.7 trillion). The $700 billion bail out and Obama's proposed $3 trillion dollar stimulation plan will be sourced effectively from the Fed printing dollars.

The printing of dollars has been a major factor in the US real estate bubble, as credit became easier to obtain and along with lower interest rates and lax lending standards, there led to a huge supply of dollars into the economy.

This has and will effect ordinary people because;


It has contributed to the real estate bubble and overvaluation of the stock market which encourages a 'Greater Fool Theory' where people speculate without proper due diligence with an aim to create wealth through anticipated capital appreciation.
With more and more dollars being printed, the dollars an ordinary person holds become increasingly worthless as inflation increases. This means that while nominal value may be maintained, purchasing power will be destroyed
It discourages saving as inflation, which is caused by printing money wipes out savers, and passes power to lenders
Using printed money as a stimulus in recessionary times encourages lending which leads to consumer binges, when in fact the consumer should be saving and tightening the belt
Using printed money to bridge trade deficits can lead to foreign lenders becoming less comfortable in lending.
Printing money can destroy a currency as it can turn into a Ponzi scheme where governments recklessly discourage foreign investment and lending and destroy the purchasing power and credibility of the currency.

Damian


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## Duke of Marmalade (8 Jan 2009)

That's fine _Damian_ except all the talk is of deflation not hyper inflation. 

What we have is a credit crunch whereby the natural market forces are causing big contractions in money supply i.e. recession and deflation. 

The monetary easing by governments (called here printing money) is an attempt to counteract the vicious deflationary tightening in the free market.


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## Sunny (9 Jan 2009)

Duke of Marmalade said:


> That's fine _Damian_ except all the talk is of deflation not hyper inflation.
> 
> What we have is a credit crunch whereby the natural market forces are causing big contractions in money supply i.e. recession and deflation.
> 
> The monetary easing by governments (called here printing money) is an attempt to counteract the vicious deflationary tightening in the free market.


 
True but if you look in the States, demand for inflation protected treasuries are soaring as investors bet that higher inflation will be the natural consequence of all the Government's actions. Deflationary pressures are still the main concern everywhere but fast forward the clock and through this cycle and it is easy to imagine the Central Banks having to fight soaring inflation.


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## diarmuidc (9 Jan 2009)

Damian85 said:


> On a more serious note, currences are now 'fiat currences' which means they are not backed by eg. gold or silver.


What actual use is gold? Decoration and a few niche uses. The value comes from _perceived_ value. What happens if this perception disappears?


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## VOR (9 Jan 2009)

I agree with Damien and Sunny. I can see deflationary fears in the short term but the long term is a different matter.


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## Towger (9 Jan 2009)

hanorac said:


> What would be the effect of a country printing more money?
> Would your ordinary joe soap directly benefit in any way or would it be spend trying to get things back on track?


 
If you would allow me to  my self from November:



> I mentioned the possibility of an increase in inflation to due to the ECB cuts to an economist in one of the banks a few weeks ago. Little did I know that Hyper Inflation (not just high) was one of his favorite theories of what was to come, and that I should be stocking up in high level consumer goods such as LCD TVs etc. As A, I won’t be able to afford one afterwards and B, they are good for bartering. He would still be talking about it now, if his wife did not drag him away.


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## george.shaw (9 Jan 2009)

Not sure if that "perception" will ever change Diarmuid. Gold has been used as money for thousands of years as it is extremely finite and therefore cannot be mass produced or debased - all the gold in the world when refined to .9999 purity would only fit on Wimbledon centre court.

Two articles in the Daily Telegraph today are worth a read as they show that the "perception" is highly unlikely to change especially as we face the worst financial and economic crisis since the Great Depression:

Gold to rise for eighth consecutive year
http://www.telegraph.co.uk/finance/personalfinance/investing/4162212/Gold-to-rise-for-eighth-consecutive-year.html .


Merrill Lynch says rich turning to gold bars and not etf’s for safety
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4177766/Merrill-Lynch-says-rich-turning-to-gold-bars-for-safety.html

Gold is a safe haven asset and the only asset class that is not someone else’s liability and this is why it is thriving in the current environment and will likely reach its inflation adjusted high of $2,300 per ounce in the coming 3 to 5 years.
Gold is the only finite currency - as JP Morgan once testified to Congress, "Gold is money and nothing else". Even more pertinently and more recently Alan Greenspan said "Gold still represents the ultimate form of payment in the world. . . . Fiat money, in extremis, is accepted by nobody. Gold is always accepted" (Speech to Senate Banking Committee in May 1999).


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## Damian85 (9 Jan 2009)

Duke of Marmalade said:


> That's fine _Damian_ except all the talk is of deflation not hyper inflation.





Duke of Marmalade said:


> What we have is a credit crunch whereby the natural market forces are causing big contractions in money supply i.e. recession and deflation.
> 
> The monetary easing by governments (called here printing money) is an attempt to counteract the vicious deflationary tightening in the free market.


 
As mentioned previous, inflation and not deflation is the underlying threat. The housing bubble has over exaggerated deflation. By printing money, it is likely that inflation will start rising on consumer products and commodities and this will make housing relatively cheap in comparison. Many markets need to suffer deflation as a remedy and government interference can make the recession prolonged. Markets have a memory and tend to learn. By interest rates being cut and money being printed, an inflationary expectation is likely to set in, whether justifiable or not. This expectation is based on the past where such policies have prolonged recessions and led to an inflationary environment.




diarmuidc said:


> What actual use is gold? Decoration and a few niche uses. The value comes from _perceived_ value. What happens if this perception disappears?


 
Gold's value* is* based on perception but so is money. If the public lose confidence in money, they switch to alternative currencies or to a barter system. This has happened in the past. It has not happened with gold. Gold is a hedge for inflation. It allows for wealth preservation in inflationary environments. I'm not suggesting that it is not possible for the perception value of gold to disappear, but it is highly unlikely for the following reasons;

· Gold is durable overtime unlike most metals. It is robust and can be exchanged frequently without damage or deterioration.
· The supply of gold is finite. A low percentage (around 5%) is discovered each year and because of this scarcity, it maintains its value. This can not be said for printed currencies, as huge quantities can be printed in short periods of time, and holders of the given currency experience perpetual weakening of their purchasing power.
· Gold can be used a control and discipline mechanism. If a currency is backed by gold, governments are limited to what money they can print. As their holding of gold will be finite, they can't print their way out of mistakes. This can encourage spending efficiency and decreases moral hazard risks.
· As mentioned, gold is a flight to safety to preserve wealth from inflation.

Not to go overkill on US examples, but it is interesting to note that the original founders of the American Constitution specifically stated that only gold or silver can be accepted as legal tender. The founders had experienced civil war shortly before the drawing up of the Constitution, and had started to print Continental dollars (the currency at the time). Massive inflation (90%) occurred and people lost confidence and abandoned the Continental. Hence the phrase '_not worth a Continental_'!


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## Duke of Marmalade (9 Jan 2009)

Money is a claim on future goods and services.  A modern economy needs money to function.  Imagine a world without gold or silver or anything of inherently sustainable value.  We would still need money.  Ergo it is ridiculous to expect that because we do have gold that its quantity exactly would match society's need for money.


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## capall (9 Jan 2009)

Even more pertinently and more recently Alan Greenspan said "Gold still represents the ultimate form of payment in the world. . . . Fiat money, in extremis, is accepted by nobody. Gold is always accepted" (Speech to Senate Banking Committee in May 1999). [/quote]

I wouldn't be quoting Greenspan these days. He is largely responsible for the current economic crises and is totally discredited


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## Damian85 (10 Jan 2009)

Duke of Marmalade said:


> Money is a claim on future goods and services. A modern economy needs money to function. Imagine a world without gold or silver or anything of inherently sustainable value. We would still need money. Ergo it is ridiculous to expect that because we do have gold that its quantity exactly would match society's need for money.


 
Of course it is ridiculous to expect or assume that and money can take diverse forms in the form of commodity money. Society's needs are unlimited while resources are limited, so gold will never match society's needs. To back a currency with gold or even proportionally back it, as I mentioned previously, enforces control and discipline on a government. By printing excessive amounts of money with no gold backing means that this money will put a claim on future goods and services, and this claim can be met in two ways; 1) print more money 2) become more productive.


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## darag (11 Jan 2009)

The idea that there could be some economic benefit in printing money completely misses the point and nature of money.

One role of money is to eliminate the obvious inefficiency and limitations of barter by facilitating far more flexible trade of goods and services.  In this role the numeric scale of the currency is practically irrelevant.  For example, the Turkish government knocked six zeros off the lira in 2003; this had no real effect on the economy.

However, the second use of money is as a store of value which effectively allows exchange to occur across time.  This is incredibly important; for example, if you have no need or use for a bushel of wheat today you can sell it and keep the money until next year and buy a bushel when you do need one.  It doesn't require much imagination to see the advantages that money confers on a society where this is possible.  For money to work in this regard it needs careful management to ensure that the value of money is preserved over time.  In crude terms central banks achieve this by ensuring that the supply of money matches the amount of "stuff" that can be bought.

If the money supply grows beyond this you get inflation which means money loses value as a store - the money you raise from selling a bushel of wheat now will not buy you one in a years time; conversely if the money supply does not grow enough, then the opposite happens - selling now will allow you to buy more than a bushel next year.

Both create distorting incentives - one to spend money as fast as possible (consume), the other to hoard it for as long as possible (save).  These incentives are created purely by the mechanics of the money supply and not by the effects of economic activity and so distort the economy and creating huge economic inefficiencies.  These inefficiencies are enough to destroy economies - this has been observed countless times in history.  For example, paradoxically Spain's economy in the 16th century was practically destroyed when it was flooded with South American gold and silver as the inevitable inflation took its toll.

Gold has some advantages as a basis for money but the disadvantages considerably outweigh the advantages.  The supply cannot be controlled so you cannot avoid uncontrollable periods of inflation or deflation.  It is also difficult to store, transfer, etc.  Admittedly, it was the best we had for millennia.


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## z109 (11 Jan 2009)

Anyway, we can't print money. Only the ECB can do that. 

Given that most money is electronic these days, that would involve some sort of Quantative Easing sort of jobbie. In a QE situation, the ECB would buy bonds issued by the national governments increasing the amount of electronic money in circulation. They would not sell bonds in the international markets to sterilize this purchase.

The question is, would the amount that is being eased (the amount of new money created) exceed the amount of money that is being destroyed due to deleveraging and asset writedowns (actually, mostly due to asset writedowns, as, as far as I can see, deleveraging on its own is zero sum).

To my mind, the inflation has already happened - financial innovation recognised future revenue (bringing tomorrow's dollar to today to make it available to spend), marked assets to market (as their values were inflating) and recognised that as profit that was distributed to shareholders. So the inflation has already been happened, the money is in circulation. 

If you accept this, you have to ask is it really a good idea to keep these inflated asset value monies in circulation? Would it not be better to deflate them to realistic values, take the pain and then work from a realistic price of assets (including, for example, the cost of labour)? This is what happened in the 1930s. I believe it was an inevitable result of the 1920s, notwithstanding all the fluff about the Fed keeping rates too high too long. I think the same is true now, whatever a flight to safety into TIPS and gold says about individual investor mentality and fear.


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## Duke of Marmalade (11 Jan 2009)

yoganmahew said:


> ... exceed the amount of money that is being destroyed due to deleveraging and asset writedowns (actually, mostly due to asset writedowns, as, as far as I can see, deleveraging on its own is zero sum).


Beg to disagree.  Asset write downs have no impact on Money Supply.  Bank credit is the main source of Money Supply.  When a bank lends to a developer to build a house, the bank balance sheet inflates by a loan to the developer on the assets side and deposits of, say, the construction workers on the liability side.  These deposits are Money Supply.  Deleveraging is reversing the process and therefore reduces Money Supply, it is not zero sum.

Asset values impact on the so called Wealth Effect, but not directly on the Quantity of the Money Supply.  A falling WE will transmit to lower Velocity in the Money Supply which would have a similar deflationary impact to lowering its Quantity.


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## george.shaw (12 Jan 2009)

Even more pertinently and more recently Alan Greenspan said "*Gold* still represents the ultimate form of payment in the world. . . . Fiat money, in extremis, is accepted by nobody. *Gold* is always accepted" (Speech to Senate Banking Committee in May 1999). [/quote]

Capall: "I wouldn't be quoting Greenspan these days. He is largely responsible for the current economic crises and is totally discredited"

Greenspan is entirely discredited and rightly so but that does not mean that you can dismiss everything single statement he made. His above quote is one of the truer and more perceptive statements that he has made in recent years.

Maybe Ernest Hemingway's quote is more apposite:

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."


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## z109 (12 Jan 2009)

Duke of Marmalade said:


> Beg to disagree.  Asset write downs have no impact on Money Supply.  Bank credit is the main source of Money Supply.  When a bank lends to a developer to build a house, the bank balance sheet inflates by a loan to the developer on the assets side and deposits of, say, the construction workers on the liability side.  These deposits are Money Supply.  Deleveraging is reversing the process and therefore reduces Money Supply, it is not zero sum.
> 
> Asset values impact on the so called Wealth Effect, but not directly on the Quantity of the Money Supply.  A falling WE will transmit to lower Velocity in the Money Supply which would have a similar deflationary impact to lowering its Quantity.


I agree. The problem is, however, that banks and companies have been marking those assets to market as their value has risen, for example in Ireland - where the value of the landbank used as security for the loan has risen, the company that owns it has remarked the asset value as a gain. This, for a company, just makes the books unreliable. When a bank does this, they create money as the asset is now worth more to repo with the central bank (i.e. to get new money that didn't exist before). An increase in bank assets pretty much equals an increase in money supply (whatever M number it is!). So a reduction in market value of bank assets equals money destruction. Likewise when future revenue is recognised or interest roll-ups are added to loan values. This is my understanding, anyway!


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## c00lcarl (12 Jan 2009)

ClubMan said:


> Inflation.
> 
> No and yes.


 
Inflation isnt the danger but hyper-inflation, if the current crisis is mis managed then the recession we are currently in will just be the tip of the iceberg. Now that the reductions in Interest rates are having little effect and the rates are so low that the effect each future rate cut may have is reduced, Gordon Brown, the US and other countries are looking at "quantative easing" pumping money that doesnt exist electronically into the banking system in the hope that this will stimulate the banks to lend and people/businesses to start buying again. 

The problem is (IMHO) that recession is the natural reaction to a boom bubble, the economic situation should be allowed to right itself and it will do this when we return to the traditional model of people living within their means, paying off their debt and saving more, when this happens confidence will return to the banking sector and the banks will be more inclined to start lending sensibly again. 

What the governments are trying to do is artificially prop up their economies by encouraging more debt, this is not a sound foundation for sustainable growth. The fundamentals for recovery are not in place, banks are not lending because the risk is much higher during a recession, house prices are dropping so banks are reluctant to give mortgages secured against these depreciating assets, businesses are seeing their revenues reduced and many more will be going to the wall, couple that with the difficult situation for exporters due to the strength of the euro and you can see why the banks are closing their doors. Quantative easing and Interest rate drops are going to have little effect in changing that.


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## jimbobman (13 Jan 2009)

deflation is the problem here, not inflation for good ness sake


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## Towger (13 Jan 2009)

jimbobman said:


> deflation is the problem here, not inflation for good ness sake


 
The inflation will come after the deflation! Basically the theory is the 'world' will have deflation first, a number if steps will be put in place to counteract this by pumping money into the system, but this will over shoot the mark and we end up with high/hyper inflation.


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## Duke of Marmalade (13 Jan 2009)

Anyone who believes hyper inflation is around the corner should fill their boots with 30 year index linked bonds.  These are pricing an inflation rate of less than 3% to persist for the next 30 years.


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## Sunny (13 Jan 2009)

Duke of Marmalade said:


> Anyone who believes hyper inflation is around the corner should fill their boots with 30 year index linked bonds. These are pricing an inflation rate of less than 3% to persist for the next 30 years.


 
I think thats what people are beginning to do. Demand for TIPS is soaring because they are so cheap. I seem to remember reading something recently that firms like PIMCO and Vanguard are buying heavily. Pay off won't happen overnight but as soon as there is clear evidence that all the Governments and Central Banks moves are taking hold, inflation expectations will soar. I would certainly buy them.


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## jimbobman (13 Jan 2009)

we wont have hyper inflation. why would we? this would only happen if demand starting to shoot up. this is not going to happen. look at japan after their housing bubble and stock market burst, they had / still have deflation for over a decade. money being printer or not, it wont change consumers behaviour when they are in negative equity. 

japanese interest rates have been near zero during all this time and it didnt help so when people say wait until the central bank moves take hold are just wrong. it wont be any different this time around. history repeats itslef all the time and the US fed are doing the exact same thing as the japanese central bank did so it will have the same outcome.

deflation for years with recesssion, then a little growth, and recession again. nowhere fast basically for 10 years.


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## Sunny (13 Jan 2009)

jimbobman said:


> we wont have hyper inflation. why would we? this would only happen if demand starting to shoot up. this is not going to happen. look at japan after their housing bubble and stock market burst, they had / still have deflation for over a decade. money being printer or not, it wont change consumers behaviour when they are in negative equity.
> 
> japanese interest rates have been near zero during all this time and it didnt help so when people say wait until the central bank moves take hold are just wrong. it wont be any different this time around. history repeats itslef all the time and the US fed are doing the exact same thing as the japanese central bank did so it will have the same outcome.
> 
> deflation for years with recesssion, then a little growth, and recession again. nowhere fast basically for 10 years.


 
Can't argue with what you say. It is certainly the view of the majority. However, the FED and the US Government have acted alot quicker than Japan did. It took Japan years to even admit there was a problem (actually hid the problem) and then took even longer to make the necessary moves. The US is moving alot quicker and a lot more aggresively than Japan ever did. Not saying it will work but it has gone about things in a different way.


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## jimbobman (13 Jan 2009)

its not. the hyper inflation story is the view of the majority.


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## Sunny (13 Jan 2009)

jimbobman said:


> its not. the hyper inflation story is the view of the majority.


 
Actually its not. As someone mentioned above, look at what the inflation protected bond market is telling you about inflation expectations. In the US, TIPS are pricing in about 11% deflation from what I can remember


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## george.shaw (13 Jan 2009)

Hyperinflation is far from the view of the majority. Not sure if you know what hyperinflation is. Might be worthwhile to read http://en.wikipedia.org/wiki/Hyperinflation or read up on Zimbabwe where inflation was recently estimated to be over 231 million percent per annum.

If the majority of people thought hyperinflation was coming you would see people getting rid of all paper currencies and buying tangible assets and tangible goods that would retain value. U would also see bonds sell off aggressively, even inflation protected bonds, as these bonds would become worthless in hyperinflation as the currency that they are denominated would become worthless. Commodities, property gold and other hard tangible assets would soar in value as the purchasing power of currencies plummets.


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## jimbobman (13 Jan 2009)

of course i know what it is . turn on cnbc and its all they talk about. buy gold cos we are going to have hyperflation. they are all saying it at this stage.


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## george.shaw (13 Jan 2009)

Not sure if you are correct there. Of the 100's of guests on CNBC only a handful have warned of the possibility of hyperinflation and importance of owning physical gold - Peter Schiff, Marc Faber and George Soros' ex partner Jim Rogers. Most on CNBC are clueless and are fixated on trying to buy the bottom of the stock market for the last 12 months! Good luck with that! 
And that is in the US, not sure if I have ever heard any financial or economic pundit in Ireland warn of the risk of hyperinflation. The mantra in Ireland is now "cash is king". Very similar to the mantra of 2 years ago when "property was king".
Real contrarians such as Schiff, Rogers and Faber are preparing for very high inflation by late 2009 and in coming years.


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## Duke of Marmalade (13 Jan 2009)

george.shaw said:


> ...even inflation protected bonds, as these bonds would become worthless in hyperinflation as the currency that they are denominated would become worthless.


Not so.  The payments would be increased by the hyper inflation.


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## Sunny (14 Jan 2009)

Lets not get too carried away. The US is not going to be the next Zimabawe


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## george.shaw (14 Jan 2009)

Highly unlikely U.S. will become the next Zimbabwe (UK looks more likely ;-) ) but double digit inflation as experienced in the 1970's looks very likely in the coming years (once the current deflation spiral abates). 

Index linked government bonds would be murdered in hyperinflation as would all paper assets. In hyperinflation government's default on their debt, bond holders get shafted and the IMF gets called in.

Even in serious inflation, index linked bonds will underperform as government statisticians have a habit of "hedonically adjusting" and underestimating real inflation which the man in the street knows is much higher than the government statisticians let on.


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## Damian85 (14 Jan 2009)

Governments won't default on their bonds as they can just simply print the money and pass the risk and inflation onto the private sector.

Government statistics are clearly understated. Many CPIs exclude energy costs. Some factors in the CPI are weighted differently when calculating the PPI to reflect either more favourably. The concept of substitution is also impractical. If the price of steak rises, there are assumptions that we switch to chicken and therefore there is no increase. Hedonics is also a ridiculous assumption. These elements have vastly underestimated the real rate of inflation.

With regards to bonds at the moment, can anyone see a potential bond bubble developing due to speculators and short sellers?


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## Duke of Marmalade (15 Jan 2009)

Yes we shouldn't believe that CPI is some precisely measurable concept. But its inadequacies cut both ways. What about the enormous technological developments - laptop computers, internet, ipods, DVDS, medical advances, infrastructural advances etc. etc. 

For example, today's motor car is in a different league from that of say 30 years ago. CPI does not trap these technological improvements - so far as CPI is concerned a car is a car is a car.


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## Damian85 (15 Jan 2009)

Hedonics accounts for the improvement in technology. The CPI does trap these improvements and again overexaggerates their benefits.

Take for example, computer technology. Performance can double in a very short space of time, but does this performance impact at the same rate on our productivity? No of course not. 

Motor vehicles have improved in the last 30 years put this improvement hasn't translated directly to similar improvements in productivity, yet the CPI accounts for this using hedonices. It is presumed that improvements (say 25%) have now lead to a 25% cost saving or productivity increase on the previous technology. This is not realistic


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## z109 (15 Jan 2009)

Damian85 said:


> Governments won't default on their bonds as they can just simply print the money and pass the risk and inflation onto the private sector.


Eh, tell me again how the Irish government can print more money?




> With regards to bonds at the moment, can anyone see a potential bond bubble developing due to speculators and short sellers?


Yes, but not for the reasons you give. Massive supply and shortage of capital would be the reason I see for bond prices to drop and yields to rise. 

On hedonics - show me where hedonic adjustments are applied to Irish CPI or european HICP. Otherwise I will continue to believe they are an American invention that doesn't apply this side of the Atlantic.

On substitution - again show me where these are applied to Irish or European price figures.


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## george.shaw (15 Jan 2009)

Telegraph: Reform plan raises fears of Bank secrecy - http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4214232/Reform-plan-raises-fears-of-Bank-secrecy.html 
_"The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks' printing presses ultimately caused hyperinflation._

_Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: "Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses. _

_"If we went down that path we would be following a road which starts in Weimar, goes on through Harare and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about – but the Bill abolishes it."_

Very few are saying that hyperinflation WILL happen rather they are saying is governments keep printing fiat money in extremis then this may happen and best as ever to be aware of this and diversify accordingly.


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## Damian85 (15 Jan 2009)

yoganmahew said:


> Eh, tell me again how the Irish government can print more money?


 
I never said the Irish government. The ECB have the power to do so, and they will as so many EU nations are in need of it at the moment




yoganmahew said:


> Yes, but not for the reasons you give. Massive supply and shortage of capital would be the reason I see for bond prices to drop and yields to rise.


 
I'm simply wondering what peoples' opinion is here. A lot of 10 yr, 20 yr and even 30 yr bonds are being bought by speculators and hedgers at low yields. Realistically they are not going to hold these low yields for the long term. Added to this, bonds are becoming a safer vehicle for many investors. Would anyone see a potential bubble coming out of this?




yoganmahew said:


> On hedonics - show me where hedonic adjustments are applied to Irish CPI or European HICP. Otherwise I will continue to believe they are an American invention that doesn't apply this side of the Atlantic.





yoganmahew said:


> On substitution - again show me where these are applied to Irish or European price figures.


 
Hedonics are a US invention effect us in terms of trading with America, purchasing oil (denominated in dollars), and investing in US government securities.

While not as blatant as the US, hedonics and substitution has found its way into the HCIP. There has been a lot of harmonisation amongst EU nations CPI's in the last decade and both these factors are now included in the methodology for the calculation of the HCIP. Hedonics is used to a more responsible and practical extent.

Not too aware of the Irish CPI calculation methodology


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## george.shaw (15 Jan 2009)

1. James Grant is acknowledged as one of the world’s leading experts on government bonds and might pay to heed his warning:


2. The Problem With the Federal Reserve's Money-Printing - Is the Medicine Worse Than the Illness? 
3. The world ran out of trust in 2008 -- but there is no shortage of money because the Fed is printing like mad. It's the wrong approach, with potentially dire consequences, says James Grant.
4. http://online.wsj.com/article/SB122973431525523215.html?mod=todays_us_weekend_journal 

Ambrose Pritchard in the Daily Telegraph has been ahead of the curve as well:
The bond bubble is an accident waiting to happen
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4218210/The-bond-bubble-has-long-since-burst-investors-ignore-this-at-you-peril.html


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