August 24

Two consumer contractions. Consumer Metrics Institue via dshort.

I am Superman: The Federal Reserve Board and the Neverending Crisis. Chris Whalen.
for the to-read list

In a recent column, Ambrose Evans-Pritchard says:

This time yields may stay low for longer. Fiscal and interest rate ammo has been exhausted, though not QE. I have little doubt that central banks can lift the West out of debt-deflation if needed with genuine QE – not Ben Bernanke's Black Box "creditism", or Japan's fringe dabbling. Whether they have the nerve or the ideological willingness to do so is another matter.

as I have said before QE is not a helicopter drop if the expansion of the monetary base sits in excess reserves, which is what Evans-Pritchard is referring to re "genuine QE"; as he said at the end of June,

The Fed has since made a hash of quantitative easing, largely due to Bernanke’s ideological infatuation with “creditism”. QE has been large enough to horrify everybody (especially the Chinese) by its sheer size – lifting the balance sheet to $2.4 trillion – but it has been carried out in such a way that it does not gain full traction. This is the worst of both worlds. So much geo-political capital wasted to such modest and distorting effect.

The error was for the Fed to buy the bonds from the banking system (and we all hate the banks, don’t we) rather than going straight to the non-bank private sector. How about purchasing a herd of Texas Longhorn cattle? That would do it. The inevitable result of this is a collapse of money velocity as banks allow their useless reserves to swell.

on the question of "ideological willingness to do so", it doesn't look good, as per John Hilsenrath in Fed split on move to bolster sluggish economy (WSJ); though the formal vote was 9-1 in favour of QE-lite (not allowing balance sheet to shrink), 7 of the 17 Fed officials at the Aug. 10 meeting spoke against QE or at least had reservations.

Officials were clustered in two camps. In one camp, Mr. Dudley, and the presidents of the Boston and San Francisco Fed banks, Eric Rosengren and Janet Yellen, were distressed that the Fed was far from its objectives of low unemployment and stable inflation.... The other camp was skeptical.

The monetary base and bank lending: you can lead a horse to water.... FRB of St. Louis.

Why was the increase in the money stock so small when the increase in the monetary base was so large? The answer centers on the willingness of depository institutions (banks) to lend and the perceived creditworthiness of potential borrowers. A deposit is created when a bank makes a loan. Ordinarily, bank loans—and hence deposits—increase when the Fed adds reserves to the banking system. However, despite an increase in reserves of over $1 trillion, total commercial bank loans were some $200 billion lower in May 2010 than in September 2008.... banks were reluctant to make new loans. Partly this reflected weak loan demand, but it also indicated a diminished appetite for risk on the part of bankers.

Jan Hatzius thinks there are only 25%-30% odds of a double-dip, but that forecasters need to cut their GDP and earnings forecasts much further. via BondSquawk.

How hyperinflation will happen. Gonzalo Lira.

Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.... Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative)—in short, everything screams “deflation”. Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right? Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation.

why?

hyperinflation is not an extension or amplification of inflation... Inflation is when the economy overheats... Hyperinflation is the loss of faith in the currency

I didn't know there was an "Oracle of the North"

other fare:

Vancouver housing prices: “If you want Winnipeg-level house prices here, all you have to do is tear down the mountains and fill in the ocean.” Tsur Somerville of UBC Centre for Urban Economics and Real Estate.

All-out geoengineering still would not stop sea level rise. Scientific American.

China Traffic Jam Could Last Weeks. WSJ.

I too am a fan of Chimay.