Saturday, June 27, 2009

Hanging out with the Forbes journalists at Fox



I was over at Fox yesterday to do a taping of Cashin' In and I was hanging out in the Green Room talking to the guys from Forbes on Fox. These are a bunch of veteran Forbes' journalists.

We got into talking about the economy and the Fed and I told them about the ECB's $622 repo (liquidity injection) that happened last week. All of them were unaware. When I explained to them what it was their eyes glazed over. They were clueless. Then I said that if the Fed did something like that--inject $600 billlion into the banking system in one day--there'd be a firestorm in the media and lawmakers on Capital Hill would be screaming about "taxpayers on the hook" and wanting the Fed's powers to be reined in while calliing for Bernanke's head at the same time.

I told them that none of this took place in Europe. There were no cries from punidits about "debasing the euro," or "printing money." Peter Schiff and Jim Rogers were conspicuously absent. The euro was not sold down by waves and waves of speculation. News organizations were not suing the ECB.

When the blank stare from one of the Forbes journalists faded he said, "Yes, but the Fed's actions are still going to cause inflation and lots of it."

Ten seconds before the guy was clueless as to what the ECB had done, but now he spoke authoritatively on monetary operations.

I asked him, "How does a rise in reserve balances fuel inflation?"

"Simple," he said. "Too much money chasiing too few goods."

Of course that was Milton Friedman's classic line; a beautiful sound bite...one that has never faded in the minds of monetarists everywhere. (Don't tell them that Uncle Miltie himself didn't even believe that at the end of his life!)

I said, "Well if it's too much money chasing too few goods, wouldn't that money have to at least be spent? And reserves are not spent."

Suddenly the glazed look returned. Then I added, "And please show me the, 'too few goods' because from where I sit we have 13 million people without jobs, 5 million unsold homes, industry that is only running at 68% of capacity, 3 million unsold vehicles, 43 million people without health care even though the services are there for them, half the families in America that can't send their kids to college even though there is the place for them. Where are the too few goods, or the, too few services?"

The one guy was determined to teach me something and said, "We were not running at higher capacity in the 1970s either, but we had inflation then. And it was because we were priinting too much money, just like now."

I informed him that capacity use in the 70s was bumping up near 90% and we had these two other little events called oil embargoes. He said nothing about the oil embargoes, but here's what he said about the capacity use...

"Your data's wrong!"

I kid you not.

For my friend from Forbes Magazine and anyone else who's interested, here's the data: http://research.stlouisfed.org/fred2/data/TCU.txt

6 comments:

googleheim said...

WE NEED TO LAUNCH A MASSIVE EMAIL CAMPAIGN AGAINST THE ECB AND TAKE BACK OUR U$D

KRASS KRAUTINAUTS IN OUTER SPACE

FUR SURE DUDE

googleheim said...

The Norman Theory of Capacity

- you can sit with all the cookie cutter engineer-like fubards who get everything pre-planned and pre-packaged > THESE NIT WITS ARE LITERALLY PREPROGRAMMING THEMSELVES FOR FUTURE INFLATION. IT'S JUST A MATTER OF PERPECTIVE > WHEN THE OVERFLOWING CUP OF WATER LOSES ONE HALF OF ITSELF IT CANNOT FLOW OVER ANYMORE ( DEFLATION STAGNATION ) AND ANY MOVEMENT AFTERWARDS IS GOING TO LOOK LIKE INFLATION IN COMPARISON.

- or you can listen the Norman which more like a physicist who takes the big indicators and generalizations and derives their context in the present circumstances.


others = orville riddenbacher

Mike Norman = the sassy Richard Feyman of macroeconomics

STF said...

Excellent post, and a valiant effort. Unfortunately, people don't want to be bothered with facts that don't fit their ideology. Somehow Milton Friedman was able to convince everyone that oil prices didn't matter for inflation, but you can't convince anyone that there is an excess of capacity right now. Go figure.

Scott

googleheim said...

spelling clarification:

Richard Feynman

googleheim said...

If the EURO currency does not nose dive, then something is rigged on a global scale.

If their stimulus is not also seen as a burden for tax payers, a debt to GDP ratio, etc - then what could be ?

I would expect primarily that the U$D is going to spike again.

Norman is right to say invest in China as a normal procedure, but the Frischberg "get your money out of Dodge" is worrisome.

What if the dollar super surges and commodities falter massively again, and the Euro has to tank if they need to export and exporting is the German way ? ! ?

Either the US has shadow faked the ECB into doing stimulus debt spending as a trick, or we are taking turns in the currency see-saw to do forex swaps to pay off the federal level credits.

A sort of taking turns.

Matt Franko said...

Goog,
I have a tendency to agree with your bearish Euro call.

The ECB just did a 6-mo. operation as recently as June 10, it only went for E18B, now 2 weeks later they come in for E442B?, just because they can extend maturity by 6 months? This is a big # any way you look at it.

BTW the ECB has other 1 year repos officially scheduled for Sep 09 and Dec 09 (looks like a quarterly event for the rest of the year)

Back in the fall the Fed stopped a dollar rally (Mike might say a spike) dead in its tracks by providing about $300B via swaps to the ECB. Now the ECB provides E442B ($622B equivalent) in Euros.
As you say, on the surface it looks like the flood of Euros should have the opposite effect and instigate a USD rally.

Even though no one in media, etc has really recognized this significant op by the ECB, they also did not recognize the massive USD swaplines provided by the Fed last fall (also went right over their heads). It was left to the market to work out new exchange levels, and it took a few months to work. Maybe this op by the ECB will work in reverse in a similar manner.