I usually stay away from this kind of crap, but a good example can be made from this like good soup can be made from turnips. Here is analysis from the ‘Investments U(niversity)’ website and a ‘doctor’ Mark Skouson:
The Catalyst That Could Save Obama’s Job… And Push Stocks Higher
by Dr. Mark Skousen, Investment U’s Contributing Editor
The Obamas’ pet is a Portuguese water dog named Bo. But President Obama likes another dog a lot more.
This one is called “POMO” – short for “Permanent Open Market Operations.” And the reason why POMO is Barack’s best friend is because it could single-handedly propel Wall Street to new highs over the next year and save the President’s reelection campaign.
How can I make such a bold prediction? Simple…
The Fed’s $32 Billion Inflation CrusadeOn August 10, the Federal Open Market Committee, an arm of the Federal Reserve Board, announced the creation of POMO. It then directed the New York Fed to start retiring agency mortgage-backed securities and invest the proceeds directly into longer-term Treasuries to the tune of $32 billion.
The goal is simple: To reinflate the economy.
The Fed backed that up last week by announcing its official plan to “return inflation, over time, to levels consistent with its mandate.”
Here we have some econ- noise! The key is the “retiring” part. I guess what the NY Fed is doing is throwing the $32 billion in mortage backed bonds into a furnace and burning them up. In that way retirement means getting rid of the obligation the securities represent and receiving nothing in return.
What the Fed is actually doing is moving $32 billion from one storage facility to another while taking an equal amount of Treasuries from the second storage facility and putting it into the first. That’s it. Both ‘items’ are assets, loans with interest. There is really no difference between the MBS and the Treasuries except the Treasuries might be ‘worth’ more.
Part of this cycle is the swap of crap securities and cash between the Fed and financial institutions that has been nagged about here ad- infiinitum with regards to Bernanke’s money laundering scheme.
That cash doesn’t go into circulation, either. It is put into storage or into bank- bonuses- thence- into- tax- havens- overseas- storage.
No new money is created, there is no inflation. Skouson may or may not be right about the numbers but he misses the point about everything else. The only practical way to start inflation is for business to create new money, That way workers can spend what they earn on their jobs which are the consequence of business activity. What workers cannot earn they cannot spend. Swapping one kind of security for another is either a) pointless, b) a fraudulent inducement or c) both.
Here’s similar econ- noise from the archives from Congressman Paul Kanjorski by way of hysterical Zero Hedge:
On Thursday (Sept 18, 2008), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there.
If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.
Collapsed! Yowzah! First of all, estimable Felix Salmon rushed in with some facts about drawdowns to stem the roar of econ- noise:
Substantially all of the outflows came from institutional accounts: retail investors never panicked. If you look at the weekly data for bank savings deposits, including money market deposit accounts, they stood at $3,167.4 billion on the 15th, and rose to $3,191.4 billion on the 22nd.
So where does the $500 billion outflow number come from? Would you believe: the Sunday New York Post, which on September 21 published a story headlined “Almost Armageddon” featuring this paragraph:
According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening [on Thursday]. The total money-market capitalization was roughly $4 trillion that morning.
Remember where we’re at here: the end of the longest week in financial-market history, when no one — traders, reporters, Congressmen, you name it — was getting much if any sleep. Simple errors can easily be made, numbers can get fuzzy, everything was moving very fast and confusingly.
Which means Kanjorski was exaggerating, yet this also is besides the point, even if he was right and $500 billion were being “drawn” out the door, where were the money fund outflows going? Kanjorski would have you believe all those mom- and- pop institutional investors were going to take their money and throw it into a furnace and burn it!
That would certainly cause a collapse but a market going down might indeed be a buying opportunity for those with some of that drawn down cash in their pockets! Heaven forbid the US might have a buying opportunity for anyone not named Rockefeller!
Here’s a more sensible interview of Mike Shedlock from the estimable Chris Martenson by way of Jim Puplava. It’s a small, incestuous world out there …
Since Shedlock is a deflationista he is asked about deflation:
Before we can discuss inflation and deflation it is imperative to define the terms. Not everyone will agree with my definitions, not even those who claim to be followers of Austrian economic theory. Yet my definitions have a solid theoretical and practical foundation.
Inflation and Deflation Definitions
Inflation is an expansion of money and credit, with credit marked to market. Deflation is a contraction of money supply and credit with credit marked to market.
The “marked to market” bit is my own addition. I use it because it explains a lot of things that are happening. Indeed, the entire definition is predictive of things that will happen. For example, if credit contracts and there is demand to hold money, treasury rates are going to drop.
Contrast that with a definition that says rising prices constitute inflation. What will treasury rates do?
It was easy to see the housing bubble would collapse and in turn credit would plunge and writeoffs would soar. That was the basis for my prediction that interest rates across the entire yield curve would make all-time lows.
When I made that call, oil was near $140, and nearly everyone thought I was nuts. But it happened. Recently we made new lows in 2- and 5-year treasuries and credit continues to contract.
Bernanke and various Fed members talk about preventing deflation, but that talk is always in terms of the CPI.
However, it is impossible to measure prices of consumer goods accurately enough, housing prices are not in the CPI (I think they should be), but most importantly, we are in a fiat credit-based economy.
Etc.
I think Shedlock is only partly right about inflation/deflation. First of all, both are differences in the relative values of money and goods/services. When goods and services have more value than money the consequence is inflation. When money has more value that goods that is deflation.
Business activity – the output of goods and services – has a tendency to expand for its own reasons. In doing so it lends whatever funds expansion requires into existence. This is the inflationary expansion of the money supply. Money loses unit value by this process: this is inflation. Money loses actual value relative to the goods and services because business output is physically real while money is an abstraction, a counting scheme. The simplest way to describe this is: “You can’t eat money!” Business value increases at the expense of money value.
Money value becomes negative during periods of business expansion. The rate which money value become negative is the rate of inflation.
When business value shrinks as it is doing now the relative value of money increases. It’s not that business value causes a bunch of effects which lead eventually to changes in money value. Money value and business value are sides of coin or weights on a balance. Business value and money value are integrated.
In this way inflation and deflation coexist. The innovations of the past 30 years have produced a structure with two separate economies superimposed on top of each other. A finance economy that is experiencing hyperinflation and a physical economy that is in deflation. Part of the ongoing crisis is the breakdown of this bipartite structure. The problems in the physical economy are weighing on the finance part which is near the point of collapse. Hence the Fed’s and other central banks frenzy to support finance even while doing so adversely effects the physical economy.
Since business expansion creates money (using the term to include money- like forms such as credit) only business expansion can create inflation. Inflation is a collective reaction to value of business and commerce.
When the establishment ‘cheats’ and adds currency the outcome is hyperinflation. This is not a part of any balance but the outcome of a chain of causes and effects.
Establishment actions to change money value under the current circumstances (money/liquidity traps) are wastes of time and effort. The Fed and other central banks (pretend to) add currency hoping that they can magically create business activity. This is absurd as it is business activity that creates money, not the other way ’round. Only human creativity and willingness to work hard and take risks creates value, more accurately add value to what exists in nature. The establishment cannot change money value as it is integral the value of the business that creates it.
Right now the developed world finds less value in business which is rendered unprofitable by rising input costs including those for energy. As business becomes less valuable money becomes more so. The outcome is a 1931- style economy that makes money by arbitraging money. There will be little other business. As in 1931, people will starve while holding onto their last dollar.
More on this subject later …