Comments on: The helicopters are coming

By: Niels Jensen

Niels Jensen — Thu, 09 Oct 2008 08:48:45 +0000

I feel compelled to respond to a couple of the comments above.

Wayne first:
My reference to “mental midgets” when referring to US congressmen was based on my frustration over their narrow-minded behaviour (worrying about re-election rather than the nation’s well-being). I absolutely agree with you that the behaviour (read: greed) in some parts of the financial services industry has been unacceptable to say the least, but that was not the point I was trying to make.

To Ginger and Bill:
De-leveraging is very deflationary, and de-leveraging is by no means over yet. Just think of Goldman Sachs and Morgan Stanley both of which have to slim down their 30-40x levered balance sheets to 10-13x in order to adjust to the new banking reality. Or think of all the commercial banks around the world which can’t raise enough new capital to replace lost capital. Their only option is downsizing their balance sheets. This will have significant implications for all kinds of borrowers and will reduce economic growth for years to come – all very deflationary. I do not wish to sound like a scaremonger, but the best comparisons are the early 1870s (huge European banking crisis) and the early 1930s (great depression), both of which created serious deflationary pressure. The risk of inflation is VERY low the first few years; however, Bill is right that it may reemerge further down the road as the economic wheels start to spin faster again. That scenario is several years away, though. We will have plenty of time to worry about deflation before we get there.

By: Bill

Bill — Thu, 09 Oct 2008 05:41:52 +0000

“A year from now deflation will be back on the agenda.” So we are massively inflating now via helicopter money but a year from now we will be worrying about deflation? If Jensen did not actually mean to write that “inflation” will be back on the agenda a year from now, that sentence is curious. In fact, that entire paragraph needs more work. Very punchy but not logical.

By: Ginger

Ginger — Wed, 08 Oct 2008 05:10:17 +0000

I just cannot understand why the long term effect of unbelievable additions to the US national debt that will be a consequence of this crisis wont be severely inflationary. As I see it, we will never be able to repay it; the only way out will be to collapse the dollar, jacking long term interest rates way up. Sure, right now, everyone world wide is scared and running home to momma USDollar, and sure right now, no one in the world will be buying anything. But long term, I just don’t see how we can maintain the value of the dollar or keep long term rates from zooming up. Could someone please explain why my reasoning here is faulty? Thanks!

By: Mark Goodfellow

Mark Goodfellow — Tue, 07 Oct 2008 15:36:38 +0000

“Trust in the banking system must be preserved at almost any price?” We are speaking of mental midgets and moral pygmies here; and also dulusional loons. The banking system must crash, ruined by the people it rewarded most handsomely.
Maybe we ought to ask those who are required to pay “almost any price” for the idiot bankers and corrupt politicians who have, in their arrogance and stupidity, ruined the good deal they had going for themselves (and the rest of us); before we rob innocents to pay for their mistakes.
For those of you who lived in the big money, masters of the universe world, it’s end must be unthinkable. Not so much to those of us who have never been involved.
We just don’t want to have to pay for your breathtaking incompetence. You screwed up; take your medicine like a big boy, quit whinning, and start over; just like us simple folk do. The world you loved is gone. You were the ones who destroyed it.

By: The Assetman

The Assetman — Tue, 07 Oct 2008 14:28:17 +0000

The massive de-leveraging taking place in an of itself, is deflationary. You would think the ECB would grasp a clue here.

By: Wayne

Wayne — Tue, 07 Oct 2008 12:32:42 +0000

The comments like “mental midgets” make me want to enlarge my garden and start living on wild game. We mental midgets balance our check book each month. The mental giants that created/caused the mess berate us and demand more money. Nothing has changed, the same greedy “mental giants” are running the financial sector. I may be simple minded but if my son wastes his allowance I don’t give him more to just piss off again. He will get more to cover necessities but I am not giving him a blank check.
There was a market for these securities the tax payers have purchased, I understand it is around $0.25 on the dollar. The market siezed up. I wonder why. Paulson and his buddies knew that the market would have to sieze for him to convince congress that the world was coming to an end unless they gave him a blank check. Of course no one was going to move any paper.
Why is it rates can’t go up? I hear no one will lend money, then you hear of some one paying 10% to borrow and that is criminal. Why? If we keep money cheap (what you are advocating above “helicopter ben”) then wall street will always gamble it away, it is monopoly money. Make them pay for it and maybe they will take better care.

By: chris

chris — Tue, 07 Oct 2008 08:53:05 +0000

When (or if) this massive growth in money supply has the desired effect, they are going to have to mop up like never before.i think this is the set-up of (future) global hyper-inflation as USD weakness knocks on.