ECB and FED update, "Quantitative Easing"

[Workers-Control-Over-Prod]

The FED and ECB have introduced more aggressive central bank measures now. "Quantitative easing" which everyone sort of knew they were doing, but now it is official policy. This means they are risking hyper-inflation, increasing the money supply by buying up all kinds of financial assets. This, coupled with the existing financial de-regulation, means that it might work for the US capitalists to feel that they have enough money to invest into the real economy for a couple of months (maybe until next year), but bank collapses are ever more likely and inflation will be the "way out" or rather the way of crisis (and in the not-to distant future austerity measures) that the US and ECB want to take now with official quantitative easing measures and interest rates near 0% (maybe soon negative).

The European economy will though not be able to put off a crisis for much longer, and some political measures will be needed when a crisis starts. Maybe the Euro will be split apart, into a northern Euro and southern Euro, or maybe Greece will be forced to leave and the southern European countries are left to fend for themselves, (the latter seems more likely now). But once Germany (and northern Europe) loses the devalued Euro by a Greek exit (Spain, Italy, Portugal etc...), it will go from the current 0.6% quarterly recessionary growth GDP, to depression contraction GDP.

The world economy will be severely affected by a market crash of northern Europe, Germany and all of Europe, leading the US most likely to go into hyper inflation not much later (2013..). How strange it might sound, only the depression riddled southern European currency union members are helping keep the world economy going, because if Germany were to lose the devalued currency (whose biggest ranking exports are to France, United States, United Kingdom,Italy, Nehterlands, Austria, Belgium, Spain, Switzerland, Poland) it would stop being able to export so cheaply and go into depression. A production and market crash in Germany, Europe's biggest economy and alone nearly 5% of the world's economy, would mean economic difficulties for other countries. France, Netherlands, China, United States, Italy, United Kingdom, Belgium, Austria, Russian Frederation, Switzerland are the top exporters to Germany.

Notice, the United States is the second largest export country of the German economy and Germany is the US' fifth biggest export country. If alone Germany goes into Depression, the US economy will take a toll as well, maybe even go into negative growth just because of this. China is as well in the headlines for its economic problems and Spiegel writes that it 'wont be able to sustain global economic growth'. What is likely is that it, China, will see its housing bubble collapse soon, and most definitely go into a crisis within the next five years, i.e. will not be the "saver" of western Capitalism as the capitalist press so disappointingly reported recently.

[Noa Rodman]

This is a good text detailing the theoretical history of bourgeois attempts to escape from crisis through more credit creation:

http://libcom.org/library/credit-romanticism-golden-pincers-zachary-atlas

Albert Hahn was basically the precursor of Keynes, and btw, his recipe was adopted by Gottfried Feder, "the Nazi party's economic theorist".

Hahn already spoke of negative interest rates in 1920. How little has changed.

[Prof. Oblivion]

This means they are risking hyper-inflation, increasing the money supply by buying up all kinds of financial assets.

There isn't any risk of hyperinflation with QE.

[Workers-Control-Over-Prod]

There isn't any risk of hyperinflation with QE.


Originally posted by OldNabble:
QE (quantitative easing) is essentially the printing of money and the addition of liquidity into the markets so that stock (and other asset) prices are given an artificial boost. Federal Reserve Chief Ben Bernanke believes that by pulling up stocks, the masses will feel richer and spend more on consumer goods, thus lifting up the economy. This is based on Karl Marx’s reflexivity theory (George Soros essentially paraphrased Marx) that states by turning the small wheel (stocks), you can turn the big wheel (economy), which in turn will come back and turn up the small wheel (stocks). Bernanke subscribes to such a theory, and he wants QE to lift up the small wheel (stocks), which he hopes will lift up the big wheel (the economy).

The US economy has tens of trillions in financial asset "virtual" dollars due to the FED interest rates of 0.1% which, if ever invested into the economy, when put together with a move towards money increase and rising prices; if a crash were to happen under this set up of increasing the money supply, you will see hyper-inflation. In fact, the real inflation rate in the US is being manipulated, it is not 1.7%, in some sectors like the food sectors which are not counted in their inflation calculation, inflation has been reported to be up to 8%! It is very obvious that hyper inflation (not to mention austerity) will be the way the ruling class want this crisis, everything is being geared towards this.

[Positivist]

There isn't any risk of hyperinflation with QE.

... yes there is...

[Prof. Oblivion]

Hyperinflation only occurs in times of catastrophic aggregate demand crashes with sustained rates of money printing, profoundly disrupting the balance between aggregate demand and the money supply, which is not going to happen any time soon in the US.

As for the printing of money causing inflation, that's just not really an issue to any significant extent. Inflation is more directly explained by aggregate demand shifts, and the money supply is mostly dependent upon the demand for credit. I'm referring to the endogenous theory of money and the idea that money is not simply something "printed" by central banks but exists in many forms, even, as you have asserted, in "virtual" forms. Particularly the largest generator of money in the economy over the past 50-70 years has been the issuance of loans and credit by banks.

Also you must keep in mind that in times of aggregate demand contraction (i.e. economic crisis) wealth is not only destroyed in the real sense but also in the temporary sense: i.e. money exits the economy through saving. As aggregate demand drops, people stop spending money - they start saving. When saving increases, the money effectively leaves the economy. As people come out of an economic downturn and start spending again, both aggregate demand increase as well as the money supply through their spending; the supply then goes back up.

You're making the same flawed arguments as libertarian monetarists make to justify austerity. In order for QE to cause hyperinflation there would have needed to have been a much, much larger crash in aggregate demand with a much larger injection of cash into the economy.


The US economy has tens of trillions in financial asset "virtual" dollars due to the FED interest rates of 0.1% which, if ever invested into the economy, when put together with a move towards money increase and rising prices; if a crash were to happen under this set up of increasing the money supply, you will see hyper-inflation. In fact, the real inflation rate in the US is being manipulated, it is not 1.7%, in some sectors like the food sectors which are not counted in their inflation calculation, inflation has been reported to be up to 8%! It is very obvious that hyper inflation (not to mention austerity) will be the way the ruling class want this crisis, everything is being geared towards this.Based on the current economy there is no basis for this conspiratorial nonsense. Capitalism is an anarchic system. The "ruling class" doesn't "want" hyperinflation; if that were the case then you could point to economic indicators that show investors positioning themselves to benefit from such a situation, which is obviously not possible. Nobody in such a position wants nor actually believes that this is going to happen.

[Workers-Control-Over-Prod]

In order for QE to cause hyperinflation there would have needed to have been a much, much larger crash in aggregate demand with a much larger injection of cash into the economy.

Well yes, of course. And this is precisely what many people are warning of, such as prominent leftist of Germany Norbert Nelte and the DAX speaker Dirk Müller. No one is saying that QE alone could cause hyper inflation, or that a contraction of say even yearly 1-4% demand could cause this, but it is a blatant danger when already 16 countries have negative interest rates, when the financial "virtual" money is tens of times larger than the real economy, not to mention increased Quantitative Easing measures. Once a deflationary crash hits markets, all bets are off to how high inflation will be. But it will be there, and the more measures towards increasing the virtual money supply, the higher the inflation. I am not suggesting that the capitalists (ruling class to me at least) want a crisis, but everyone sees that there is a crisis coming, and they are already pushing politicians to take measures towards austerity, bail outs and lowering central bank interest rates; completely avoiding any rational way to solve this crisis, raising taxes in the rich, redistributing the wealth that has stacked up at the top.

[Vladimir Innit Lenin]

I don't know so much about hyperinflation, since there's only an indirect link with increasing the money supply per se, as in fact QE only does this indirectly: the central bank purchasing assets increases money demand equivalently, thus offsetting any potential inflationary effect from the increase in the money supply.

Rather, i'd be worried - and I do have a gut feeling about this - that QE represents the latest in the trend towards short-term credit creation. Indeed, though in terms of financial markets, it does make sense as it does not lead to excess money supply per se, it is I believe a false economy: is the money demand real? In the long run, will the assets it buys up actually end up being worthless, or severely overvalued?

I fear that QE is merely involving central banks buying financial assets at inflated prices to protect private institutions. This is a mirage, and surely sooner or later - just as happened in 2008 - this credit prices bubble will burst and we will have the mother of all shocks to financial markets and thus the wider economy.

[Paul Cockshott]

wcop is right in the abstract. Inflation is an effective way of eliminating the debt overhang by reducing real property of the rentiler class.

[Prof. Oblivion]

Well yes, of course. And this is precisely what many people are warning of, such as prominent leftist of Germany Norbert Nelte and the DAX speaker Dirk Müller. No one is saying that QE alone could cause hyper inflation, or that a contraction of say even yearly 1-4% demand could cause this, but it is a blatant danger when already 16 countries have negative interest rates, when the financial "virtual" money is tens of times larger than the real economy, not to mention increased Quantitative Easing measures.

There isn't even a reason to be discussing hyperinflation. It's just not going to happen. Nor is hyperinflation a danger with near-zero or negative interest rates because they will rise in concurrence with an increase in aggregate demand.

If you really want to be abstract, yes, hyperinflation is a possibility. If interest rates remain at negative levels, if the Fed pumps an insane amount of money into the economy, etc. But it's not realistic.


Once a deflationary crash hits markets, all bets are off to how high inflation will be.

I have no idea what you mean in the first sentence. Inflation will rise in a deflationary crash? What does that mean?


But it will be there, and the more measures towards increasing the virtual money supply, the higher the inflation.

What do you think is the relationship between aggregate demand, economic growth and the money supply/interest rates?

It seems that you are somewhat confused between the relationships of these subjects. You cannot increase the money supply without a relative increase in economic expansion, for the very reason that money creation is for the purpose of economic expansion. Money cannot be lent if nobody wants to borrow it, and nobody wants to borrow it to hoard it.


I am not suggesting that the capitalists (ruling class to me at least) want a crisis, but everyone sees that there is a crisis coming, and they are already pushing politicians to take measures towards austerity, bail outs and lowering central bank interest rates; completely avoiding any rational way to solve this crisis, raising taxes in the rich, redistributing the wealth that has stacked up at the top.

As for raising taxes on the rich, what is the point of that slogan? It is based on the same monetarist presumptions that libertarians use to justify austerity: that there is a federal budget debt crisis that must be resolved.

The reality is that there is no federal budget deficit crisis. The federal government doesn't finance its spending through taxation; it finances its spending through the issuance of securities. It doesn't need to balance the budget because of this; there really is no point in doing so.

In laying out this plain truth we can look at the situation from a truly revolutionary perspective: there is no shortage of money in the federal government; it is not funding education and healthcare because it chooses not to, not because it can't.

As for austerity, this is happening for a few reasons:

1. On the private level, it is easy for businesses to take advantage of the situation to cut their costs. Businesses also might be "legitimately" doing so because of the downturn (i.e. without significant organizational/fiscal restructuring). The climate makes it easier for them to do so.

2. On the state level, states are "legitimately" having budget crises, or are using this situation to their advantage (i.e. Walker in WI).

3. On the federal level, conservatives who adhere to monetarist fiscal/economic interpretations have long identified the deficit as a problem and can finally, with the polarized economic climate and focus on economic issues, bring this issue into the open and gain mass appeal with their simplistic metaphor of the federal budget as a personal checking account. Conservatives who have long supported cutting federal economic programs and strong-arming or assisting states in cutting programs and funding can finally do so. National organizations like ALEC exist to coordinate all of this on a local, state and national basis. It's a conservative wet dream.

[Prof. Oblivion]

I fear that QE is merely involving central banks buying financial assets at inflated prices to protect private institutions. This is a mirage, and surely sooner or later - just as happened in 2008 - this credit prices bubble will burst and we will have the mother of all shocks to financial markets and thus the wider economy.

How could a central bank credit bubble even exist? I guess I'm not understanding what you're saying.

[ckaihatsu]

Well yes, of course. And this is precisely what many people are warning of, such as prominent leftist of Germany Norbert Nelte and the DAX speaker Dirk Müller. No one is saying that QE alone could cause hyper inflation, or that a contraction of say even yearly 1-4% demand could cause this, but it is a blatant danger when already 16 countries have negative interest rates, when the financial "virtual" money is tens of times larger than the real economy, not to mention increased Quantitative Easing measures. Once a deflationary crash hits markets, all bets are off to how high inflation will be. But it will be there, and the more measures towards increasing the virtual money supply, the higher the inflation. I am not suggesting that the capitalists (ruling class to me at least) want a crisis, but everyone sees that there is a crisis coming, and they are already pushing politicians to take measures towards austerity, bail outs and lowering central bank interest rates; completely avoiding any rational way to solve this crisis, raising taxes in the rich, redistributing the wealth that has stacked up at the top.


This is the dead-end that results from taking a *purely* economic perspective on economics -- its blind-spot is the *political* realm, namely that the reason U.S. Treasuries continue to receive such unwavering international confidence, even with continuing record-setting amounts of national debt, is because of *politics*.

American exceptionalism is more than just propaganda when it comes to global economics, because investors can feel warm-'n'-fuzzy knowing that any threats to *U.S.* sovereignty will simply be met with resounding, deadly military force.

This time around there's no *transition* from a nation-based proprietary (gold) standard to a nominally floating *global* one, combined with the bill for the Vietnam War -- the momentary hit that caused stagflation in the U.S. -- this time around we're in a political landscape of U.S. military hegemony and not much else, glancing at world growth rates (GDP). The political atmosphere has turned to one of neo-colonialism to fill the vacuum that real economic growth is supposed to inhabit, and the *political* balance-sheet reflects this -- stalling and fracturing for most of the world's economies while the U.S.'s bottomless money supply is accepted as the new gold standard by everyone. (This is explained by the fact that *any* valuation system requires a baseline, common-denomintor *index*, and that's tied into real-world perceptions of *security*.)

Sure, *logically*, the numbers show that the U.S. economy -- and several other First World economies -- should be declared insolvent and bankrupt by now due to "hyperinflation", but we can't ignore the dimension of *scale* -- those economies that are larger and more-well-established get more lenient treatment when it comes to their debt-to-GDP ratios.

[Workers-Control-Over-Prod]

@Cosby I am getting the feeling that you seem to be into the Keyensian "anti-cyclical" pie in the sky economics and that. Do you agree that 1) the capitalists can't take on any more debt now 2) workers can't take on any more debt due to stagnating wages/the low rate of profit 3) the governments of at least Europe will have increasingly problems lending/taking on more debt as the economic situation deteriorates?

[Workers-Control-Over-Prod]

This is the dead-end that results from taking a *purely* economic perspective on economics -- its blind-spot is the *political* realm, namely that the reason U.S. Treasuries continue to receive such unwavering international confidence, even with continuing record-setting amounts of national debt, is because of *politics*.

American exceptionalism is more than just propaganda when it comes to global economics, because investors can feel warm-'n'-fuzzy knowing that any threats to *U.S.* sovereignty will simply be met with resounding, deadly military force.

This time around there's no *transition* from a nation-based proprietary (gold) standard to a nominally floating *global* one, combined with the bill for the Vietnam War -- the momentary hit that caused stagflation in the U.S. -- this time around we're in a political landscape of U.S. military hegemony and not much else, glancing at world growth rates (GDP). The political atmosphere has turned to one of neo-colonialism to fill the vacuum that real economic growth is supposed to inhabit, and the *political* balance-sheet reflects this -- stalling and fracturing for most of the world's economies while the U.S.'s bottomless money supply is accepted as the new gold standard by everyone. (This is explained by the fact that *any* valuation system requires a baseline, common-denomintor *index*, and that's tied into real-world perceptions of *security*.)

Sure, *logically*, the numbers show that the U.S. economy -- and several other First World economies -- should be declared insolvent and bankrupt by now due to "hyperinflation", but we can't ignore the dimension of *scale* -- those economies that are larger and more-well-established get more lenient treatment when it comes to their debt-to-GDP ratios.

Definitely. But don't forget that for capitalism to relatively function, there needs to first be profitabilty of investment and second a market to sell the goods and services to. The path the neoliberals are taking (austerity) is destroying and will destroy market demand wherever it is implemented.

EDIT: also chris, the US needs the European Capitalism to stay alive if the US economy is to remain stable, the trade and interconnectivity of capital and markets is enormous.

[ckaihatsu]

Definitely. But don't forget that for capitalism to relatively function, there needs to first be profitabilty of investment and second a market to sell the goods and services to. The path the neoliberals are taking (austerity) is destroying and will destroy market demand wherever it is implemented.

EDIT: also chris, the US needs the European Capitalism to stay alive if the US economy is to remain stable, the trade and interconnectivity of capital and markets is enormous.


Agreed.

[Workers-Control-Over-Prod]

Agreed.

Well then, you must consequentially agree that a world Depression will come within the next months, seeing as the current structure and policies of the EU are antagonistic among national economies of Europe. And that this will inevitably mean crucial markets for US Capital destroyed, crisis and falling into the debt trap of having to pay increasing market rates to lend more... or, austerity and inflation, equatable to capitulation to crisis by the US bourgeoisie.

[Positivist]

@Bill Cosby, how do contractions in aggregate demand result in inflation? I believe you have this backwards. Aggregate demand contraction is the result of large-scale downsizing across the economy, or, well inflation. I don't see how inflation can be both the cause and the effect here. Inflation is an issue of relativity. Increasing the total money supply devalues each individual unit of currency, and this is expressed through a rise in prices. Whether its printing money or issuing credit, the money supply is being increased and an inflationary bubble formed.

[Lynx]

Increasing the money supply and placing it in the hands of billions of consumers would have a greater inflationary effect than directing this money into the coffers of a tiny elite already flush with cash. Yes, there can be spillover effects from speculation into the 'real' economy, but that is another kind of inflation.

There is a school of Post Keynesianism (or New Keynesiansm) that would argue that a governments' ability to sustain or pay off debt is unlimited. But only in the financial sense, which is what everyone seems to obsess about. The real limitation to spending (ie. consumption) is resource availability. Labour, infrastructure, energy and matter are examples of resources.

[Lynx]

Sure, *logically*, the numbers show that the U.S. economy -- and several other First World economies -- should be declared insolvent and bankrupt by now due to "hyperinflation", but we can't ignore the dimension of *scale* -- those economies that are larger and more-well-established get more lenient treatment when it comes to their debt-to-GDP ratios.
It's not like the FOREX markets see little activity. There are a whole bunch of floating and fixed currencies to choose from.

[Workers-Control-Over-Prod]

Increasing the money supply and placing it in the hands of billions of consumers would have a greater inflationary effect than directing this money into the coffers of a tiny elite already flush with cash. Yes, there can be spillover effects from speculation into the 'real' economy, but that is another kind of inflation.

There is a school of Post Keynesianism (or New Keynesiansm) that would argue that a governments' ability to sustain or pay off debt is unlimited. But only in the financial sense, which is what everyone seems to obsess about. The real limitation to spending (ie. consumption) is resource availability. Labour, infrastructure, energy and matter are examples of resources.

Exactly, hence i tried to tell our Keynesian friend Cosby that inflation would only come after a deflationary development of market prices, after a large layoff/fall in "aggregate" demand (authoritarian language imo...). Germany would immediately, after it were to lose the devalued Euro currency/go back to the Mark, and after a market collapse, see hyper-inflation. I don't see how one can say inflation is not an issue if even the most mainstream journals like the left-liberal (ro-Keynesian btw) Spiegel and Süddeutsche Zeitung write that the ECB policies are eating up savings accounts. Greece had 6 Billion Euros being taken off its banks a week in June until it implemented holding measures, that is no small amount for a country with a yearly GDP of only 300 billion Euros. Were that to have been on a national Greek scale currency contrary to the 15 Trillion heavy European one, there would have been hyper inflation. Maybe i'm stupid, but i don't understand what Cosbie is trying to say with "aggregate demand" changes; inflation is a bidding up of prices due to increased demand and low supply with increasing necessity to print money to keep production for capitalists profitable. Or so i thought, maybe i need to read some Keynes...

[ckaihatsu]

Well then, you must consequentially agree that a world Depression will come within the next months, seeing as the current structure and policies of the EU are antagonistic among national economies of Europe. And that this will inevitably mean crucial markets for US Capital destroyed, crisis and falling into the debt trap of having to pay increasing market rates to lend more... or, austerity and inflation, equatable to capitulation to crisis by the US bourgeoisie.


Yes....





Why the *fuck*-- excuse me.... Why the *fuck* would the "system" just somehow "recover" if Greece were to "default" -- ???

You even said it yourself, here:





So since Greece is joined-at-the-hip to the other EU members its "bankruptcy" -- for the sake of argument -- would mean literally throwing out a piece of the whole pie, not to mention how *politically* disruptive it would be to the very definition of 'EU membership' for the rest.





Just because something can be thought-of and put into a list, using a process of logic, doesn't make that item *valid* as a real-world possibility.

I'll maintain that even the *thought* of Greece "defaulting" is more of a *political* construction than an *economic* one.





For the EU to "keep pouring in money" would require the redistribution of existing wealth on such a broad scale that it would practically be doing socialism *for* us. It would be political anathema to anyone who has the *slightest* respect for the institution of private property.

*And* -- even if such an imaginary act *could* occur, the mere provision of liquidity does *not* guarantee *solvency*. Recent multi-billion-euro bailouts of sovereign debt have only had adrenaline-like effects on the markets, at best, wearing out within *days*.

What's happening is a massive *souring* of financial opinion about Europe's prospects, and for good reason. Financial gymnastics make no difference in this kind of overall condition -- just look at it from the *investor's* point of view and ask yourself where the fuck the next "score" is supposed to come from, and then the one after that. There's no solid certainty, so how can the markets be optimistic -- ?

Instead, we're seeing loan-sharking prevail at the international level, and the nation-state system has no recourse according to its own rules for this kind of thing.




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Workers-Control-Over-Prod

[Lynx]

Exactly, hence i tried to tell our Keynesian friend Cosby that inflation would only come after a deflationary development of market prices, after a large layoff/fall in "aggregate" demand (authoritarian language imo...). Germany would immediately, after it were to lose the devalued Euro currency/go back to the Mark, and after a market collapse, see hyper-inflation. I don't see how one can say inflation is not an issue if even the most mainstream journals like the left-liberal (ro-Keynesian btw) Spiegel and Süddeutsche Zeitung write that the ECB policies are eating up savings accounts. Greece had 6 Billion Euros being taken off its banks a week in June until it implemented holding measures, that is no small amount for a country with a yearly GDP of only 300 billion Euros. Were that to have been on a national Greek scale currency contrary to the 15 Trillion heavy European one, there would have been hyper inflation. Maybe i'm stupid, but i don't understand what Cosbie is trying to say with "aggregate demand" changes; inflation is a bidding up of prices due to increased demand and low supply with increasing necessity to print money to keep production for capitalists profitable. Or so i thought, maybe i need to read some Keynes...
I don't see a supply problem. Production has been cut due to a drop in sales, which is due to less spending by consumers, businesses, etc. which is due to loss of income, too much personal debt, or a greater willingness to save instead of spend. Austerity is harming sales/aggregate demand.
The massive bailouts have to do with the financial sector, with its "too big to fail" entities.
Within the EU, governments in situations similar to Greece are running large deficits. This is a normal effect of what some economists call 'automatic stabilizers'.

We're not seeing what occurred in Zimbabwe or Wiemar Germany. Both involved large drops in production, and government policies that involved giving money to large numbers of people even though there was little for them to buy.

[Workers-Control-Over-Prod]

I don't see a supply problem. Production has been cut due to a drop in sales, which is due to less spending by consumers, businesses, etc. which is due to loss of income, too much personal debt, or a greater willingness to save instead of spend. Austerity is harming sales/aggregate demand.
The massive bailouts have to do with the financial sector, with its "too big to fail" entities.
Within the EU, governments in situations similar to Greece are running large deficits. This is a normal effect of what some economists call 'automatic stabilizers'.

We're not seeing what occurred in Zimbabwe or Wiemar Germany. Both involved large drops in production, and government policies that involved giving money to large numbers of people even though there was little for them to buy.

Exactly my point. If you follow what depressions cause (as you said, a crash in demand) it ends the overproduction cycle in a crash, crashing production. The fact that measures are being taken to "artificially boost prices" and make the masses feel they have enough to spend through QE, certainly is a trend towards inflation. I don't understand how one can disagree that inflation is a real future possible scenario. Most economists i have followed (and Dirk Müller, "Mr. Dax" a leftist in the mainstream media) argue that deflationary market developments or price crashes of hard commodities, after a bubble burst have historically been a sign for governments printing money and ending in hyper-inflation. Germany for instance will need to increase its domestic demand, this is becoming increasingly clear. I don't understand the whole fuss here, inflation is a real danger, alone if you look at the existing virtual money supply :confused:

[Lynx]

Exactly my point. If you follow what depressions cause (as you said, a crash in demand) it ends the overproduction cycle in a crash, crashing production. The fact that measures are being taken to "artificially boost prices" and make the masses feel they have enough to spend through QE, certainly is a trend towards inflation. I don't understand how one can disagree that inflation is a real future possible scenario. Most economists i have followed (and Dirk Müller, "Mr. Dax" a leftist in the mainstream media) argue that deflationary market developments or price crashes of hard commodities, after a bubble burst have historically been a sign for governments printing money and ending in hyper-inflation. Germany for instance will need to increase its domestic demand, this is becoming increasingly clear. I don't understand the whole fuss here, inflation is a real danger, alone if you look at the existing virtual money supply :confused:
QE is not directed to the masses, it is to encourage credit expansion. It isn't stimulus in the New Deal sense. And it isn't inflationary given the circumstances.
If we get to a crash, then we'll see what will ensue. QE will be all but forgotten by then.

[Workers-Control-Over-Prod]

either way, inflation seems to be a subject of much debate.

[Lynx]

Which is more important - controlling inflation or reducing unemployment?

[ÑóẊîöʼn]

I dunno about risking hyperinflation, but quantitative easing certainly seems like a sure-fire way of making money worth less. That's what happens when you increase the money supply without actually creating any extra value, right?

[Lynx]

Not if the money just sits there, gathering dust, so to speak. It has to enter the real economy, or show up as speculation in various commodities.

Governments can use taxation to control inflation.

[ÑóẊîöʼn]

Not if the money just sits there, gathering dust, so to speak. It has to enter the real economy, or show up as speculation in various commodities.

Governments can use taxation to control inflation.

OK, but what's the point of making money only to then not circulate it?

[ckaihatsu]

Exactly, hence i tried to tell our Keynesian friend Cosby that inflation would only come after a deflationary development of market prices, after a large layoff/fall in "aggregate" demand (authoritarian language imo...). Germany would immediately, after it were to lose the devalued Euro currency/go back to the Mark, and after a market collapse, see hyper-inflation. I don't see how one can say inflation is not an issue if even the most mainstream journals like the left-liberal (ro-Keynesian btw) Spiegel and Süddeutsche Zeitung write that the ECB policies are eating up savings accounts. Greece had 6 Billion Euros being taken off its banks a week in June until it implemented holding measures, that is no small amount for a country with a yearly GDP of only 300 billion Euros. Were that to have been on a national Greek scale currency contrary to the 15 Trillion heavy European one, there would have been hyper inflation. Maybe i'm stupid, but i don't understand what Cosbie is trying to say with "aggregate demand" changes; inflation is a bidding up of prices due to increased demand and low supply with increasing necessity to print money to keep production for capitalists profitable. Or so i thought, maybe i need to read some Keynes...





Exactly my point. If you follow what depressions cause (as you said, a crash in demand) it ends the overproduction cycle in a crash, crashing production. The fact that measures are being taken to "artificially boost prices" and make the masses feel they have enough to spend through QE, certainly is a trend towards inflation. I don't understand how one can disagree that inflation is a real future possible scenario. Most economists i have followed (and Dirk Müller, "Mr. Dax" a leftist in the mainstream media) argue that deflationary market developments or price crashes of hard commodities, after a bubble burst have historically been a sign for governments printing money and ending in hyper-inflation. Germany for instance will need to increase its domestic demand, this is becoming increasingly clear. I don't understand the whole fuss here, inflation is a real danger, alone if you look at the existing virtual money supply :confused:


I'll note that I don't have any formal background in any of this, but it's a perennial topic and one that we, and everyone, *should* have a grasp on.

My understanding is that the basis of the world's economy is different now that the post-WWII nation-state-based system of economics has given way to a system that is fully globally financialized, all the way through to national currencies and the meshwork of financial indexes that underpin all capital valuations.

In the Bretton Woods era there were fixed exchange rates among the nations' currencies, but after 1971 there *wasn't*, and this has left the very question of a solid value index unanswered, with the world's currencies tacitly turning to the U.S. dollar as the de facto basis, for lack of anything more certain than that.


http://en.wikipedia.org/wiki/United_Nations_Monetary_and_Financial_Conference

http://en.wikipedia.org/wiki/Plaza_accord


In practice what this has meant for capitalism is that there has been effectively a "circling of the wagons" in the face of less-than-certain prospects for economic growth -- after all, why would the individual countries "un-hitch" their own sovereign currencies and pool in with others' if conditions were actually robust for themselves -- ?

Worse still (for capitalism), we've seen the gradual decaying of national economic sovereignty, long before the current EU crisis, since U.S. public funds (for example) have been directed to this-or-that speculative bubble over the past 20-30 years in order to keep *some* kind of economic growth on-the-books. As real economic growth fades the deficit spending of public monies to prop up the economy just looks more and more fictional -- of course the future will *never* be able to compensate -- it's a contemporary version of Stalinism, nothing less.

Those looking for classic symptoms of hyperinflation resulting from deficit spending are forgetting about differences of *scale* -- for the average country or household such a dynamic *is* possible because of being surrounded by the 'real' economy. But for top-of-the-world sovereign powers the economy is mostly what they *arrange* it to be, politically -- that's why Greece was considered ripe for a speculative attack while other European countries with similar GDP-to-debt ratios *weren't*.

While slumping corporate banksheets soak up government deficit spending like sinkholes (therefore no hyperinflation), lesser economies are either "let in" politically or they aren't.

[Workers-Control-Over-Prod]

QE is not directed to the masses, it is to encourage credit expansion.

Not if the money just sits there, gathering dust, so to speak. It has to enter the real economy, or show up as speculation in various commodities.

Governments can use taxation to control inflation.


Well, so i thought as well, but why does Bernanke say they want to increase "the spending of the masses" then? Obviously because they want to improve the whole economy. The goal is of course to now increase credit availability, i agree. But later the larger wheel of the real economy (after the smaller wheel of stock market) will need to go into action due to this. Hence, you start to see a trend.

I think i am being taken a bit to literal here as Cockshott said, i mean this in "the abstract". I don't mean to say that inflation will happen before a crash in production, that tomorrow we will have hyper-inflation, but if you look at the policies enacted by the governments around the world to increase the "virtual" money supply into oblivion, especially the US and partly European policies of cheating on the inflation figures (not including food as in the US' official inflation figures), if you see that a crisis is coming, (plus you add that inflation after austerity is a more preferred crisis option for the owning class) a crisis in which the profitability of production will be unprecedentedly low(!); it is not hard to see that inflation is a very likely reoccurence after a crash of production.

[Paul Cockshott]

Remember Japan. Where is the hyperinflation there despite more than a decade of near zero interest rates.

[Workers-Control-Over-Prod]

Remember Japan. Where is the hyperinflation there despite more than a decade of near zero interest rates.

Never said that increasing the (virtual) money supply = hyper inflation. But inflation will certainly play its part in the coming next few months or years after a crash of production, given the incredible amounts of debt running up since the last great Destruction of capital value in the Great Depression

[Workers-Control-Over-Prod]

...Even the capitalist business mainstream tv station "Phoenix" in Germany was just now reminding viewers that nothing has helped the economy in the United States, that it has now over 16 Trillion dollars in government debt and will most likely turn to printing money at one point in the future. Most economists i have listened to agree that inflation is a near certain future scenario given the vast amounts of debts and low growth rates (with rising interest rates on debt).

[ckaihatsu]

...Even the capitalist business mainstream tv station "Phoenix" in Germany was just now reminding viewers that nothing has helped the economy in the United States, that it has now over 16 Trillion dollars in government debt and will most likely turn to printing money at one point in the future. Most economists i have listened to agree that inflation is a near certain future scenario given the vast amounts of debts and low growth rates (with rising interest rates on debt).




Never said that increasing the (virtual) money supply = hyper inflation. But inflation will certainly play its part in the coming next few months or years after a crash of production, given the incredible amounts of debt running up since the last great Destruction of capital value in the Great Depression


No, because of this:





While slumping corporate banksheets soak up government deficit spending like sinkholes (therefore no hyperinflation), lesser economies are either "let in" politically or they aren't.

[Lynx]

Well, so i thought as well, but why does Bernanke say they want to increase "the spending of the masses" then? Obviously because they want to improve the whole economy...
I don't know why he said this, but QE ain't going to do it. If they succeed in inflating another credit bubble while real wages remain flat, that will not end well.

[Prof. Oblivion]

I don't have much time right now but I'll reply to what I can.



@Cosby I am getting the feeling that you seem to be into the Keyensian "anti-cyclical" pie in the sky economics and that. Do you agree that 1) the capitalists can't take on any more debt now 2) workers can't take on any more debt due to stagnating wages/the low rate of profit 3) the governments of at least Europe will have increasingly problems lending/taking on more debt as the economic situation deteriorates?

Well first off I'm not Keynesian. I think that Keynes has written much that has merit, but also being a Marxist know that while he might have written accurate descriptions of economic factors, that his attempt at forming a solution in the form of anti-cyclical economics is just not realistic, both because of the fact that politicians are economists and will not adhere to it, but also because crisis is not something that can ever be averted, and governmental/central bank policy can only go so far.

With that being said, your first point I think is fundamentally flawed in that it is an abstraction to meaninglessness. What does it mean to say "the capitalists can't take on any more debt now"? What capitalists? What kind of debt? I think it's sort of silly to make such an abstraction, because of course there are businesses that certainly can further take out loans. Going even further, capitalism survives on credit as a means of facilitating economic expansion, so in my opinion to claim that more debt can't be created is to assert that capitalism can't go on, a claim that is as bold as it is facile.

As to the second point, I think that we are going to see a rise in the savings rate, which we have already seen, but will probably continue to some extent. The question is, what this means going forward. Any analysis based on the fundamental fact that capitalism requires workers to go into ever-increasing amount of debt to make up the gap due to underconsumption in my opinion is incorrect because of the fact that this is what economic crisis itself is for, and therefore the expansion of credit is going to be a tendency, and not a trend.

Third, I think you were mistaken in your comprehension of my posts, which were dealing exclusively with the domestic (US) situation and not the European crisis, which has taken on a life of its own.


@Bill Cosby, how do contractions in aggregate demand result in inflation? I believe you have this backwards. Aggregate demand contraction is the result of large-scale downsizing across the economy, or, well inflation. I don't see how inflation can be both the cause and the effect here. Inflation is an issue of relativity. Increasing the total money supply devalues each individual unit of currency, and this is expressed through a rise in prices. Whether its printing money or issuing credit, the money supply is being increased and an inflationary bubble formed.

"Increasing the total money supply devalues each individual unit of currency" is a very simplistic and unrealistic assertion to make. This assertion comes from the monetarist school of thought; keep in mind that it was Friedman/Schwartz who famously wrote that "inflation is always and everywhere a monetary phenomenon."

This is in reality not true. Why? Because first we have to define what money actually is, and then we have to define what the supply of money is. What we find is that the money supply is constantly changing, even with central bank "printing" at zero, precisely because money enters and leaves the economy constantly.

What is a dollar when it is sitting in someone's wallet? What is a dollar when it is sitting under someone's mattress? Is it part of the economy or not? If so, how? My answer to the question would be that money sitting unused is not necessarily money, but rather has the potential to become such through the act of exchange. Thus even if we can come to an accurate definition of what money is, while it is easy to calculate this amount in itself, how it has an effect on inflation is much more complicated.

This is why monetarists are rather silly and sophomoric in their arguments.

And we are here simply talking about an autarkic economy with zero growth! Can you imagine the complexity when you bring growth into the picture? If the total money supply represents the total value at a given time of the entire value of goods in the economy, then what of growth? If we expand the money supply in proportion to economic expansion, then what? The issue is clearly more complicated than inflation "always and everywhere [being] a monetary phenomenon" as yourself and Friedman would argue.

We haven't even brought into the discussion other factors which would affect the inflation rate.


Exactly, hence i tried to tell our Keynesian friend Cosby that inflation would only come after a deflationary development of market prices, after a large layoff/fall in "aggregate" demand (authoritarian language imo...).

If aggregate demand falls off a cliff and the government/central bank implements an expansionary monetary policy, then yes. I have already said this is true. It is just not going to happen any time soon in the US as you earlier claimed.


The massive bailouts have to do with the financial sector, with its "too big to fail" entities.

Actually, open market operations are due to circulation problems, for the most part. The bailouts were an attempt to prevent further economic calamity but also to attempt (poorly) to inject liquidity into the system.

We all know, though, that, as I said earlier, the government/fed can only do so much, and that crisis is simply something inherent to capitalism.


The fact that measures are being taken to "artificially boost prices" and make the masses feel they have enough to spend through QE, certainly is a trend towards inflation.

QE has nothing to do with "the masses...spending". The central bank is concerned primarily with liquidity and the flow of credit between large financial behemoths.



either way, inflation seems to be a subject of much debate.

The Fed's actions have actually been to increase inflation over the past few years. Bernanke has openly stated this.


I think i am being taken a bit to literal here as Cockshott said, i mean this in "the abstract". I don't mean to say that inflation will happen before a crash in production, that tomorrow we will have hyper-inflation, but if you look at the policies enacted by the governments around the world to increase the "virtual" money supply into oblivion, especially the US and partly European policies of cheating on the inflation figures (not including food as in the US' official inflation figures), if you see that a crisis is coming, (plus you add that inflation after austerity is a more preferred crisis option for the owning class) a crisis in which the profitability of production will be unprecedentedly low(!); it is not hard to see that inflation is a very likely reoccurence after a crash of production.

This apocalyptic dooms-daying is what Marxists have been saying for decades. It's unrealistic.

[Workers-Control-Over-Prod]

If aggregate demand falls off a cliff and the government/central bank implements an expansionary monetary policy, then yes. I have already said this is true. It is just not going to happen any time soon in the US as you earlier claimed. . .

This apocalyptic dooms-daying is what Marxists have been saying for decades. It's unrealistic.

Care to explain how you come to the conclusion that we are free from a crisis in the next two years? Because even the mainstream media of The Economist, Phoenix (german business main tv station), and pretty much every Marxist is pointing out that this global recession is going to become a global depression in the next dozen months.

I am not spreading "dooms-day apocalyptic" theories. It is merely a near to empirical fact now that Luxemburg was right: The rate of profit of the production process as the underlying, basis fundament for the growth rates of capital accumulation. And since 2000 the rate of profit in the United States went below the financial interest rate of 2%. "The Point of no Return" was reached in Germany in 2009
http://4.bp.blogspot.com/-OpUAcEY44ZE/T9t5O5JLB2I/AAAAAAAAHmI/SmsEYIk5eec/s1600/Global+Ind+Production.jpg

Germany already had a decrease of investments into it industrial sector in August. It might look like the ESM can keep things going for another few months, but there is not even a rhetoric about achieving growth in Europe, i.e. a similar crash of production like 2009 in Germany is anticipated by (not only the apocalyptic-doomsdayer me! but) the mainstream media.

When i say that "the capitalists" int he United States cannot take on more debt (or in the whole west for that matter), that is a simple observation of what has been happening the last four year: private losses and debts have been socialised and the people in the media always talk of "the private sector cannot take on new debt" etc. and to stop this, old debts have to be destroyed, whether by crisis or redistribution. This is really just mainstream discussion topics, the ZDF and other state media here have a public debate that there either needs to be a "redistribution" of wealth as Die Linke say in television or austerity as the conservatives say. Governments are finding it harder and harder to lend money at repayable interest rates, the capitalist enterprises "private sector" can't take on more debt since years (hence the large socialisation of debts the last four years...).

Now the western states are in the debt trap. Historically, when capitalist states begin to have problems with debt, inflation is a frequent option to get rid of the debts in the system and raise profitability, instead of taking the route of taxation or, socialism itself.

The fact of the matter is that what is still called "Capitalism" only remains because of state-"socialism" for the rich. The Rate of Profit is low as debts have been piling up and we haven't seen a large enough Destruction of Capital Value since the great Depression, to speak with Andrew Kliman in his book "The Failure of Capitalist Production". But i would like to add Luxemburg's observation, that there is a profitability of the economy at large and of the production process. This is now near 0% in the advanced capitalist countries, and it shows.
http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=INDPRO&scale=Left&range=Max&cosd=1919-01-01&coed=2012-07-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Monthly&fam=avg&fgst=lin&transformation=lin&vintage_date=2012-09-09&revision_date=2012-09-09

http://www.tradingeconomics.com/chart.png?s=ukipiyoy&d1=19720101&d2=20120731

http://www.revleft.com/vb/attachment.php?attachmentid=8745&d=1337913928

It's not just me who is saying that Capitalism is over. It's Harvard's own Prediction (http://www.revleft.com/vb/industrial-production-prediction-t174194/index.html?t=174194) that Industrial Production will start falling towards 0% in 2015. I mean, don't listen to a fellow Marxist, listen to the Ivy League students!

[Vladimir Innit Lenin]

Remember Japan. Where is the hyperinflation there despite more than a decade of near zero interest rates.

That is a no-growth environment, though. The increase in the money supply is not matched by an increase in 'proper' real money demand, only the fake augmentation of MD by the central bank purchasing debt.

Moreover, this situation means that the increase in money supply has little effect on the real economy in terms of investment/savings because of its superficial, in-organic nature. So you have stagflation - no inflation, no growth.

Infinitely worse than a situation of high growth and positive inflation.

[ckaihatsu]

That is a no-growth environment, though. The increase in the money supply is not matched by an increase in 'proper' real money demand, only the fake augmentation of MD by the central bank purchasing debt.

Moreover, this situation means that the increase in money supply has little effect on the real economy in terms of investment/savings because of its superficial, in-organic nature.


True.





So you have stagflation - no inflation, no growth.





In economics, stagflation is a situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.

http://en.wikipedia.org/wiki/Stagflation





Infinitely worse than a situation of high growth and positive inflation.

[Lynx]

Take a look at Japanese unemployment - it compares favourably.

[Workers-Control-Over-Prod]

Take a look at Japanese unemployment - it compares favourably.

I would say that is because of its public investment, but i don't have any proof for that. Anyway, the US has 8% unemplyment, and i thought that Japan has similar unemployment since the economies are plagues by very similar problems.

[Workers-Control-Over-Prod]

Richard Wolff agrees: Quantitative Easing measures risk hyper-inflation
@37:28
-Tw1ZU5gfpc

[Lynx]

Richard Wolff agrees: Quantitative Easing measures risk hyper-inflation
@37:28
-Tw1ZU5gfpc
He uses two scenarios that are incompatible: a) the wealthy going on a spending spree b) Germany in the 1920s

There is no shortfall in production that would cause the wealthy to buy everything up in the real economy. If they think their financial wealth is going to depreciate, they would buy gold or assets, thus bidding up the price of both. They're not going to show up at the supermarket and attempt to cart everything away.

QE is an asset swap, with the 'cash' ending up with the banks. Printing money, which now goes by the name of stimulus, is as Prof. Wolff described it: giving money to poor people, who are then likely to spend it.

The good professor knows very well that the government can tax away excess money and impose rationing in case there were shortages. That is what the US government did during WWII, through the use of ration cards, and he has described this in the past. He knows that when times get rough, governments abandon market mechanisms in spite of their ideology.

Times are not rough enough, so we see governments fiddling with discredited economic policies that are at best ineffectual, or only serve to deepen the crisis.

p.s. great video - he tears apart many American myths regarding capitalism. I always take the time to listen to him when he does his radio segment and other events.

[ckaihatsu]

Currency war warnings follow US Fed’s “quantitative easing”

http://wsws.org/articles/2012/sep2012/usfe-s24.shtml

[Lynx]

I suppose you could call it a war, but the FOREX market doesn't change the fact that not everyone can run trade surpluses at the same time!

[Positivist]

Richard Wolff agrees: Quantitative Easing measures risk hyper-inflation
@37:28
-Tw1ZU5gfpc

I cant access the link, what's the name of the video.

[campesino]

hype-inlfatio doesn't come from QE. the theory is espoused by many reactionaries. there will not be any inflation until keynesian models are applied and even then it will be low.

[ckaihatsu]

I suppose you could call it a war, but the FOREX market doesn't change the fact that not everyone can run trade surpluses at the same time!


Maybe there should be a world war to resolve the question....


(8 p

[Lynx]

I cant access the link, what's the name of the video.
Global Capitalism - A Monthly Update & Discussion: September 2012

It is on his website.

[Workers-Control-Over-Prod]

hype-inlfatio doesn't come from QE. the theory is espoused by many reactionaries. there will not be any inflation until keynesian models are applied and even then it will be low.

Yeah, look at that Keynesianism in Greece, Portugal, Spain...

[Workers-Control-Over-Prod]

Sunday edition of Germany's biggest Printnews, warns of a "creeping dispossession of the German citizenry... a redistribution from bottom to top".

http://static4.businessinsider.com/image/50720e4beab8eadf73000025-360-479/der-spiegel.jpg