hyperinflation from QE unfounded - ???

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vintec

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Can someone explain what this article is about? I don't get it but would love to know Keneysian economists' perspective on QE in order to know how the general public reacts, cheers

Why Fears That Quantitative Easing Will Lead To Hyperinflation Are Totally Unfounded


A new report on currency form Morgan Stanley examines what would happen to the dollar (and other currencies) in the event that Bernanke restarts quantitative easing:
QEI resulted in the dollar falling mainly against currencies that were unlikely to ever print. So, the commodity currencies fared the best, followed by the euro, and GBP underperformed once the BoE pursued a similar policy. Something along the same lines would perhaps happen again, although we think that there would be a number of differences. First, the market might be less scared of QE. It hasn't led to hyper-inflation as some feared (yet), and the Fed has a fairly credible exit strategy now, which wasn't discussed prior to QEI. In a sense, exit strategy is less relevant.

Second, the main problem with QEII would be that after a period of excess liquidity and abnormally easy monetary policy (as well as loose fiscal policy), the signal QEII sends is perhaps as important as the policy itself, in that it says that policymakers are genuinely worried about a double-dip scenario and a period of disinflation.
Given the ongoing deflation (or at least threat of deflation), it's funny to think that people have been waving their hands about inflation or hyperinflation all this time, only to be proven wrong.
But hyperinflation isn't just something that happens at wily nily. Either the conditions are created or they're not, and quantitative easing does not, alas, qualify.
Here's the thing: quantitative easing just isn't that radical of a policy step. It was radical when the US went off the gold standard, switching from a hard currency to a fiat currency. But once we went fiat, quantitative easing (or negative interest rates, or Fed portfolio expansion, or whatever version of stimulant you prefer) is just part of the normal toolkit.
In fact, one might argue that under a fiat currency, the whole idea of seeing 0% as a bottom-bound of interest rates is totally arbitrary. Essentially Ben Bernanke has a dial, he can turn it far to one end, or far to another. Nothing magic happens when he crosses 0 that would suddenly make hyperinflation (which, really, is a term that should only be used when the dollar is threatened with toilet paper status) a reality.
Rather than fret about negative interest rates, we might do better to ask: what vestiges of the hard currency days remain in our thinking that cause us confusion about what's proper policy.
All that being said, given the lack of new investment, and reluctance among banks to lend, it's very much in doubt whether QEII would actually spur the real economy.
In a must-read Ambrose Evans-Pritichard piece, the pugnacious columnist slams America for not being bold enough, arguing that the Fed should toss in the kitchen sink, buying up everything from all kinds of organizations -- not just banks -- like insurance and pension funds in an effort to plump money into the economy.


Source: Business Insider
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When the economy is deflating as people pay down debt and asset prices fall money printing won't lead to hyperinflation.

Problem I see is when things finally start to turn around if you base money if highly inflated and a recovery comes you will find that's when it bites and you have to do something.

The other scenario is no one buys your bonds any more so you have to keep printing and your currency falls to the floor.
 
bank robbers buried the notes, then after some time has past, they take out to use them.
same principle being applied here, then banks got paid interest while the general public get 0 percent, but banks are not using their money - to lend to small businesses, when the bank take out their money, just like now, every where are looking for the dollars, and the USD suddenly strengthen. no hyperinflation so far, but once the public starting to withdraw their savings, and using credits then we will have hyperinflation...
 
Silver thorn is on the money IMO, this much money printing under normal circumstances would lead to hyperinflation immediately. But it is basically going straight to banks and staying there to shore up their losses. Some is being flipped to places like Australia to get a better yield but that cash is just papering over bank bad assets. The inflation will come once everything unfolds or sovereign countries finally fall over.
 
Lovey80 said:
Silver thorn is on the money IMO, this much money printing under normal circumstances would lead to hyperinflation immediately. But it is basically going straight to banks and staying there to shore up their losses. Some is being flipped to places like Australia to get a better yield but that cash is just papering over bank bad assets. The inflation will come once everything unfolds or sovereign countries finally fall over.
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Agreed. Bad debt will out, but it will be a fair while yet before the inflation can set in.
 
Silverthorn said:
When the economy is deflating as people pay down debt and asset prices fall money printing won't lead to hyperinflation.

Problem I see is when things finally start to turn around if you base money if highly inflated and a recovery comes you will find that's when it bites and you have to do something.

The other scenario is no one buys your bonds any more so you have to keep printing and your currency falls to the floor.
Click to expand...

thing is bernanke thinks if he buys government bond that hes avoiding deflation, the guy is a half wit

the world needs a serious financial cleanse so we can create an economic model for our future genrations to learn by. this will be hard on all of us but I am willing to make the sacrifice
 
hiho said:
Silverthorn said:
When the economy is deflating as people pay down debt and asset prices fall money printing won't lead to hyperinflation.

Problem I see is when things finally start to turn around if you base money if highly inflated and a recovery comes you will find that's when it bites and you have to do something.

The other scenario is no one buys your bonds any more so you have to keep printing and your currency falls to the floor.
Click to expand...

thing is bernanke thinks if he buys government bond that hes avoiding deflation, the guy is a half wit

the world needs a serious financial cleanse so we can create an economic model for our future genrations to learn by. this will be hard on all of us but I am willing to make the sacrifice
Click to expand...

Well he kind of can in the short term. Him buying bonds pushes traditional traders out and down the risk curve push the prices of everything up. That doesn't stop people paying down debt and spending less, it just papers over and makes everything look more rosey until the smoke clears.
 
i suspect Bernanke knows EXACTLY what he is doing

his greatest skill is convincing people he is doing the right thing while he leads them down the path of financial destruction
 
Money printing by itself does not lead to hyperinflation.

Money printing leads to high inflation.

There is a world of difference between high inflation and hyperinflation.

Hyperinflation is A TOTAL LOSS OF CONFIDENCE IN THE CURRENCY and its associated bonds etc. This is the difference.

Gonzalo Lira has some good blog posts on this topic.
 
thats a good point rbaggio

i would say if Fort Knox gets audited and its bad news i would say that would represent a shortcut to a loss of confidence in the currency

keep bluffing Bernanke .... and maybe contain the USA to high inflation instead
 
Hyperinflation will not give a warning signal, In this environment all it will take is a change in sentiment towards US Treasuries, once the run is on no one will want to be left holding the bag.
At the moment Hedge funds see T's as a safe haven as they know the fed will step in and buy if yields move up giving them time and liquidity to move out of T's, but the point will come when the Fed's balance sheet is seen as toxic and its ability to buy unlimited amounts of T's compromised. It is then when Hedges, Banks and Countries holding T's will run for the exit.
 
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