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Thread: Is 'stagflation' coming?

  1. #1
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    Default Is 'stagflation' coming?

    Greenspan comments on the results of the Republican tax plan --

    https://www.yahoo.com/finance/video/...150300893.html
    David G
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    Default Re: Is 'stagflation' coming?

    The tax bill is designed to lure foreign money in, increasing the value of the stock market and the dollar, and increasing the incentives to move jobs overseas. The high dollar will help suppress wages. Running high deficits helps only at the bottom of the business cycle, and we're near the top of the cycle right now, which is probably why Greenspan is worried about inflation. Increasing debt at this point will make it harder to deal with the next downturn.

    Basically, it's class warfare by those who own the companies against those who work for them.

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    Default Re: Is 'stagflation' coming?

    The increased deficit will be used as an excuse to eliminate social security and medicare.
    "The future is already here it's just not very evenly distributed." William Gibson

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    Default Re: Is 'stagflation' coming?

    I was reading some newsfeed yesterday that stated we may see a recession by 2019 as the Fed increases rates. More jobs down the toilet or shipped overseas.

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Dave Gray View Post
    I was reading some newsfeed yesterday that stated we may see a recession by 2019 as the Fed increases rates. More jobs down the toilet or shipped overseas.
    My worry with that is that when the US sneezes the rest of us catch a cold. Not that that would bother the isolationists in the US.
    It really is quite difficult to build an ugly wooden boat.

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    Default Re: Is 'stagflation' coming?

    And this is how Keynsianism illegitimately got a bad name. This is reverse Keynsianism, but in a very few years time it will be used as the justification for being a deficit hawk. For cutting during economic downturns.

    Keynes said to increase taxes when the economy was booming along, to pay down deficits and build up reserves so that you had the ability to intervene when the economy started to bust. Because the economy was intended to serve the population, not the other way 'round.

    It's kinda like how everyone knows that you should buy stocks when they're cheap, and sell when they're high. And instead, everyone does the reverse - watching a bull market going up forever, and betting that it will continue to do so...
    If I use the word "God," I sure don't mean an old man in the sky who just loves the occasional goat sacrifice. - Anne Lamott

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    Default Re: Is 'stagflation' coming?

    We yearn for the days of stagflation when both prices and wages trended ever upwards.

    Now, while prices rise, wages stagnate or decrease and real output trends ever downwards - and satire becomes almost impossible.
    Someday, I'm going to settle down and be a grumpy old man.

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    Default Re: Is 'stagflation' coming?

    There's a lot of things they didn't tell me when I signed on with this outfit....

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    Default Re: Is 'stagflation' coming?

    Frightening but remember who the source is.....I sure do! Almost a decade has passed from the exchange below.


    Dr. Greenspan, I want to start with you. You were the longest- serving chairman of the Federal Reserve in history, and during this period of time you were perhaps the leading proponent of deregulation of our financial markets.

    Certainly you were the most influential voice for deregulation. You have been a staunch advocate for letting markets regulate themselves.

    Let me give you a few of your past statements. In 1994, you testified at a congressional hearing on regulation of financial derivatives. You said there is nothing involved in federal regulation which makes it superior to market regulation. In 1997, you said there appears to be no need for government regulation of off-exchange derivative transactions. In 2002, when the collapse of Enron led to renewed congressional efforts to regulate derivatives, you wrote the Senate: We do not believe a public policy case exists to justify this government intervention. And earlier this year, you wrote in the Financial Times: Bank loan officers in my experience know far more about the risks and workings of their counterparties than do bank regulators.

    And my question for you is simple, were you wrong? Would you be sure the mike is turned on?

    MR. GREENSPAN: Well, partially. But let’s separate this problem into its component parts. I took a very strong position on the issue of derivatives and the efficacy of what they were doing for the economy as a whole, which in effect is essentially to transfer risk from those who have very difficulty — have great difficulty in absorbing it to those who have the capital to absorb losses if and when they occur.

    These derivatives are working well. Let me put it to you very specifically.

    REP. WAXMAN: So you don’t think you were wrong in not wanting to regulate the derivatives.

    MR. GREENSPAN: Well, it depends which derivatives we’re talking about. Credit default swaps, I think, have serious problems associated with them. But the bulk of derivatives — and indeed the only derivatives that existed when the major discussion started in 1999 — were those for interest rate risk and foreign exchange risk.

    REP. WAXMAN: Let me interrupt you, because we do have a limited amount of time. But you said in your statement that you delivered, the whole intellectual edifice of modern risk management collapsed. You also said, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shock and disbelief,” end quote.

    Now, that sounds to me like you’re saying that those who trusted the market to regulate itself, yourself included, made a serious mistake.

    MR. GREENSPAN: Well, I think that’s true of some products, but not all. I think that’s the reason why it’s important to distinguish the size of this problem and its nature. And what I wanted to point out was that the — excluding credit default swaps, derivatives markets are working well.

    REP. WAXMAN: Well, where do you think you made a mistake, then?

    MR. GREENSPAN: I made a mistake in presuming that the self- interest of organizations, specifically banks and others, were such (as that ?) they were best capable of protecting their own shareholders and their equity in the firms. And it’s been my experience, having worked both as a regulator for 18 years and similar quantities in the private sector, especially 10 years at a major international bank, that the loan officers of those institutions knew far more about the risks involved in the people to whom they lent money than I saw even our best regulators at the Fed capable of doing.

    So the problem here is, something which looked to be a very solid edifice, and indeed a critical pillar to market competition and free markets, did break down. And I think that, as I said, shocked me.

    I still do not fully understand why it happened. And obviously, to the extent that I figure out where it happened and why, I will change my views. And if the facts change, I will change.

    REP. WAXMAN: Dr. Greenspan, Paul Krugman, the Princeton professor of economics who just won a Nobel Prize, wrote a column in 2006, as the subprime mortgage crisis started to emerge. He said, “If anyone is to blame for the current situation, it is Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending,” end quote.

    He obviously believes you deserve some of the blame for our current conditions. I’d like your perspective. Do you have any personal responsibility for the financial crisis?

    MR. GREENSPAN: Let me give you a little history, Mr. Chairman. There’s been a considerable amount of discussion about my views on subprime markets in the year 2000. And indeed one of our most distinguished governors at the time, Governor Gramlich, who frankly is regrettably deceased but was unquestionably one of the best governors I ever had to deal with, came to my office and said that he was having difficulties with the problem of what really turned out to be fairly major problems in predatory lending.

    REP. WAXMAN: Well, he urged you to move, with the power that you had as the chairman of the Fed, as both the Treasury Department and HUD suggested, that you put in place regulations that it would curb these emerging abuses in subprime lending, but you didn’t listen to the Treasury Department or Mr. Gramlich. Do you think that was a mistake on your part?

    MR. GREENSPAN: Well, I question the facts of that. He and I had a conversation. I said to him I have my doubts as to whether it would be successful.

    But to understand the process by which decisions are made at the Fed, it’s important to recognize what our lines of responsibility and lines of authority are within the structure of the system. The Fed has an incredibly professional large division that covers consumer and community affairs. It’s got probably the best banking lawyers in the business in the legal department and an outside council of expert professionals to advise on regulatory matters. And what the system actually did was to try to corral all of this ongoing information and to eventually filter it into a subcommittee of the Federal Reserve Board —

    REP. WAXMAN: Dr. Greenspan, I’m going to interrupt you just — the question I have for you is, you had an ideology, you had a belief that free, competitive — and this is your statement — “I do have an ideology. My judgment is that free, competitive markets are by far the unrivaled way to organize economies. We’ve tried regulation. None meaningfully worked.” That was your quote.

    You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price.

    Do you feel that your ideology pushed you to make decisions that you wish you had not made?

    MR. GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology.

    The question is whether it is accurate or not.

    And what I’m saying to you is, yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.

    But if I may, may I just answer the question —

    REP. WAXMAN: You found a flaw in the reality —

    MR. GREENSPAN: Flaw in the model that I perceived as the critical functioning structure that defines how the world works, so to speak.

    REP. WAXMAN: In other words, you found that your view of the world, your ideology was not right. It was not working.

    MR. GREENSPAN: Precisely. That’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

    But just let me, if I may —

    REP. WAXMAN: Well, the problem is that the time has already expired and there are, as you can see, many members.

    (Cross talk.)

    MR. GREENSPAN: The reason basically is this, that Governor Gramlich said to me that he had problems. Indeed I agreed that I had heard very much the same thing. I frankly thought that when our meeting ended that the subcommittee of the board, which supervises all of the various aspects of consumer and community affairs, within the Board of Governors and the Federal Reserve System, would move forward and present to the board, as a whole, recommendations to be made. That was not made. And I presumed at the time that essentially the subcommittee didn’t think it rose to the higher level.

    But just quickly to say that the overall view that I take, of regulation, is that I took a pledge when — I took an oath of office when I became Federal Reserve Chairman. And I recognized that you do with that — what I did is I said that I’m here to uphold the laws of the land, passed by the Congress, not my own predilections.

    And I think you will find that my history is that I voted for virtually every regulatory action that the Federal Reserve Board moved forward on. Indeed I voted with the majority at all times. And I was doing so because I perceived that that was the will of the Congress. And in fact if you go back and look at the record, I felt required by my oath of office to adhere to what I’m supposed to do, not what I’d like to do. And that is my history. And I think the evidence very strongly supports that.
    Skip

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Dave Gray View Post
    I was reading some newsfeed yesterday that stated we may see a recession by 2019 as the Fed increases rates.
    My favorite investment newsletter is arguing for the downturn in 2018, not 2019... and I think he may be right.
    "Fact is that which enough people believe. Truth is determined by how fervently they believe it."
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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Norman Bernstein View Post
    My favorite investment newsletter is arguing for the downturn in 2018, not 2019... and I think he may be right.
    The danger is that it will become a self-fulfilling prophecy if enough people read it.

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    Default Re: Is 'stagflation' coming?

    Skip -- all of that is accurate. He was a huge enabler of the preconditions for the collapse. A victim of both 'irrational exuberance' and faulty ideology.

    Know, however, that he has since recanted, regretted, and irrc even apologized.
    David G
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    "It was a Sunday morning and Goddard gave thanks that there were still places where one could worship in temples not made by human hands." -- L. F. Herreshoff (The Compleat Cruiser)

  13. #13

    Default Re: Is 'stagflation' coming?

    The tax cuts are foolish they are putting money in the wrong hands, that money won't be spent the 1% will just do a Romney with 660 billion, the corporate cuts will go to the shareholders the repatriation money will go to stock buy backs and shareholders, if you were to design a tax cut to remove stimulus it would have been hard to do a better job. The only money the corporations will bring back is money that they have already paid something close to 20% on thus little or no tax liability. I'm not optimistic, as the debt rises social security will be cut I'm 57 and expect to get totally screwed, right now I have to work till 67 to get the whole thing, I'm expecting that will go to 70 and the minimum age will go from 62 to 65 or so. Recession will just add to my problems and yes we're about due.

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Chris Smith porter maine View Post
    The tax cuts are foolish they are putting money in the wrong hands, that money won't be spent the 1% will just do a Romney with 660 billion, the corporate cuts will go to the shareholders the repatriation money will go to stock buy backs and shareholders, if you were to design a tax cut to remove stimulus it would have been hard to do a better job. The only money the corporations will bring back is money that they have already paid something close to 20% on thus little or no tax liability. I'm not optimistic, as the debt rises social security will be cut I'm 57 and expect to get totally screwed, right now I have to work till 67 to get the whole thing, I'm expecting that will go to 70 and the minimum age will go from 62 to 65 or so. Recession will just add to my problems and yes we're about due.
    They'll point to the fact people are living longer, but those longer lives are not going to roofers and bricklayers, they're going to people who make a lot of money without collecting hourly wages. Meanwhile, traditional pensions are disappearing, and working stiffs are becoming more dependent, not less, on Social Security.

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    Default Re: Is 'stagflation' coming?

    It is worth noting that those people who make a lot of money, like top flight execs, have substantial pension plans while the rank and file depend upon IRAs if they can afford to put money in them.

    Am I a nattering nabob of negativism? (excusing the fact I am not a nabob)

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by johnw View Post
    Running high deficits helps only at the bottom of the business cycle, and we're near the top of the cycle right now, which is probably why Greenspan is worried about inflation. Increasing debt at this point will make it harder to deal with the next downturn.

    Basically, it's class warfare by those who own the companies against those who work for them.
    There is about an increase of $8.5 trillion to the baseline debt over the next 10 years without any tax changes. It is a bit disingenuous to complain about the debt increase due to the proposed tax plan without looking back at the last 8 years of accepting the debt increase projections.

    I think the class warfare is between the top 1% and the 19% below them who think they are entitled to be in the 1%.

    They'll point to the fact people are living longer, but those longer lives are not going to roofers and bricklayers, they're going to people who make a lot of money without collecting hourly wages. Meanwhile, traditional pensions are disappearing, and working stiffs are becoming more dependent, not less, on Social Security.
    I was told that Social Security is not a welfare program. Those in the 19% below the 1% (as well as many of the 1%) are willing to fight for their right to Social Security benefits. But I don't see much interest in providing more Social Security benefits for those who really need them.
    Last edited by Too Little Time; 12-07-2017 at 06:51 PM.
    Life is complex.

  17. #17

    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Too Little Time View Post
    There is about an increase of $8.5 trillion to the baseline debt over the next 10 years without any tax changes. It is a bit disingenuous to complain about the debt increase due to the proposed tax plan without looking back at the last 8 years of accepting the debt increase projections.

    I think the class warfare is between the top 1% and the 19% below them who think they are entitled to be in the 1%.
    So you have a problem with the last ten years, but are good with this redistribution, I believe when there is a huge wealth gap and growing you tax those whose wealth is growing, not those loosing ground.

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Chris Smith porter maine View Post
    So you have a problem with the last ten years, but are good with this redistribution, I believe when there is a huge wealth gap and growing, You tax those whose wealth is growing, not those loosing ground.
    Actually I was pointing out that people who have no problem with the $8.5 trillion in debt increase seem to have a problem with $1.5 trillion more. Personally, I would like a debt free country. But I do have a problem - not only with the last 10 years, but the last 40 years on economic issues and the last 60 years on civil rights issues.

    I agree we should be taxing the rich a lot more. Enough so their taxes will pay off the debt. But that is not what the rich passing as the middle class want. They only want to close the gap between themselves and the rich.
    Life is complex.

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    Default Re: Is 'stagflation' coming?

    There's already evidence enough in financial data to see the next likely recession coming sometime from mid 2018 to late 2019. When and how depends on what damage Trump and the republicans do before then. They could easily precipitate it much sooner by shutting down the government or defaulting on the debt ceiling.

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Corvida View Post
    There's already evidence enough in financial data to see the next likely recession coming sometime from mid 2018 to late 2019. When and how depends on what damage Trump and the republicans do before then. They could easily precipitate it much sooner by shutting down the government or defaulting on the debt ceiling.
    I am sure you have as good of history of predicting recessions as anyone else. I think the phrase goes something like: He predicted 10 of the last 6 recessions.
    Life is complex.

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Too Little Time View Post
    I am sure you have as good of history of predicting recessions as anyone else. I think the phrase goes something like: He predicted 10 of the last 6 recessions.
    What Paul Samuelson actually said was that "The stock market has forecast nine of the last five recessions."

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    Default Re: Is 'stagflation' coming?

    There are people 'round here... living on my ignore list... who sometimes get quoted. And oftimes a phrase springs to mind: knows just enough to be dangerous. Of course... that's on a good day.
    David G
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    "It was a Sunday morning and Goddard gave thanks that there were still places where one could worship in temples not made by human hands." -- L. F. Herreshoff (The Compleat Cruiser)

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by David G View Post
    There are people 'round here... living on my ignore list... who sometimes get quoted. And oftimes a phrase springs to mind: knows just enough to be dangerous. Of course... that's on a good day.
    What comes to my mind more often is, "a little knowledge is an embarrassing thing."

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by johnw View Post
    What Paul Samuelson actually said was that "The stock market has forecast nine of the last five recessions."
    I was not quoting Samuelson. I was paraphrasing people who have made similar comments about various pundits.

    You might notice that the stock market makes no forecasts. It simply reports the prices buyers and sellers agree on. I am sure that Samuelson was aware of that and was either commenting on pundits or perhaps his own model.

    Greenspan seems to have real problem in forecasting. The Fed has is having a great deal of difficulty in getting inflation up. Yet, a minor change the tax situation of most people and a minor change in the debt is going to lead to runaway inflation. If I made forecasts, I would disagree.

    I had thought that employment had reached pre 2008 levels, but today I read that different statistics indicate we are still 2 million jobs short. I guess we can all find data to support whatever we want.
    Life is complex.

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by David G View Post
    Greenspan comments on the results of the Republican tax plan --

    https://www.yahoo.com/finance/video/...150300893.html
    No.

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    Default Re: Is 'stagflation' coming?

    Quote Originally Posted by Gill View Post
    No.
    Yes. Maybe. Never. Absolutely.
    David G
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    "It was a Sunday morning and Goddard gave thanks that there were still places where one could worship in temples not made by human hands." -- L. F. Herreshoff (The Compleat Cruiser)

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