I think even the central bankers would agree that they're flailing about, trying to find some way to keep things from just melting down.
I just said that I didn't think they were insane (which had pretty much been my position for the past year or so).
Inflation versus depression is, of course, the key. Personally, I don't think your scenario (depression and then inflation) is the most likely; I'm more concerned that we'll have inflation first (wiping out the value of the money) and then a depression (ruining anyone who hasn't already been ruined). If we have the depression first, I think the inflation scenario becomes much less likely. (There was some inflation after the great depression, but not hyperinflation.)
The actual mechanics of what's going on are very interesting. The Fed is creating reserves at a breathtaking pace, but (so far) that has not translated into much growth of the money supply--because the banks have been refusing to lend the money. (And with good reasons--they're broke and so are most other financial institutions.) The result is that there's just no way to know whether we're going to see things tip toward recession or inflation.
My take, looking at the most recent numbers, is that just now we're tipping away from inflation. It could go back that way--I've been expecting it to for months now--but so far it's not.
Why do people persist in thinking that the government, the Fed and the central bankers know what they're doing?
They don't. We are in uncharted waters. The government, the Fed and central bankers have lost control and are desperate. They are close to being out of bullets.
With injections of liquidity and the manufacture of dollars out thin air on a scale unknown in history, something will have to give. The result will be inflation. Inflation happens when too many dollars chase too few goods and services.
Wish my parents had read this article when raising me. Money was a taboo subject and I never had a budget or allowance. When I needed money I went to them and they gave it to me. Not a good way to be raised. I had my own issues when I got to college and there were so many credit card offers. Oy Vey! Now I'm much more in control and I will talk about money with my mom but my dad still won't open up about money matters. His parents never talked money, their parents never talked money, etc etc. I'm glad I will break that way of thinking when I have a child.
Moreover, it was far from obvious that bubbles, even if identified early, could be preempted short of the central bank inducing a substantial contraction in economic activity--the very outcome we would be seeking to avoid.
In this one he talks about why housing bubbles are very unlikely (insert wry grin here):
I expect we'll see central bankers in the future willing to do some experimenting--trying for a slight contraction at the risk of a substantial one, in the hopes of avoiding a catastrophe.
Get rid of your TV. I still have one, but that is for DVDs. I save a bunch of money from not having a cable bill; I get to write my blog, and I can pursue other life dreams. Life really opens up. Besides TV really drains creativity, actions and general appreciation of what life can offer. Ditch it!!!
Excellent article. Involve them also in the process of why people work (for money), and how the parent's efforts directly help their kids. Gratitude is an important outcome that kids can learn and develop a healthy attitude from. -Lee from www.cheaplee.com
I just bought the converter for my parents from Walmarts and the antenna is old. They say they are not getting very many channels and they hate that they have two remotes. They have to turn the TV on with the TV remote and it also controls the Volume. The converter remote has to be turned on with the converter remote and also it controls the channels. They are 84 & 83 so this is very confusing to them. How did you get the one remote to work. I need to do this for them, plus what kind of antenna did you buy so they can get more channels.....
Thanks
Nancy
When Greenspan made his infamous irrational exuberance remark, I thought the stock market was out of control and I applauded Greenspan for pointing it out. But the fallout from that remark was so severe that I think it spooked Greenspan because I noticed ever since then that he would never speak negatively about the economy. I wasn't surprised when he ignored the housing bubble. In fact I think he intentionally created it with his rate cuts post-Sept 11. The stock market had dropped considerably and I think he was trying to stimulate the economy through real estate. Many renters decided to buy homes for the first time in 2002 because mortgage rates were at 50 year lows. I was one of those 1st time homebuyers and the low rates were the #1 reason I decided to buy (luckily I sold in 2007 and I had bought a home I could afford in the first place so I did pretty well).
To be fair I absolutely do not think Greeenspan intended to create the economic disaster we're experiencing. But he tried to fix the crash of the tech stock bubble with a housing bubble. I agree with you that it can be hard to spot a bubble and you may do more harm than good by raising interest rates at the wrong time. But if you looked at graphs for home prices it was obvious by 2006 that there was a huge bubble.
I wasn't aware that Greenspan thought letting a bubble burst was as effective as trying to keep it from getting too big. I always learn something new from you!
Let's go back to the idea of false economy and cost/benefit analysis. I suppose you could say that I am listing my priorities and you'd be right. But, for the most part (with the exception of the $4.99 purchase of 360 brand wine at Whole Foods every other month, for example), I have done a cost/benefit analysis of my purchases and made a decision about which I thought was best.
The car comment (thank you) brings an example from corporate America regarding false economy. I would love to still be driving my Ford Escort rather than my 2002 Corolla. But Ford made the decision to save $2 (or was it $1.50?) on a part that, as it aged, caused the engine to stop at very inconvenient and seemingly random times, such as when I was driving 60 mph down the highway. My mechanic couldn't diagnose the problem so I decided to donate my car to charity (the value by then was about $500) and get a new one. A few months later, this cost-savings move came to light: see NYT article: Judge Orders Ford to Make Huge Recall.
So, when I talk about what I won't give up just to save money, it is in light of this cost-benefit analysis and the idea of false economy (rather than pure indulgence), which I didn't realize was so foreign to some readers.
Have I witnessed crisis? Perhaps not on such grand a scale as we might be experiencing but I do remember gas rationing in the 70s (hence my purchase of fuel-efficient cars and love of bicycles) and I graduated from college in 1982, when the unemployment rate was 10% in my state. I went to work for a small-town-based regional bank, that was one of First Union's (now Wachovia) acquisitions. I did see the housing market falter because of this hit to the local economy. So I do know that housing can be an investment that doesn't rise in value. I also see that sometimes spending money can reap benefits.
Please execuse the spelling i am only 13.Just google "internal antenas"(spelled correctly) and you should find a stiker that goes in your phone that you can buy for a reasonable price. Enjoy and keep hacking!
Greenspan (who no longer looks so clever as he did for most of the past 20 years) decided that there's just no way to know when you're in a bubble until it pops. Further, he decided that bubbles aren't so bad: That it works well enough to just wait for the bubble to pop in its own and then clean up afterwards.
That strategy isn't looking so good just now.
Of course, popping bubles early isn't going to be popular with the people who've invested in whatever was going up. Worse, even if it's not impossible to spot a bubble, it's not trivially easy either. If you just raise rates anytime things seem to be going good, you're sometimes going to squelch perfectly sound business activity.
So, it's not easy, but I think the next generation of central bankers will do better than Greenspan.
This post is awesome! I've had a bag of red lentils in my pantry for a while and have been trying to figure out what to do with them..I"m seriously considering the Jamaican stew.
Great article and comes at a pretty good time. We as parents need to take the steps to teach our kids about money.
Who knows what the future is going to look like but if we can teach our kids to be financially frugal they will have a chance becoming financially independent.
I've spent so much cash playing this addicting game, thinking that i was getting so close but now i realize its all bs! So to make a statement i took a poop on a monopoly board and left it on the front steps of my mcds.
Thanks for the great advice. We are teaching our son about money right now. It's a great experience for all involved. We do give him an allowance, since I hate to pay him for chores he should be doing as part of a family. But he's only 6 right now. As he gets older, we'll have extra jobs for him to do so that he can earn money.
In the end, I think that the important thing is that you teach your kids how to save and spend their money wisely.
... they know what they are doing, a lot of people are putting a lot of confidence in their decisions and if the trust is misplaced then they are going to struggle to regain confidence in the economy. Lets hope they do know and things will all get better sooner rather than later as I am not sure how many people at the bottom end can sustain living on the money they make.
I have been watching the Fed's rate cuts over the last 10 years with concern. It seems like their response to every downturn in the market is to print more money. But since China was pegging their currency to the dollar, now matter how low the dollar fell, it would always be cheaper to import from China.
In 2004-5, when home prices got really out of control, it was obvious to me that there was a serious housing bubble. I thought if the Fed raised interest rates, maybe the housing market would cool down without an economic disaster such as we're now experiencing. They did raise rates a few times, but any time the market dipped, they'd cut rates again. But I'm not an economist. Do you think there is any validity to the idea that the Fed could have done something to deflate the housing bubble before it got so huge?
That's an awesome looking recipe. I can see how people using the brown lentils would completely change the outcome though, as you said. The red ones really do add some more color. The yellow ones are quite attractive too.
I think even the central bankers would agree that they're flailing about, trying to find some way to keep things from just melting down.
I just said that I didn't think they were insane (which had pretty much been my position for the past year or so).
Inflation versus depression is, of course, the key. Personally, I don't think your scenario (depression and then inflation) is the most likely; I'm more concerned that we'll have inflation first (wiping out the value of the money) and then a depression (ruining anyone who hasn't already been ruined). If we have the depression first, I think the inflation scenario becomes much less likely. (There was some inflation after the great depression, but not hyperinflation.)
The actual mechanics of what's going on are very interesting. The Fed is creating reserves at a breathtaking pace, but (so far) that has not translated into much growth of the money supply--because the banks have been refusing to lend the money. (And with good reasons--they're broke and so are most other financial institutions.) The result is that there's just no way to know whether we're going to see things tip toward recession or inflation.
My take, looking at the most recent numbers, is that just now we're tipping away from inflation. It could go back that way--I've been expecting it to for months now--but so far it's not.
That's the point of this article.
Some "homeowners" paid $3 for houses worth $1 ; stocks, ETF
Why do people persist in thinking that the government, the Fed and the central bankers know what they're doing?
They don't. We are in uncharted waters. The government, the Fed and central bankers have lost control and are desperate. They are close to being out of bullets.
With injections of liquidity and the manufacture of dollars out thin air on a scale unknown in history, something will have to give. The result will be inflation. Inflation happens when too many dollars chase too few goods and services.
Think Wiemar Republic.
1st Depression then runaway Inflation.
Don't think it can't happen.
Wish my parents had read this article when raising me. Money was a taboo subject and I never had a budget or allowance. When I needed money I went to them and they gave it to me. Not a good way to be raised. I had my own issues when I got to college and there were so many credit card offers. Oy Vey! Now I'm much more in control and I will talk about money with my mom but my dad still won't open up about money matters. His parents never talked money, their parents never talked money, etc etc. I'm glad I will break that way of thinking when I have a child.
you nerds have no life
Here are a couple of speeches where Greenspan talks about bubbles:
http://www.federalreserve.gov/boarddocs/speeches/2002/20020830/
One of the things he says is:
In this one he talks about why housing bubbles are very unlikely (insert wry grin here):
http://www.federalreserve.gov/BoardDocs/Speeches/2004/20041019/
I expect we'll see central bankers in the future willing to do some experimenting--trying for a slight contraction at the risk of a substantial one, in the hopes of avoiding a catastrophe.
I only had a few lentil recipes and am so excited to try the spreads and patties! Yay! :D
If I didn't have a 3 year old, we would have a lentil week.
Get rid of your TV. I still have one, but that is for DVDs. I save a bunch of money from not having a cable bill; I get to write my blog, and I can pursue other life dreams. Life really opens up. Besides TV really drains creativity, actions and general appreciation of what life can offer. Ditch it!!!
-Lee from www.cheaplee.com
Excellent article. Involve them also in the process of why people work (for money), and how the parent's efforts directly help their kids. Gratitude is an important outcome that kids can learn and develop a healthy attitude from. -Lee from www.cheaplee.com
I just bought the converter for my parents from Walmarts and the antenna is old. They say they are not getting very many channels and they hate that they have two remotes. They have to turn the TV on with the TV remote and it also controls the Volume. The converter remote has to be turned on with the converter remote and also it controls the channels. They are 84 & 83 so this is very confusing to them. How did you get the one remote to work. I need to do this for them, plus what kind of antenna did you buy so they can get more channels.....
Thanks
Nancy
When Greenspan made his infamous irrational exuberance remark, I thought the stock market was out of control and I applauded Greenspan for pointing it out. But the fallout from that remark was so severe that I think it spooked Greenspan because I noticed ever since then that he would never speak negatively about the economy. I wasn't surprised when he ignored the housing bubble. In fact I think he intentionally created it with his rate cuts post-Sept 11. The stock market had dropped considerably and I think he was trying to stimulate the economy through real estate. Many renters decided to buy homes for the first time in 2002 because mortgage rates were at 50 year lows. I was one of those 1st time homebuyers and the low rates were the #1 reason I decided to buy (luckily I sold in 2007 and I had bought a home I could afford in the first place so I did pretty well).
To be fair I absolutely do not think Greeenspan intended to create the economic disaster we're experiencing. But he tried to fix the crash of the tech stock bubble with a housing bubble. I agree with you that it can be hard to spot a bubble and you may do more harm than good by raising interest rates at the wrong time. But if you looked at graphs for home prices it was obvious by 2006 that there was a huge bubble.
I wasn't aware that Greenspan thought letting a bubble burst was as effective as trying to keep it from getting too big. I always learn something new from you!
You know, the Jamaican one is calling to me too. I'm such a coconut hound . . .
Let's go back to the idea of false economy and cost/benefit analysis. I suppose you could say that I am listing my priorities and you'd be right. But, for the most part (with the exception of the $4.99 purchase of 360 brand wine at Whole Foods every other month, for example), I have done a cost/benefit analysis of my purchases and made a decision about which I thought was best.
The car comment (thank you) brings an example from corporate America regarding false economy. I would love to still be driving my Ford Escort rather than my 2002 Corolla. But Ford made the decision to save $2 (or was it $1.50?) on a part that, as it aged, caused the engine to stop at very inconvenient and seemingly random times, such as when I was driving 60 mph down the highway. My mechanic couldn't diagnose the problem so I decided to donate my car to charity (the value by then was about $500) and get a new one. A few months later, this cost-savings move came to light: see NYT article: Judge Orders Ford to Make Huge Recall.
So, when I talk about what I won't give up just to save money, it is in light of this cost-benefit analysis and the idea of false economy (rather than pure indulgence), which I didn't realize was so foreign to some readers.
Have I witnessed crisis? Perhaps not on such grand a scale as we might be experiencing but I do remember gas rationing in the 70s (hence my purchase of fuel-efficient cars and love of bicycles) and I graduated from college in 1982, when the unemployment rate was 10% in my state. I went to work for a small-town-based regional bank, that was one of First Union's (now Wachovia) acquisitions. I did see the housing market falter because of this hit to the local economy. So I do know that housing can be an investment that doesn't rise in value. I also see that sometimes spending money can reap benefits.
Please execuse the spelling i am only 13.Just google "internal antenas"(spelled correctly) and you should find a stiker that goes in your phone that you can buy for a reasonable price. Enjoy and keep hacking!
@ tightwadfan:
Greenspan (who no longer looks so clever as he did for most of the past 20 years) decided that there's just no way to know when you're in a bubble until it pops. Further, he decided that bubbles aren't so bad: That it works well enough to just wait for the bubble to pop in its own and then clean up afterwards.
That strategy isn't looking so good just now.
Of course, popping bubles early isn't going to be popular with the people who've invested in whatever was going up. Worse, even if it's not impossible to spot a bubble, it's not trivially easy either. If you just raise rates anytime things seem to be going good, you're sometimes going to squelch perfectly sound business activity.
So, it's not easy, but I think the next generation of central bankers will do better than Greenspan.
This post is awesome! I've had a bag of red lentils in my pantry for a while and have been trying to figure out what to do with them..I"m seriously considering the Jamaican stew.
How do you feel about stealing money from your child's piggy bank and saving account?
That's the way I was raised, anyhow.
Yeah, we're all hoping that the central bankers are getting it right.
I don't have much confidence that they'll get it right, but I am at least no longer worried that they're insane.
Great article and comes at a pretty good time. We as parents need to take the steps to teach our kids about money.
Who knows what the future is going to look like but if we can teach our kids to be financially frugal they will have a chance becoming financially independent.
I've spent so much cash playing this addicting game, thinking that i was getting so close but now i realize its all bs! So to make a statement i took a poop on a monopoly board and left it on the front steps of my mcds.
Thanks for the great advice. We are teaching our son about money right now. It's a great experience for all involved. We do give him an allowance, since I hate to pay him for chores he should be doing as part of a family. But he's only 6 right now. As he gets older, we'll have extra jobs for him to do so that he can earn money.
In the end, I think that the important thing is that you teach your kids how to save and spend their money wisely.
Here is another free code that everybody can use one time ... WN100KADAY
... they know what they are doing, a lot of people are putting a lot of confidence in their decisions and if the trust is misplaced then they are going to struggle to regain confidence in the economy. Lets hope they do know and things will all get better sooner rather than later as I am not sure how many people at the bottom end can sustain living on the money they make.
I have been watching the Fed's rate cuts over the last 10 years with concern. It seems like their response to every downturn in the market is to print more money. But since China was pegging their currency to the dollar, now matter how low the dollar fell, it would always be cheaper to import from China.
In 2004-5, when home prices got really out of control, it was obvious to me that there was a serious housing bubble. I thought if the Fed raised interest rates, maybe the housing market would cool down without an economic disaster such as we're now experiencing. They did raise rates a few times, but any time the market dipped, they'd cut rates again. But I'm not an economist. Do you think there is any validity to the idea that the Fed could have done something to deflate the housing bubble before it got so huge?
That's an awesome looking recipe. I can see how people using the brown lentils would completely change the outcome though, as you said. The red ones really do add some more color. The yellow ones are quite attractive too.