Q.E. III To Infinity and Beyond... 

Goldman Fires The Second Shot Across The QE3 Bow: "Successful Fiscal Consolidation Needs Monetary Policy Help" 

Submitted by Tyler Durden on 05/13/2011 21:02 -0400

Yesterday, when we presented the Bloomberg interview of Princeton economist and former Fed vice chairman Alan Blinder, we speculated that his statement that "more easing is necessary" was the first shot across the QE3 bow. Today, Goldman's Sven Jari Stehn has fired the second one in a paper just released titled: "Fiscal Adjustment without Fed Easing: A Tall Order" in which he basically takes our conclusion from the Blinder interview to the next level. As Blinder said previously, in order to improve the once again deteriorating labor picture, more fiscal stimulus would be necessary. That, however, is impossible, especially in a Congress where everyone is now promising $4 trillion of deficit cuts over the next few years. The only difference is how this cutting will be achieved: republicans want spending cuts, while democrats are demanding tax hikes for the richest. While neither approach will work in the US without the shock of a bond-crash induced austerity, Goldman conducts an thought experiment in which it evaluates the effectiveness of a tax-based and a spending-based fiscal consolidation. While finding that on average spending based deficit reduction is more effective, it only truly works in parallel with assistance from monetary policy: be it an interest rate decrease (impossible due to ZIRP) or further Large Scale Asset Purchase (QE) program. In other words, the only thing that can prevent an economic contraction in the next 2 years of semi-austerity, will be more monetary easing.

Winning in the Hyperinflation/Deflation War
By: Deepcaster





Market Is Missing Big Picture On Inflation Threat: El-Erian

Gold and silver snapped up by bullish Indians

 

 

Griffiths, Yamada offer sky-high gold, silver predictions at King World News

 

Guest Post: The Gold-Silver Ratio – Another Look

The gold-silver ratio (GSR) measures how many ounces of silver one can purchase for an ounce of gold, on a certain date. Reference to the ratio has a long history. One of the first mentions was that upon the death of Alexander the Great, the ratio was 12.5 to 1. During the Roman Empire, the ratio was set at 12. By the late 19th century, the ratio had risen to 15. Interestingly, these historical ratios roughly reflect geologists’ estimates that silver is 17 times more abundant than gold in the earth’s crust. This gives many investors a reason to believe that 17 is the natural balance between these elements, and that eventually the GSR will return to it. Monitoring the GSR is quite popular among gold and silver investors. It seems that whenever it makes a big move, many start drawing conclusions about the direction of the prices of its underlying metals. 

 

 

 

 

Richard Koo's "The World In Balance Sheet Recession" Revised, And The Japanese Electricity Shortfall Quandary 

Submitted by Tyler Durden on 05/13/2011 17:15 -0400

Some version of the latest Richard Koo presentation has already circulated in some form or another. The only addition to the core section (which as usual can be summarized with two words: "spend more") is Koo's take on recent developments in Japan, one of which focuses on the historical trade balance in Japan, and the second, far more important one, looks at an issue few have discussed: the role of electricity supply in a post-earthquake Japan. As Koo says, "electricity supply is the bottleneck for Japan's GDP recovery." Indeed, we have yet to hear anyone from Wall Street's rainbow and unicorn drinking brigade come up with an explanation for how this will be circumvented, especially over the summer when the Japanese government predicts a nearly 20% shortfall in electrical supply. And if Japan were to go the alternative route, how long before the current supply/demand equilibrium point in oil and nattie moves materially higher? As for the broader economic impact from the earthquake which is a double whammy, as Koo points, Japanese industrial production has now fallen to the level of 1987. And Wall Street "economists" still believe 2011 global GDP will be unchanged?

 

John Embry discusses gold and silver with James Turk. Don't miss Embry's comments on the gold to silver ratio (starting 4 minutes into the interview), and about the prospects for hyperinflation, (starting about 10 minutes in).

Social Security deficits now ‘permanent’



Foreclosures Crush Home Prices


 
Reports of Mortgage Fraud Reach Record Level



Stocks Fall as European Financial Crisis Expands

 


Asian Markets Subdued on US Mixed Signals 


 
Stocks Edge Higher as Commodity Slide Eases