Tuesday, October 26, 2010

El-Erian: Federal Reserve 'Terrified' of Deflation

PIMCO head El-Erian was interviewed by CNBC today and is predicting that the Fed will commence with QE2 starting next week because the Fed is 'terrified' of deflation.

Interesting excerpt:

"QE is meant to drive down the price of safe assets so much that we are all pushed into doing something risky," El-Erian said in an interview Monday at a gathering of the Financial Women’s Association of New York."

I view the goal of QE as to increase the price of 'safe' or, risk-free, assets in order to lower the term structure of interest rates, here El-Erian has QE lowering bond prices. Maybe he misspoke, and the CNBC editor didn't catch it.

Although.....PIMCO was a contracted agent of the FRBNY during 'QE1'. Maybe this is what they really did during the first round, as ever since QE1 was over in April of this year, interest rates have fallen significantly!

Do any of these people know what the h they are doing?


Anonymous said...

QE is all about sticking it to China.

mike norman said...

Yeah, he must have misspoke. I can't believe he wouldn't be able to understand that. They're driving up the price of the asset and bringing the return in terms of its yield, way down.

googleheim said...

Here is a sidewinder :

sugar and oil are definitely subsidized somehow

yet the deflation is very attractive for those who do not want free trade

if prices are high on commodities, then everyone wants free trade to make more money

if prices are low, nobody wants any price dumping and so are protectionist

it's a mixed model after all

Ryan Harris said...
This comment has been removed by the author.
googleheim said...

Talking about Tsunamis.

We faded Schiff on his "get out of USA / U$D" two-bit scenario and we rode the dollar to the spike it had while Schiff and his Euro basket was a basket case etched in pounds of pebbles.

Schiff still will not come forward and explicitly show what his losses were to his Pacifica fund.

Gold run up is a true fact of incorrect logic just like interest rates being set or currencies

The Euro is artificially high for one reason - so that McDonalds & Coke and bring home to USA big profits from expensive crap sold in europe. USA don't want to be stronger than Euro for export reasons.

Forget it, the Schiff hit the fan.

Bob said...

A rant in general about current events and Carl.

response CARL,
Sounds like your angry.
I,m angry too,about getting ripped off by our govt., who could have reigned in Wall Street, but did not. I find the best way to put your anger to a positive use is to get educated about how the system works. Use this education to collect information which in turn permits a positive action to fight the rip off. Mike Norman is one of the best educators of how the system works, and instead of letting anger cloud your view, you should give him a listen.

Education used in the wrong way can be disastrous. The Nazis did this so well when the cultivated a generation of brainwashed tea bagger youths who followed the doctrine of Hitler ,a corporal of German Army.
Sounds like your overweight Gold,
I hope it works out for you. Schiff nor Mike nor anyone else is God, and all have short comings.
It's not about who's right or wrong, its about timing of your position. I happen to subscribe to the daily chart of DX (USD) which shows a head and shoulders pattern. If this patterns continues than within a month or so the USD (DX) will rise to about 80 to 81 and than fall off a cliff. So Carl when the USD rises your Gold trade is in the hurt locker, and when the USD drops you are a happy camper.

A note about the primary dealers interaction with the Fed. Yesterday the Fed sought responses from Primary Dealers, and the top four would like to see 1+ trillion over 12 months. Now we will see next week if the fed is truly independent ( I think not, but what are the alternatives to the present system in the short term?)I think the Fed's public statement of seeking opinions is moot. This statement is a publicity act to take the negative public opinion pressure off of the organization. Most of the average taxpaying citizens (which I describe myself as one), would like to see the Fed. audited by a truly outside independent firm, and provide the results via an open source on the internet free of any preview by the congress or presidents men. The people always get stuck with the bill, this sucks. Now corporations are flush with cash, the govt workers and ceo's continue to flourish with status quo, at the expense of local govts and shareholders, and the 401 K ponzi scheme is alive and well. What good is it to build up a nest egg to have it robbed by wall street and the very corporations that implemented the 401k. The corporations avoid pensions and benefits to workers, and try to put off all the liablilities on its workers, and now they contribute to US elections unencumbered by US laws. Ralph Nader said it right THE UNITED CORPORATIONS OF AMERICA, and lets have a drink to the health of the Mayor of Baghdad--- George Bush, and here is to the Black Bush-- Obama-- who learned everyting he knows from Slick Willie Clinton and Summers, I just voted yesterday and I will tell you I voted any alternative to Rep. and Demo. I hope we dump the status quo.

welfarewarfare state said...

Mike asked, "Do any of any of these peole know what they are doing?" Answer:no, at least no more than Mr. Norman does.

welfarewarfare state said...


Businesses offer pensions and benefits to workers only because they have to compete for skilled labor. The more productive the labor, the more benefits that will be offered. An exception to this would be unionized government workers who receive pay based on political pull rather than merit or productivity.

A benefit or a pension isn't a right--that's absurd. It has never been out of the kindness of their hearts that business owners offered high pay or benefits. The reason that we have seen a reduction and will continue to see less benefits and pay is because American workers are less productive than they used to be. Leftis alwasy want the effect (wealth creation, high wages, production) without understanding the causes: savings, capital investment, private property rights, etc.

As to your point about the individuals who own businesses being allowed to buy political advertisements, I would point out that Democrats by a wide magin received more corporate cash in the 2006 and 2008 election cycles. Even this year when it is apparent that there will be a Republican landslide, the Democrats have received 54% of the corporate cash plus trial lawyer and public-sector union money. The top five recipients of corporate cash this year were all Democrats with Sen. Harry Reid leading the way.

Bob said...

welfare state,

Corporations are not people. The law wants to treat them like people. This should be changed.

Business management, Private or Public, have to act in their self interests to survive. They have the tendency to co-opt our govt., use everything in their power, moral or not, legal or not, to insure the top few holders get the lion share of the gold. Investors want gold and to hell with the consequences.

Labor unions also can become an enemy of the workers, but for the most part they provide benefits and security to a worker and his family. Unions tend to protect against the shysters of business management who sell the company out from underneath the employees.Unions can be beneficial to business, as the management doesn't have to have an employment dept., they don’t have to train employees, they don’t have to provide benefits directly, they only need to contract for the required labor.

When the major holders of any company public or private get too much power this is not good.

Same goes for unions who represent labor.

Government should be the enemy of both labor and business. When Government is the enemy of both labor and private business, it shrinks.
When Government gets too cozy with labor, the inmates take charge of the asylum, and you become a Marxist society, where incentive to work harder to get more is gone.

When business management gets too cozy with Govt. this combination can cause wars, and destruction of countries.
Italian Fascism and most other fascist movements promote a corporatist economy whereby, in theory, representatives of capital and labor interest groups work together within sectoral corporations to create both harmonious labor relations and maximization of production that would serve the national interest.
AKA Mussolini, Mr. Fascist himself.

I want to see a tug of war between government, labor and private business management.
This has worked for us so far.

About every 20 years management screws labor, than the next 20 years labor screw management.

My beef is the recent lack of checks and balances, and the lack of justice to be doled out to the asset shufflers. There has been no cop on the block, and I noticed this especially when COX took over the SEC. This power shift to Wall Street and corps. recently has hurt the American people.
“You Betcha” Hank the stank Paulsen with his 3 page IOU for Tarp was outrageous.

The republicans are full of crap. The democrats are full of crap. The two party systems have become co-opted by corporations at this time in the cycle of labor versus management. This cozy relationship if goes unchecked will hurt the US people.
It can turn into a fascist govt.

Capitalism is supposed to reward ALL INVESTORS, not just the vital few. We don’t have capitalism now and we are leaning very close to fascism. The next step is the Tea bagger brainwash edumaction regime. After a fresh generation of brainwashed corporate youths, you will get a Hitler.

When media hyped idiot Sarah Palin gets the time of day, or when Obama (2yr senator with no business experience gets a shot), I have lost faith in the system. Obama wasn’t ready, too inexperienced or he would have seen how screwed up Summers was.

America is the great experiment the world wants to copy.

But I say this, unless a true cop with true justice is re-established, we as a country are in trouble.

I think a flat tax, term limitations, and elimination of the lobbyists, and prohibition of campaign funds by corporations should be implemented. Also eliminate the payroll tax, and for a trust to close down the TBTF's.
Check out Professor Black of Missouri. He's been around.