Between 2008 and 2014, the Federal Reserve printed more than $3.5 trillion in new bills. To put that in perspective, it’s roughly triple the amount of money that the Fed created in its first 95 years of existence. Three centuries’ worth of growth in the money supply was crammed into a few short years. The money poured through the veins of the financial system and stoked demand for assets like stocks, corporate debt and commercial real estate bonds, driving up prices across markets. Hoenig was the one Fed leader who voted consistently against this course of action, starting in 2010. In doing so, he pitted himself against the Fed’s powerful chair at the time, Ben Bernanke, who was widely regarded as a hero for the ambitious rescue plans he designed and oversaw.

Hoenig lost his fight. Throughout 2010, the FOMC votes were routinely 11 against one, with Hoenig being the one. He retired from the Fed in late 2011, and after that, a reputation hardened around Hoenig as the man who got it wrong. He is remembered as something like a cranky Old Testament prophet who warned incessantly, and incorrectly, about one thing: the threat of coming inflation.

But this version of history isn’t true. While Hoenig was concerned about inflation, that isn’t what solely what drove him to lodge his string of dissents. The historical record shows that Hoenig was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else. He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system.

On all of these points, Hoenig was correct. And on all of these points, he was ignored. We are now living in a world that Hoenig warned about.

The Fed is now in a vise. Inflation is rising faster than the Fed believed it would even a few months ago, with higher prices for gas, goods and automobiles being fueled by the Fed’s unprecedented money printing programs. This comes after years of the Fed steadily pumping up the price of assets like stocks and bonds through its zero-percent interest rates and quantitative easing during and after Hoenig’s time on the FOMC. To respond to rising inflation, the Fed has signaled that it will start hiking interest rates next year. But if that happens, there is every reason to expect that it will cause stock and bond markets to fall, perhaps precipitously, or even cause a recession.

“There is no painless solution,” Hoenig said in a recent interview. “It’s going to be difficult. And the longer you wait the more painful it will end up being.”

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43688785)

which, tbf would be the economy given the banks would blow up

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43688857)

the cat is out of the bag with the money printing. They need to actually crush the balance sheet of the fed (rates would rise as a result, but more as a byproduct).

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689065)

This phenomenon of moving production to the cheapest location didn't exist in the late 70s, nor are unions remotely as powerful now as they were then. So US wages can only go so high since we're competing with Indonesians, and if Americans only have so much to spend, then consumer prices can only rise so high.

Efficiencies cased by things like Amazon.com and Walmart also didn't exist in the late 70s. People had to pay what their local grocery store charged.

So I think we could get inflation under control with much, much lower rates than Volcker had to resort to in the early 80s.

More importantly than what I think, the 10 year bond yields show that the bond market thinks that.

https://www.cnbc.com/quotes/US10Y

No one would be buying 10 year bonds yielding less than 1.5% if the smart money doubted the Fed can and will get inflation under control.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689075)

and I just went on the walmart site and ordered prescription vision swimming googles for $11...they will be here today, a week later...

both harnessing cheap asian labor via the internet and super efficient shipping...massively deflationary

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689088)

https://ourworldindata.org/grapher/average-corn-yields-in-the-united-states-1866-2014

Transportation and shipping has also gotten more efficient- everything has. That Mexican roofing your house has a nail gun, not a hammer.

With all these increases in efficiency, it's real small-brain thinking to contend we can go back to the late 70s, much less the Weimar Republic. An acre of crop land yields 5x what it did during the Great Depression.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689111)

Speaking of fertilizer, did you know a big input is nat gas prices. Do you want to know whats going to happen to fertilizer prices next year? Don't you think that will flow into crop prices?

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689150)

2. If you look at inflation and the damage it can cause, its mostly driven by higher housing costs, higher food costs, higher raw material inputs and logistics issues. Only that last one can be improved upon by globalization.

Housing is local.

Food is mostly regional, and to the extent that it is global, production is already occuring in the lowest cost parts of the world.

Raw materials prices are driven by scarcity of easily accessible materials and a lack of capital invest driven by climate policy. Neither of these can be changed by technology or globalization. The oil and copper markets are already globalized. Short of new inventions for extraction you have no more tailwinds on that front.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689136)

https://mishtalk.com/economics/lacy-hunt-on-debt-and-friedmans-famous-quote-regarding-inflation-and-money

His bond purchases, and those of many others like him, are informed by this view that deflation is more likely, not by a belief that the Fed will distort the bond market indefinitely.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689161)

Doesn't mean that Hunt is necessarily correct, of course, but it's wrong to say bond yields are so low because the smart money thinks the Fed will fix the market.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689179)

You also missed the key data point: why are European bond yields NEGATIVE. That can't be driven by purely a call on deflation, by definition the only way to make money on a bond investment with a purchased YTM thats negative, is if it goes more negative. What is the only process by which that happens? If the ECB p buys those negative rate bonds.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689199)

Mohammed El Erian manages $3 TRILLION

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689202)

Maybe once you leave IG it becomes more about economic outlook at whatnot. But lol if he thinks the 10Y is driven by a genuine view on anything but what the Fed does over the next few years.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689212)

Hell we all forget that before COVID, in the Fall of 2019, the Fed literally had to reopen and support the repo market with massive liquidity. This was at the same time it was trying to tighten.

The Fed will most certainly backtrack because they will not have the wherewithal to push through with taper and higher rates. It will destroy the economy and they will make the decision to let inflation run in order to avoid tanking the economy.

They will make the stupid decision to avoid taking the gross medicine and let the disease worsen. I think the bond market is right to have such negative real yields.

(https://xoxohth.com/thread.php?thread_id=4995169&forum_id=2#43689294)