Printing more money

Governments won't default on their bonds as they can just simply print the money and pass the risk and inflation onto the private sector.

Government statistics are clearly understated. Many CPIs exclude energy costs. Some factors in the CPI are weighted differently when calculating the PPI to reflect either more favourably. The concept of substitution is also impractical. If the price of steak rises, there are assumptions that we switch to chicken and therefore there is no increase. Hedonics is also a ridiculous assumption. These elements have vastly underestimated the real rate of inflation.

With regards to bonds at the moment, can anyone see a potential bond bubble developing due to speculators and short sellers?
 
Yes we shouldn't believe that CPI is some precisely measurable concept. But its inadequacies cut both ways. What about the enormous technological developments - laptop computers, internet, ipods, DVDS, medical advances, infrastructural advances etc. etc.

For example, today's motor car is in a different league from that of say 30 years ago. CPI does not trap these technological improvements - so far as CPI is concerned a car is a car is a car.
 
Hedonics accounts for the improvement in technology. The CPI does trap these improvements and again overexaggerates their benefits.

Take for example, computer technology. Performance can double in a very short space of time, but does this performance impact at the same rate on our productivity? No of course not.

Motor vehicles have improved in the last 30 years put this improvement hasn't translated directly to similar improvements in productivity, yet the CPI accounts for this using hedonices. It is presumed that improvements (say 25%) have now lead to a 25% cost saving or productivity increase on the previous technology. This is not realistic
 
Damian85 said:
Governments won't default on their bonds as they can just simply print the money and pass the risk and inflation onto the private sector.
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Eh, tell me again how the Irish government can print more money?

With regards to bonds at the moment, can anyone see a potential bond bubble developing due to speculators and short sellers?
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Yes, but not for the reasons you give. Massive supply and shortage of capital would be the reason I see for bond prices to drop and yields to rise.

On hedonics - show me where hedonic adjustments are applied to Irish CPI or european HICP. Otherwise I will continue to believe they are an American invention that doesn't apply this side of the Atlantic.

On substitution - again show me where these are applied to Irish or European price figures.
 
Telegraph: Reform plan raises fears of Bank secrecy - http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4214232/Reform-plan-raises-fears-of-Bank-secrecy.html
"The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks' printing presses ultimately caused hyperinflation.

Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: "Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.

"If we went down that path we would be following a road which starts in Weimar, goes on through Harare and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about – but the Bill abolishes it."

Very few are saying that hyperinflation WILL happen rather they are saying is governments keep printing fiat money in extremis then this may happen and best as ever to be aware of this and diversify accordingly.
 
yoganmahew said:
Eh, tell me again how the Irish government can print more money?
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I never said the Irish government. The ECB have the power to do so, and they will as so many EU nations are in need of it at the moment

yoganmahew said:
Yes, but not for the reasons you give. Massive supply and shortage of capital would be the reason I see for bond prices to drop and yields to rise.
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I'm simply wondering what peoples' opinion is here. A lot of 10 yr, 20 yr and even 30 yr bonds are being bought by speculators and hedgers at low yields. Realistically they are not going to hold these low yields for the long term. Added to this, bonds are becoming a safer vehicle for many investors. Would anyone see a potential bubble coming out of this?

yoganmahew said:
On hedonics - show me where hedonic adjustments are applied to Irish CPI or European HICP. Otherwise I will continue to believe they are an American invention that doesn't apply this side of the Atlantic.
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yoganmahew said:
On substitution - again show me where these are applied to Irish or European price figures.
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Hedonics are a US invention effect us in terms of trading with America, purchasing oil (denominated in dollars), and investing in US government securities.

While not as blatant as the US, hedonics and substitution has found its way into the HCIP. There has been a lot of harmonisation amongst EU nations CPI's in the last decade and both these factors are now included in the methodology for the calculation of the HCIP. Hedonics is used to a more responsible and practical extent.

Not too aware of the Irish CPI calculation methodology
 
1. James Grant is acknowledged as one of the world’s leading experts on government bonds and might pay to heed his warning:


2. The Problem With the Federal Reserve's Money-Printing - Is the Medicine Worse Than the Illness?
3. The world ran out of trust in 2008 -- but there is no shortage of money because the Fed is printing like mad. It's the wrong approach, with potentially dire consequences, says James Grant.
4. http://online.wsj.com/article/SB122973431525523215.html?mod=todays_us_weekend_journal

Ambrose Pritchard in the Daily Telegraph has been ahead of the curve as well:
The bond bubble is an accident waiting to happen
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4218210/The-bond-bubble-has-long-since-burst-investors-ignore-this-at-you-peril.html
 
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