Wednesday, February 1, 2012

Levy, Harkins Q4 Update

Thanks to Ben R. for passing this along.

The news continues to be Eurocentric. Bailout scheme after bailout plan comes, is debated, is briefly celebrated and quickly dies, now in monthly intervals. A little over a week ago the new European Central Bank President Mario Draghi unveiled a new twist, suddenly lending €490 billion to banks on three year terms against all sorts of collateral. To put that amount in perspective, it represents about 78% of the entire size of the U.S. Federal Reserve on January 1st, 2008. He says he is coming back for another round on February 29th, of indeterminate size. No one knows if this is to be an every other month thing. All Mr. Draghi will let on is that this mustn’t be seen as an outright purchase. There is something Lehmanesque in this denial, but it seems to be acceptable to the German public mind, at which it was of course aimed.


We go on about the dangers of inflation at this length because our fears that it could get out of hand are our workaday worry, but also because everyone has an assumed rate of return in his mind’s eye, whether he has made a conscious decision or not. At some point everyone thinks, “If I have $X, I can live to Y years, spend r dollars annually, and still leave money behind.” If you are on the board of a school or a hospital, you should be having that discussion once a month. But underlying that thought process is the linchpin assumption that the money will retain its value, and one wonders at this more and more. Inflation is no longer a prediction, it is an observation. It is greater than 5% in Britain right now, greater than 6% in China, and higher still in Brazil, India, and the fast growing third world. Indeed, with the notable exception of Japan, prices are rising just about everywhere, and observers are failing to see it.