Could deflation turn to hyperinflation

realitykeeper

http://www.irishtimes.com/business/financial-services/banks-may-face-restrictions-on-fixed-rate-mortgages-mep-warns-1.2822955

I came across this article in the Irish Times today. It says international regulators want to protect banks from interest rate risks. To do this, banks may face restrictions in issuing fixed rate mortgages from 2018.

Why would issuing a fixed rate mortgage represent a risk? Could it be because they expect inflation to rise above fixed rates sometime after 2018? If so, I think they are being optimistic. I think inflation will stay low until the last few month of 2017 and then begin its stellar assent.

Jawgap

realitykeeper wrote: »

http://www.irishtimes.com/business/financial-services/banks-may-face-restrictions-on-fixed-rate-mortgages-mep-warns-1.2822955

I came across this article in the Irish Times today. It says international regulators want to protect banks from interest rate risks. To do this, banks may face restrictions in issuing fixed rate mortgages from 2018.

Why would issuing a fixed rate mortgages represent a risk? Could it be because they expect inflation to rise above fixed rates sometime after 2018? If so, I think they are being optimistic. I think inflation will stay low until the last few month of 2017 and then begin its stellar assent.

No. There's always a risk of getting caught on the wrong side of the fixed rate - generally it's the consumer who bears the risk (which why fixing is such a bad idea unless you place a premium on certainty).

It's nothing directly to do with inflation either - if the banks fix at too low a rate and have too many mortgages out there at that fixed rate they'll be goosed.

In 2018 Brexit negotiations will be in full swing and uncertainty will be high, therefore it would be prudent for the banks to limit their exposure on the fixeds.

It's nothing to do with hyper-inflation - inflation could be bang on the ECB's target but if the banks have issued a load of paper with a fixed rate of say 3.5%, but the ECB rate is 3.75% it introduces a risk, on that's easily avoidable.

Cookie_Monster

realitykeeper wrote: »

http://www.irishtimes.com/business/financial-services/banks-may-face-restrictions-on-fixed-rate-mortgages-mep-warns-1.2822955

I came across this article in the Irish Times today. It says international regulators want to protect banks from interest rate risks. To do this, banks may face restrictions in issuing fixed rate mortgages from 2018.

Why would issuing a fixed rate mortgages represent a risk? Could it be because they expect inflation to rise above fixed rates sometime after 2018? If so, I think they are being optimistic. I think inflation will stay low until the last few month of 2017 and then begin its stellar assent.

they obviously realise that in late 2017 the capitalist system is going to fail and are limiting their exposure in advance of that prophecy

realitykeeper

Jawgap wrote: »

It's nothing to do with hyper-inflation.

There must be a reason why they want to limit fixed rate mortgages. That reason is probably that they expect the ECB interest rate to rise above fixed rated mortgages at some point in the future.

What would force the ECB to increase interest rates sharply? Could the sudden onslaught of hyperinflation do it? And could hyperinflation be caused by a run on the euro when investors finally realize QE can never end?

Jawgap

realitykeeper wrote: »

There must be a reason why they want to limit fixed rate mortgages. That reason is probably that they expect the ECB interest rate to rise above fixed rated mortgages at some point in the future.

What would force the ECB to increase interest rates sharply? Could the sudden onslaught of hyperinflation do it? And could hyperinflation be caused by a run on the euro when investors finally realize QE can never end?

No, again this is something some basic reading will cover for you.

They don't "....expect the ECB interest rate to rise above fixed rated mortgages at some point in the future." - if they did they would simply make sure any mortgages are fixed above the expected rate.

The powers that be are being prudent - there is uncertainty and that needs to be priced in to the fixed rates being offered and the amount of money offered at those rates.

.....and maybe read up a bit on hyper-inflation before you bandy the word about - hyper-inflation is generally an inflation rate of 50% per month!!

You really think that in 2018 we're suddenly going to find ourselves in a hyper-inflationary spiral? And if so what's the basis for your opinion?

realitykeeper

Jawgap wrote: »

They don't "....expect the ECB interest rate to rise above fixed rated mortgages at some point in the future." - if they did they would simply make sure any mortgages are fixed above the expected rate.

You really think that in 2018 we're suddenly going to find ourselves in a hyper-inflationary spiral? And if so what's the basis for your opinion?

I think the ECB, FED, BOE etc hope inflation will rise over the next year but not too much, i.e. not above fixed interest rates and they probably think they are right. I also think the Basel Committee are acutely aware of the systemic risks caused by QE/low interest rates, which the central banks seem to be ignoring.

The Basel Committee is located at the Bank of International settlements in Basel, Switzerland.

Jawgap

realitykeeper wrote: »

I think the ECB, FED, BOE etc hope inflation will rise over the next year but not too much, i.e. not above fixed interest rates and they probably think they are right. I also think the Basel Committee are acutely aware of the systemic risks caused by QE/low interest rates, which the central banks seem to be ignoring.

The Basel Committee is located at the Bank of International settlements in Basel, Switzerland.

Actually, that's not the case at all - a quick scan of the current stories relating to the Basel Committee suggests that the way risk is calculated, assigned and managed is at the heart of the row between the Committee and the European central bankers - and those same central bankers are not ignoring QE or low interest rates.

And a bit of inflation is no bad thing - but you weren't talking about inflation running ahead of target, you were talking about hyper-inflation.

L1011

We still have banks offering very long term fixed below their SVR, medium term hugely below. BOI are -1.05% on a 3 year fixed and still -.3% on a 10!

Zubeneschamali

Back in 2015, we had:

realitykeeper wrote: »

I do not think you will have to wait 10 years or even 5 years to see inflation top 5% en route to 500%. I do not think it will happen this side of 2018 but could be wrong about that.

What's Eurozone inflation running at? Roughly no percent, anyhow. It has been below target for years.

But realitykeeper is still stressed about hyperinflation.

realitykeeper

Jawgap wrote: »

Actually, that's not the case at all - a quick scan of the current stories relating to the Basel Committee suggests that the way risk is calculated, assigned and managed is at the heart of the row between the Committee and the European central bankers - and those same central bankers are not ignoring QE or low interest rates.

And a bit of inflation is no bad thing - but you weren't talking about inflation running ahead of target, you were talking about hyper-inflation.

Well obviously if the Basel Committee and the central banks are not in agreement, it is reasonable to assume the central banks are much more likely to be wrong than the Basil Committee. Recently the former Fed chairman Ben Bernanke admitted his decisions were politically influenced. Imagine the pressure on the central bankers from every quarter if they did not adopt an "accommodative" monetary policy.

The BIS on the other hand do not directly influence monetary policy in individual economies so they are free to be both honest and responsible.

realitykeeper

Zubeneschamali wrote: »

Back in 2015, we had:



What's Eurozone inflation running at? Roughly no percent, anyhow. It has been below target for years.

But realitykeeper is still stressed about hyperinflation.

When inflation rises the chart will go from horizontal to vertical in a day.

realitykeeper

L1011 wrote: »

We still have banks offering very long term fixed below their SVR, medium term hugely below. BOI are -1.05% on a 3 year fixed and still -.3% on a 10!

Thats right and BOI needed a state bailout! Does the example you site sound like it is rooted in real economics?

realitykeeper

Jawgap wrote: »

No, again this is something some basic reading will cover for you.

They don't "....expect the ECB interest rate to rise above fixed rated mortgages at some point in the future."

They (central banks/governments) would not admit it if they did and I do not believe they are as clueless as they pretend.

Jawgap

realitykeeper wrote: »

Well obviously if the Basel Committee and the central banks are not in agreement, it is reasonable to assume the central banks are much more likely to be wrong than the Basil Committee. Recently the former Fed chairman Ben Bernanke admitted his decisions were politically influenced. Imagine the pressure on the central bankers from every quarter if they did not adopt an "accommodative" monetary policy.

The BIS on the other hand do not directly influence monetary policy in individual economies so they are free to be both honest and responsible.

I think you have no clue about what the Basel/Basil Committee do.

They are involved in banking standards and have nothing to do with the development and setting of monetary policy. Their decisions may well impact how monetary policy is transmitted through the banking system, but the actual policies pursued are a matter for the states.

Jawgap

realitykeeper wrote: »

They (central banks/governments) would not admit it if they did and I do not believe they are as clueless as they pretend.

Of course they would. Central bankers are notoriously conservative - if they thought an event likely they'd admit it and say what they were going to do about it to prevent it impacting their ability to meet their specified nflation target.

To not do so would create uncertainty, the one thing they strive so ardently to avoid!

realitykeeper

Jawgap wrote: »

They don't "....expect the ECB interest rate to rise above fixed rated mortgages at some point in the future." - if they did they would simply make sure any mortgages are fixed above the expected rate.

The ECB does not decide on what fixed rate individual banks give to their customers. Their concern is that their own ECB rate does not (in the future) rise above fixed rates that regional banks have given to their customers.

If you read the link at the start of the thread it says:

"It is considered that fixed-rate mortgages carry a risk in that the rate cannot be adjusted to reflect market conditions."

So therefore they do expect ECB rates to rise above fixed rated mortgages, and it also says:

"The Basel Committee believes that risks should be transferred from lender to borrower as much as possible."

realitykeeper

Jawgap wrote: »

I think you have no clue about what the Basel/Basil Committee do.

They are involved in banking standards and have nothing to do with the development and setting of monetary policy. Their decisions may well impact how monetary policy is transmitted through the banking system, but the actual policies pursued are a matter for the states.

First you say I don`t have a clue and then you rehash everything I have just said as if it were your own.

realitykeeper

Jawgap wrote: »

Of course they would. Central bankers are notoriously conservative - if they thought an event likely they'd admit it and say what they were going to do about it to prevent it impacting their ability to meet their specified nflation target.

To not do so would create uncertainty, the one thing they strive so ardently to avoid!

I do not believe for a moment that the central bankers are either honest or competent. We know they are incompetent not only because they are in disagreement with the BIS on how to do their sums but their policies have failed to achieve even their own goals eight years on from the financial crisis.

We also know they are dishonest for reasons to numerous to mention.

Zubeneschamali

realitykeeper wrote: »

When inflation rises the chart will go from horizontal to vertical in a day.

Still think it'll happen before 2020? I'll still be here to point and laugh.

Jawgap

realitykeeper wrote: »

I do not believe for a moment that the central bankers are either honest or competent. We know they are incompetent not only because they are in disagreement with the BIS on how to do their sums but their policies have failed to achieve even their own goals eight years on from the financial crisis.

We also know they are dishonest for reasons to numerous to mention.

Just because they disagree with the BIS doesn't mean they are incompetent, it just means they have a different view. Where is it writ that the BIS is the final arbiter of banking truth?

And how do you know ECB policies have not worked? Surely policy goal #1 was to keep the Euro functioning and when last I checked it was still the currency we're using?

Wanderer78

Jawgap wrote: »

And how do you know ECB policies have not worked?

in all fairness, they havent been a roaring success either

Jawgap

Wanderer78 wrote: »

in all fairness, they havent been a roaring success either

Indeed they haven't, but job 1 was to make sure the Euro didn't implode - they may have achieved that in a very messy fashion but the fact remains that we're still using the Euro.

They were not efficient but given the priority objective was achieved they were arguably effective.

Plus how things have changed.....a few years ago we looked on enviously at sterling

realitykeeper

Jawgap wrote: »

Just because they disagree with the BIS doesn't mean they are incompetent, it just means they have a different view. Where is it writ that the BIS is the final arbiter of banking truth?

And how do you know ECB policies have not worked? Surely policy goal #1 was to keep the Euro functioning and when last I checked it was still the currency we're using?

The Central Banks bank with the BIS. The BIS is the number one banking authority on the planet.

The euro has been saved for the time being but not without severe adverse consequences which will surface in time. Besides, the Euro would not necessarily have failed had the most conservative of Germans had their way and not the likes of Mario Draghi.

realitykeeper

Jawgap wrote: »

Plus how things have changed.....a few years ago we looked on enviously at sterling

Brexit is just a sideshow. The BOE have stimulated their economy as have the central bankers of many other economies.

Jawgap

realitykeeper wrote: »

The Central Banks bank with the BIS. The BIS is the number one banking authority on the planet.

The euro has been saved for the time being but not without severe adverse consequences which will surface in time. Besides, the Euro would not necessarily have failed had the most conservative of Germans had their way and not the likes of Mario Draghi.

Wow! You really have a skewed view of things.

The BIS provides services to Central Banks - it does not regulate them.

It provides a mechanism to facilitate co-operation and promulgates standards.

Central Banks are not required to keep funds on deposit with them and as the current spat with the ECB shows, central banks can choose to ignore their utterances.

And WHEN might these problems with the Euro surface? Let me guess........2019?

realitykeeper

Jawgap wrote: »

It provides a mechanism to facilitate co-operation and promulgates standards.

Central Banks are not required to keep funds on deposit with them and as the current spat with the ECB shows, central banks can choose to ignore their utterances.

And WHEN might these problems with the Euro surface? Let me guess........2019?

Yes the BIS sets the standard and the central banks are ignoring the standard (at everyone's peril). By my reckoning, problems will arise late next year, in fact about 12 months time.

KingBrian2

No worry about hyperinflation but some countries are worrying about the US election. Bound to be a shocker this November.

Jawgap

realitykeeper wrote: »

Yes the BIS sets the standard and the central banks are ignoring the standard (at everyone's peril). By my reckoning, problems will arise late next year, in fact about 12 months time.

It doesn't 'set' any standard. The central banks meet through the mechanism of the BIS to negotiate standards.......

The BCBS does not possess any formal supranational authority. Its decisions do not have legal force. Rather, the BCBS relies on its members' commitments, as described in Section 5, to achieve its mandate.

Jawgap

realitykeeper wrote: »

Yes the BIS sets the standard and the central banks are ignoring the standard (at everyone's peril). By my reckoning, problems will arise late next year, in fact about 12 months time.

What problems? Specifically.

You're like those "weathermen" predicting 'snow' in the UK and Ireland in December! In other words, issuing predictions so vague they'll always be right!

realitykeeper

Jawgap wrote: »

It doesn't 'set' any standard. The central banks meet through the mechanism of the BIS to negotiate standards.......

Nobody even suggested its recommendations had legal force and the recommendations issued by the BIS come from BIS experts. These recommendations are being blatantly ignored by the central bankers. In this video a BIS expert explains why central bankers should take financial stability into account. The implication is of course that they are not taking it into account.
https://www.youtube.com/watch?v=X3frvTT0TXo

realitykeeper

Jawgap wrote: »

What problems? Specifically.

You're like those "weathermen" predicting 'snow' in the UK and Ireland in December! In other words, issuing predictions so vague they'll always be right!

The word "problems" is deliberately vague because policy makers do have the power to steer a crisis into one ditch or the other. For example, when the credit crunch hit in 2008 the Irish government could have let the banks fail but it choose not to.

In the next crisis, investors will realize that the policy of stimulus cannot end without crashing the economy so they will begin to dump equities and bonds.

The central banks will then have a choice, they can let stock and bond prices crash and go into a depression or they can try to revive equity and bond prices with another stupendous round of QE. Sadly, they will probably choose more QE and that will crash the currencies (causing hyperinflation) and it will only defer a crash in equity and bond prices.

Another thing people seem to be missing is that QE is really a form of nationalization. In the future, central banks will do so much QE that the state will become the effective owner of vast amounts of cash, debt and property while other peoples cash, debt and property will reduce in value. Why else would the BIS be so concerned about the banks issuing fixed rate mortgages? They don`t want people to have an easy time clearing their mortgage with all the helicopter money they send out. They would rather mortgage payments rise with ECB interest rates in response to hyperinflation.

Jawgap

realitykeeper wrote: »

The word "problems" is deliberately vague because policy makers do have the power to steer a crisis into one ditch or the other. For example, when the credit crunch hit in 2008 the Irish government could have let the banks fail but it choose not to.

In other words, you are always going to be right because never in economic history has policy equilibrium been achieved.

realitykeeper wrote: »

In the next crisis, investors will realize that the policy of stimulus cannot end without crashing the economy so they will begin to dump equities and bonds.

I'll just leave this here.....

realitykeeper wrote: »

The central banks will then have a choice, they can let stock and bond prices crash and go into a depression or they can try to revive equity and bond prices with another stupendous round of QE. Sadly, they will probably choose more QE and that will crash the currencies (causing hyperinflation) and it will only defer a crash in equity and bond prices.

Care to try again only maybe provide some data to support your thesis.....

realitykeeper wrote: »

Another thing people seem to be missing is that QE is really a form of nationalization. In the future, central banks will do so much QE that the state will become the effective owner of vast amounts of cash, debt and property while other peoples cash, debt and property will reduce in value.

How? The ECB is doing the QE for us so how can the Irish State end up 'owning' anything related to it?

realitykeeper wrote: »

Why else would the BIS be so concerned about the banks issuing fixed rate mortgages? They don`t want people to have an easy time clearing their mortgage with all the helicopter money they send out. They would rather mortgage payments rise with ECB interest rates in response to hyperinflation.

Let's be clear, the article you posted quoted Brian Hayes (what are his banking credentials?) highlighting a proposed investigation by the BIS and drawing inferences from that.

What evidence is there to show that the BIS is actually 'so concerned' about fixed rate mortgages? (Other than their general objection to fixed rates) - have you a quote from a reputable BIS officer, for instance, that says something like "we're very concerned about fixed rate mortgages"?

.....and do you still think we'll be in hyper-inflation (as the term is properly understood) this time next year?

realitykeeper

In response to your first chart, yes bond yields are negative but have you thought about why they are negative? Low yielding bonds were traditionally considered safe but a few years ago at the time of the banking crisis all the talk was about whether or not Spain would need a bailout. Now Spain are issuing negative rated bonds. Does that sound like it is based on reality to you?

Jawgap wrote: »

How? The ECB is doing the QE for us so how can the Irish State end up 'owning' anything related to it?

The ECB is the EU equivalent of the US FED. When it creates currency, this money is used to buy state and corporate bonds thereby transferring Irish state and corporate assets to the ECB which is a branch of EU government.

Jawgap wrote: »

Let's be clear, the article you posted quoted Brian Hayes (what are his banking credentials?)

A messenger boy does not need banking credentials.

Jawgap wrote: »

... highlighting a proposed investigation by the BIS and drawing inferences from that.

What evidence is there to show that the BIS is actually 'so concerned' about fixed rate mortgages? (Other than their general objection to fixed rates) - have you a quote from a reputable BIS officer, for instance, that says something like "we're very concerned about fixed rate mortgages"?

The investigation is being carried out "with a view to proposing regulatory changes as to how they are offered and structured from 2018." So it sounds to me the decision has already been made to all intents and purposes.

Jawgap wrote: »

.....and do you still think we'll be in hyper-inflation (as the term is properly understood) this time next year?

I think from about this time next year, the equity and bond markets will crash, causing a sudden and severe depression. If the ECB responds with more money printing on a grand scale, hyperinflation will then follow.

Jawgap

realitykeeper wrote: »

In response to your first chart, yes bond yields are negative but have you thought about why they are negative? Low yielding bonds were traditionally considered safe but a few years ago at the time of the banking crisis all the talk was about whether or not Spain would need a bailout. Now Spain are issuing negative rated bonds. Does that sound like it is based on reality to you?


The ECB is the EU equivalent of the US FED. When it creates currency, this money is used to buy state and corporate bonds thereby transferring Irish state and corporate assets to the ECB which is a branch of EU government.


A messenger boy does not need banking credentials.



The investigation is being carried out "with a view to proposing regulatory changes as to how they are offered and structured from 2018." So it sounds to me the decision has already been made to all intents and purposes.




I think from about this time next year, the equity and bond markets will crash, causing a sudden and severe depression. If the ECB responds with more money printing on a grand scale, hyperinflation will then follow.

So that's a no, then? You have nothing to back your assertion that the BIS are 'so concerned' about fixed rates beyond their long standing philosophical objections to them?

Spain isn't issuing negative bonds......that's what the market is buying, they're paying to hedge against uncertainty. If this hyperinflation is on the way (do you still honestly believe that to be true?) then how come gold futures are fairly stable (as are most commodities).....



Sounds like you're in a position to make a fantastic killing being the only one who sees the impending 'iceberg.'

Finally, the fact you think the ECB and Fed are equivalent really shows the enormous gaps in your knowledge. While both are concerned with money supply, the Fed has a much broader mandate (price stability and maximum employment for the Fed, price stability for the ECB)......also the ECB doesn't conduct open market operations.....and their legal structures, governance, and management are quite different - but aside from that they're equivalent.

Zubeneschamali

Jawgap wrote: »

.....and do you still think we'll be in hyper-inflation (as the term is properly understood) this time next year?

I pasted in a quote from a 2015 thread above where realitykeeper said:

I do not think it will happen this side of 2018 but could be wrong about that.

"Before 2020" seems to be his current timeline.

Zubeneschamali

Jawgap wrote: »

Sounds like you're in a position to make a fantastic killing being the only one who sees the impending 'iceberg.'

If the equity markets are going to crash in 12 months and he knows that in advance, shorting equities would make him an absolute assload of money.

But in realitykeepers reality, the money will be worthless toilet paper, so no point. He's better off sharpening sticks ready for the new stone age.

L1011

realitykeeper wrote: »

Thats right and BOI needed a state bailout! Does the example you site sound like it is rooted in real economics?

Your examples certainly aren't.

BOI stayed in private ownership, by the way.