The financial services industry is full cry in its demands for taxpayers to save its hide. From Bloomberg:
Bill Gross, co-chief investment officer of Pacific Investment Management Co., said the U.S. may slump into a “mini depression” unless policy makers spend trillions of dollars to spur growth.
“This economy needs support from the government, a check from the government in the trillions,….There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.”…
Pimco won a Federal Reserve contract in December as one of the four managers of a $500 billion program to purchase mortgage-backed securities. The company was also one of the managers selected to run the Commercial Paper Funding Facility in October.
The Fed will have to step in and buy Treasuries, Gross said, to keep long-term interest rates low as the U.S. increases its debt sales to finance a growing budget deficit and stimulus programs…Speculation has risen that China, which holds $681.9 billion of Treasuries as the single largest investor in U.S. debt, may stop or slow the purchases of U.S. debt as its own economic growth slows…
Yves here. Brad Setser, who follows international funds flows generally and China in particular, sees no such risk on this front, at least this year. Indeed, some think China may pick up its purchase to lower the RMB, although that runs the considerable risk of retaliation from the US and other advanced economies.
The real risk is the supply side, not the demand side, and higher spending merely makes the funding gap greater, albeit with a bit of a lag.
Recognizing that, China is moving to shorter maturity Treasuries, seeking to reduce its exposure to inflation, which erodes the value of longer dated bonds far more than short ones.Back to the article:
“To the extent that the Chinese and others do not have the necessary funds, someone has to buy them,” Gross said. “It is incumbent upon the Fed to step in. If they do, that will be a significant day in the bond market and the credit markets.
”
Yves here. He’s right on the latter point, although that’s like saying a heart attack is a significant event. Buying Treasuries is a desperate move by the Fed that will work for a while, but I cannot seeing it do more than stave off the inevitåble for a little while. How will the markets react to the specter of a burgeoning Treasury balance sheet, with its purchases in a loss position on any kind of “real” mark to market basis (an unmanipulated market price on the bonds would be considerably lower). The 30 year bond has fallen from a peak of 142 to its current level. That’s a nearly 20% loss in less than a quarter.
And how will the markets react with the realization that the Fed is insolvent? This isn’t lunatic fringe thinking; Willem Buiter (a respected and generally left-leaning economist), who has advocated that the US engage in less rather than more deficit spending, has discussed the risk to central bank solvency of absorbtion of private sector losses. In a recent, more urgent, post, he contends the US is on its way to default (either explicit, or far more likely, implicit, via inflation) unless in contains its level of spending:
There will, before long (my best guess is between 2 and 5 years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury Bills and Bonds are still viewed as a safe haven by many. But learning takes place. The notion that the US Federal government will be able to generate the primary surpluses required to service its debt without selling much of it to the Fed on a permanent basis, or that the nation as a whole will be able to generate the primary surpluses to service the negative net foreign investment position without the benefit of ‘dark matter’ or ‘American alpha’ is not credible….
The US Federal government has taken on massive additional contingent liabilities through its bail out/underwriting of the US financial system (and possibly other bits of the US economic system that are too politically connected to fail). Together will the foreseeable increase in actual Federal government liabilities because of vastly increased future Federal deficits, this implies the need for a future private to public sector resource transfer that is most unlikely to be politically feasible without recourse to inflation. The only alternative is default on the Federal debt. There is little doubt, in my view, that the Federal authorities will choose the inflation and currency depreciation route over the default route.
If I can figure this out, so can anyone in the US or abroad who follows recent economic developments. The dawning of the realisation will lead to the dumping of the assets….
Now my German buddies remind me that in the German hyperinflation, government bonds were the last asset type to tank. Even in 1923, they traded at a yield of 6% before collapsing. So even in the face of rampant actual or expected inflation, the authorities can hold seemingly inexorable forces at bay longer than one might expect.
And Bloomberg gives us the real reason behind Gross’appeal:
Gross, 64, increased his holdings of U.S. government debt, a category that includes agency securities, in December for the first time in a year, according to the company’s Web site.
Pimco is structurally long bonds, so declining interest rates are in his favor. But more immediately, unless he went long very short maturities, he is probably sitting on losses on his December bet, and without Fed intervention soon, he is unlikely to get whole on those purchases.
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Bill Gross is an unabashed rent seeker, an absolutely disgusting and evil man.
A capitalist system would tell Gross to shut up and take his losses, but we haven’t had capitalism for a *long* *long* time in this country.
And how will the markets react with the realization that the Fed is insolvent? This isn’t lunatic fringe thinking; Willem Buiter (a respected and generally left-leaning economist), who has advocated that the US engage in less rather than more deficit spending, has discussed the risk to central bank solvency of absorbtion of private sector losses.
Jim Rogers actually said back at the time of the Bear Stearns bailout that Bernanke was setting up the failure of the Federal Reserve. I believe his exact words were, “How much money do you think the Federal Reserve has? We’ve had two central banks fail in this country, what makes you think we can’t have another one?”
Of course, he was laughed at by the Bloomberg anchors, because no “serious” commentator believed you could *possibly* just have let Bear Stearns fail. How cruel, how uncontrolled, how heartlessly, dogmatically capitalistic!
Think your German example has it exactly right. Treasurys will be an island of Potemkin stability while everything around them is blowing sky high.
excellent point Andrew. I think eventually angry mobs of people will show up at Bill’s doorstep and kick the living you know what out of him for all of the damage he has caused to this country. The man belongs in jail, and since he probably will never end up there, someone will eventually make him feel a whole lot of physical pain, for that is what he deserves.
I fear the problems have been misdiagnosed and therefore the remedy inneffective.
There is a lot of money hiding in low yielding government insured CD’s, money markets, treasuries, etc. Meanwhile, the private sector is starving for financing.
If there were some kind of closure on the accounting fraud and a restoration of trust and transparency to the market, the market would likely fund itself.
What we are seeing, IMO, is the market functioning as it should. The longer the government remains a part of the problem, the more serious the problem becomes.
The single most important first step is transparency so that risk can be properly assessed. Unfortunately, that is the one thing the government will not, or cannot, deliver. The game remains a con, and people know it, staying away in droves.
Screw the bailout. Just clean up the goddamn lying, cheating, and stealing thing. Stop being Republican, and do the right thing for the country. Screw Bill Gross and his ilk.
It is a shame to see Pimco so unabashedly talking their book these past six months. Some of their policy prescripts sound deceptively simple and wholesome the way the package the wrapper, but, there has been a growing and evident conflict of interest. Give them credit however, they are open about their “front-running” where the fiscal spending will go and to some extent their conflicts of interests
@MLM and Yves,
These observations the treasuries will be the last bastion of defensive holdings make sense. The turn of the screw will come for them last.
It is hard for me to hear that Bill is talking his book. He has been one of the most articulate and precient orators active in the markets. Einhorn talked his book too (on Lehman) – admittedly Einhorn was not hiding behind the elder statesman role.
I hope you are wrong that he cares only for his business. I also hope he is wrong that the government needs to spend trillions.
bg, spending “trillions” or any dollar amount will not help. as Mish and Denninger have pointed out, adding more debt to an economy that is choking on debt will only make things worse.
Video of the winning youtube Davos Debates program.
http://www.youtube.com/watch?v=_HqvE6uye1Y
Skippy
I do not understand…the treasuries is issuing new bonds, and the fed is going to use this money to but long-dated treasuries. I understand why they are going tobuy them, but I am confused about how the process works.
Gross is clearly talking his book. As I recall, in the Barron’s roundtable, he was pumping some bank preferreds, among other things. Plus he has some leveraged funds. I agree that he has been pretty open about trying to front run the treasury/fed and any increase in interest rates on non treasury debt will be very expensive for him.
However, I would like to see the stimulus package get moving asap. Turn on the fire hose and get some money flowing. If they have to do a payroll tax holiday, so be it. This is America and people want to spend.
The banks are in good enough shape.
Not to fear the regulatory agency’s are bringing in the big guns to sort out this hole mess.
Here is video of them catching a couple of CEO’s kicking back and reminiscing over photos of their Davos holiday.
Finally salvation is at hand, I myself have applied for a position in this agency, love the uniform, chicks dig it.
http://www.youtube.com/watch?v=Tym0MObFpTI
PS remember laughter does help wash the pain away, freshen the spirit.
Skippy
I view Gross as the most diabolical semi-public figure of the age,
far more dangerous than Madoff as a consequence of his continuous and successful attempts at the manipulation of public policy.
His strategy, buy something and then induce the Treasury and/or Fed to change policy to cause the value of that something to rise. Then sell.
The man does not give a flying fart in space about the welfare of the citizens of the USA.
Yes, the word is fully out on the man.
(Buffett seems to have followed him down the same self-serving path.)
OT: Yves, Surowiecki responds to your bailout post here.
I think he mistakenly believes the moral hazard issue will rear its head instantaneously, not during the next business cycle, which is where I always thought it would show up. Also, I don’t think that on balance bankers have incentives to lend wildly right now – there isn’t much opportunity and they all realize new deals will be rigorously examined by the government, at least until the next election.
Bill Gross and his greedy little friends can kiss my ass. Billy boy I ain’t working, I ain’t saving, I ain’t spending, I ain’t paying taxes, and I damn sure ain’t investing in this little banana republic for you and a bunch of goddamn oligarchs. Bastard!
And they are only calling for $1,000 gold? How myopic…
JustinTheSkeptic
No bailout, large or small, is going to work. That becomes more and more obvious with each passing day. The system is going to tank. And good riddance.
http://amoleintheground.blogspot.com/
Gross is, as they say, beneath contempt.
Translation: My luxurious lifestyle must be supported; since I produce nothing useful, I need to confiscate wealth from the US taxpayer and his/her children.
I can no longer find the words to express my contempt. Not that anyone at Pimp-co cares.
http://menznews.blogspot.com
>Now my German buddies remind me that in the German hyperinflation…
I don't think there is any chance of hyperinflation. High inflation maybe but hyperinflation, zero chance. People too often confuse these. Hyperinflation occurs only when the government is actively trying to create nearly infinite amounts of money. Usually it is to pay for wars of survival. That has nothing to do with the US. Even in the 70s, we never had hyperinflation. Not even close.
I will translate what Gross actually said:
“I screwed up. Oh man, I am in some really deep shit! I need to steal some money from those who are not such screw ups like me. Ideally, the money should be hidden in trillions of government pork. Oh, I’m so smart!”
From the BBC on Sept.16,2008:
http://news.bbc.co.uk/2/hi/business/7615974.stm
"Well, for starters there is Merrill Lynch. US authorities and many bankers feared that after Lehman's demise the attention of investors and speculators would have moved to Merrill.
The bank hopes to find safety under the roof of banking giant Bank of America.
The biggest worry, though, is insurance giant AIG. The company is running out of cash to cover its losses and has asked the government for an emergency bridging loan, reportedly to the tune of $40bn.
If AIG is in trouble, it would directly affect millions of consumers and companies around the world. It would also hurt the whole financial system, because AIG is in the centre of a web of complex financial deals.
And compared with AIG, the crisis surrounding Lehman is small beer."
From my perspective, some people knew on the preceding Sunday that Merrill could collapse if Lehman did. In other words, some people knew that a Calling Run ( Debt-Deflation ) was possible.
On Sept. 24th, William Gross wrote this:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/23/AR2008092302322.html
"And so, instead of mild medication and rest, it became apparent that quadruple bypass surgery is necessary. The extreme measures are extended government guarantees and the formation of an RTC-like holding company housed within the Treasury. Critics call this a bailout of Wall Street; in fact, it is anything but. I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent. Calls for appropriate oversight of this auction process are more than justified. There are disinterested firms, some not even based on Wall Street, with the expertise to evaluate these complicated pools of mortgages and other assets to assure taxpayers that their money is being wisely invested. My estimate of double-digit returns assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, but this program is, in fact, directed to prevent just that.
In effect, the Treasury will have the fate of the American taxpayer in its hands. The Resolution Trust Corp., created in the late 1980s to deal with the savings and loan crisis, dealt with previously purchased real estate, which was flushed into government hands with a "best efforts" future liquidation. Today, the purchase of junk mortgages, securitized credit card receivables and even student loans will be bought at prices significantly below "par" or cost, and prospectively at levels allowing for capital gains. This is a Wall Street-friendly package only to the extent that it frees up funds for future loans and economic growth. Politicians afraid of parallels to legislation that enabled the Iraq war are raising concerns about a rush to judgment, but the need for speed is clear. In this case, there really are weapons of mass destruction — financial derivatives — that threaten to destroy our system from within. Move quickly, Washington, with appropriate safeguards. "
Now, Gross, a bond guru, has just missed the Flight to Safety:
http://www.bloomberg.com/apps/news?pid=20601087&sid=asgkk4AucjU8
Dec. 10 (Bloomberg) — Bill Gross, manager of the world’s biggest bond fund, says he regrets not buying Treasuries in what is shaping up to be the best year for U.S. government debt since 2000.
“If we had our druthers, if we went back 12 months and we had known then what we know now, it would have been all invested in Treasuries,” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview from Newport Beach, California. “The question going forward is ‘Is it the winner over the next 12 to 24 months?’ We don’t think so.”
How could William Gross have missed the Flight to Safety? He must have believed that interest rates would not go lower. Why?
I believe that Gross, knowing that a Calling Run was possible, did not believe that the government would ever do something like let Lehman fail. He believed that the government had implicitly guaranteed to intervene to stop such a possibility. He and everybody else. That was our system after all. Paulson didn't get that memo. He decided to see what would happen if you let one domino fall. Now he knows.
Why would William Gross want the government to invest in toxic assets that he had explicitly avoided? And, even more astounding, claim that it was value investing? How could he know where this run would lead and how low housing prices would go? He couldn't. But he could see that the only way to stop such a run was for the government to intervene massively. The problem was that his plan was a massive transfer of losses from the owners of toxic assets to the taxpayers. It is true that there is a theoretical possibility that we could make out as he said, but that was a wildly optimistic view at the time. But he was correct about the guarantees, only not about how that should be done.
I could be wrong about this, but all of his prescriptions involve keeping banks going and getting investors as good a deal as possible. Always at the expense of the taxpayers. That's his view of our government. I do not consider it free market. It runs with an insurance policy for big banks bought by lobbying.
If we follow his advice, we will be leaving the current system in place, with the strong possibility of business as usual, whatever the government does, in the near future. Consequently, we have to do exactly the opposite of what he's advising, and take over some banks, leaving the bankers and shareholders out in the cold.I am also not a fan of driving down interest rates as he wants, but that's a different story.
Don the libertarian Democrat
The Federal Reserve Bank, despite the name, is not a bank. It can not become insolvent. Even if the Federal Reserve expanded its balance sheet by two trillion dollar, it would not cause inflation in the current environment because money velocity has collapse. When people are worried about future earnings, they do not borrow. Fed can throttle the creation of credit but it can not force people to borrow. The Fed can not push on a string.
“Bill Gross is an unabashed rent seeker, an absolutely disgusting and evil man. A capitalist system would tell Gross to shut up and take his losses, but we haven’t had capitalism for a *long* *long* time in this country.”
I’ll only support bailing out banks, if leadersship at the big banks admit their guilty role in the credit bubble, give their personal wealth to charity, and commit suicide.
“Why would William Gross want the government to invest in toxic assets that he had explicitly avoided? And, even more astounding, claim that it was value investing?”
Bill Gross should be thanked for being stupid enough to buy worthless MBS from banks because PIMCO is not too big to fail, so the government can blow him and his investors up without causing a system-wide melt down.
Now we just need leadership with the balls and brains to let the MBS go to zero, blowing up Pimco and Bill Gross.
“And how will the markets react with the realization that the Fed is insolvent?”
“Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce.”
Karl “Groucho” Marx
I have another theory as to why hyperinflation isn’t going to happen, but it will take me a minute, so please bear with me.
Since Congress hasn’t acted yet, the amount of money exempted from estate tax in 2010 is unlimited. So what? The generation-skipping tax tracks the estate tax (The “GST” is the tax that prevents concentrated wealth and “dynasty trusts” by taxing the trust principal every time it passes to the next generation). Therefore, in 2010, with a proper lawyer, the very wealthiest Americans can put an unlimited amount of money into dynasty trusts, live off the income, and NEVER PAY TAXES AGAIN.
Sorry for the caps, but this bears emphasis.
Imagine investing a ton of money and letting yourself and all your descendants in perpetuity live off the interest from that money, and paying taxes ONLY on the interest. You could stash away, say, a million dollars now, and in 100 years, what would it be worth? And it is all exempt from estate tax, generation-skipping taxes – everything except the tax on the interest.
If I am right, I think there is a very strong possibility that in 2010, an enormous amount of money is going to be sucked out of the economy and stashed in dynasty trusts for ever and ever. Therefore, we can’t have hyperinflation, because a whole lotta money is going to disappear and get parked in interest-bearing accounts.
David and Anon of 10:21 PM,
You need to read what I write more carefully. I did not and have never said we will have hyperfinflation.
I was using the German example to illustrate that even when inflation expectations are well baked in, the authorities can and probably will successfully pull out all stops to keep government bond yields from reflecting inflation risk accurately, but that effort is bound to break down eventually.
Yves,
Will my comments get deleted here if I make remarks about Gross, small white towels, small bars of soap (prison) and then link them all to the topic at hand? I need guidance for God’s sake’s, so if you can, if you have time, can you please help me find some balance in this cruel world of unjust and unfair blogging?
Yves — to be clear, i do think China’s recorded purchases of treasuries will slow, for two reasons:
a) the enormous scale of China’s purchases in the fall reflects a one off shift out of agencies as much as anything else.
b) China’s reserves growth is slowing, with reserve growth replaced by hot speculative outflows. for the last several months, as china moved into bills, almost all of the PBoC’s purchases showed up in the TIC data. Hot speculative outflows won’t show up as cleanly, and may not show up at all.
or to put it differently. China likely bought close to $200b of treasuries in q4. that isn’t a sustainable pace for a country with a $400b or so ANNUAL current account deficit.
What i have objected to is the notion that a slowdown in China means fewer treasury purchases. A slowdown means fewer imports, and thus — all other things equal, a bigger current account surplus. That in aggregate means more chinese financing not less, even if the hot money flows complicate things a bit (reserve growth = current account surplus + net private inflows … and now there are net private outflows). moreover, a slowdown likely will make china less willing to move on the currency and that also implies ongoing flows …
but, just to be clear, china’s purchases should slow from their exceptional levels in q4. what gross leaves out if that private household saving is rising, which creates a new potential source of financing for the fiscal deficit.
doc h,
Fine by me, as long as no photos or links to unseemly videos. Oh, an no animals (save the deserving human variety) are to be harmed.
the last comment was from bsetser
“private household saving is rising, which creates a new potential source of financing for the fiscal deficit”
This is the money sentence in the debate. The imbalance was a two way street (US over consumption, China overproduction). Both are being forcably reduced, and that is changing some of the most important unknowns in the feedback loop. The trouble is we are not seeing the numbers yet, so people are expecting the previous trends to continue. I don’t see how we can pull back and have inflation without the central banks doing more than fill the monstrous whole left behind by the banks.
Yves Smith said…
the last comment was from bsetser
I know it’s conspiracy theory night on Naked Capitalism, but you’re approaching the boundaries of plausibility here.
The Treasury and the Fed are both, in effect, organs of Uncle Sam. Having the Fed buy T-notes is the equivalent of drinking ones own urine. There is a short-term utility to this, but it drops off bad fast, so:
One can indeed drink ones own urine under normal conditions, unless there is an infectious disease vector or urinary tract infection or the like. But we excrete urine for a good reason, as the salts and nitrates concentrated in it will shut down the bodies internal organs if there concentration becomes too great. The nitrates, now, are a valuable chemical extract, for fertilizer, explosives, and lots o’ things, just like, y’know, T-notes. But to continue, if you drink your own urine you do recover the H2O therein but also return those filtrates to the body, causing their level to spike rapidly. If one is desperate for water, but can get the pure thing in near time, say (pick a number, it’s been a while since refresher) 12 hours, it’s a functional tradeoff. If you are a couple of days from the pure thing, don’t go there, you’ll keel over.
New capital is the pure thing. US notes in the present context are the necessary excreta. If the Fed starts taking them on, then yes, in the short term that can give the appearance of functionality and health; six months, probably not a year. Longer then that with little outside capital, well longer than that with _no_ other capital inputs, *croak*. I look at the most likely scenarios, and to me the conclusion is, “Don’t go there.”
Regarding Bill Gross, I though that he was the subject of that new feature, _Scumbag Billionaire_ until I looked closely at the face. But, by a weird twist, Pimpco administers my [miniscule] pension. It would almost be worth losing the lot to see Gross go down. I’d definitely pay the lot to see Pimpco and JippyMo kiss the boojum. My contribution to making the world a better place . . . : )
Regarding the 23 Deutschmark example, I would also expect US notes to hold up for last, but as in that example they will have to rise in their rates to make it that far (as opposed to outright capital flight to foreign currencies). If y’all think Guvmint debt is crowding out private borrowing now, at effectively zero rates, consider the effect once Guvmint rates begin to rise. You won’t be able to sell a corporate or muni, period. Which makes the ‘issue public debt to pay for The Big Boost’ strategy actively counterproductive if continued for any length of time. We may have the space for one good stimulus shove, maybe. Of course we have already blown $500B on last year’s Phoney Stimulus and TARP I, to say nothing of the perhaps $500B of Fed money lent against total trash after BSC bled out. (Some of the Fed’s swap windows may have had utility, but continuing that strategy once it was clear that the US big financials were insolvent and weren’t going to make it—and this was stone clear by the end of March, 08), was rotten judgment.)
The point here is that we may be able to go $1T in stimulus; maybe but maybe not. If, however, we keep going it won’t be immediately obvious that we have crossed the sovereign default event horizon until well after the point of no return. And yes, interest will still be merrily paid out on Guvmint note well after that point of no return.
That there is even a significantly nonzero possibility that I will watch this happen is flabbergasting.
The Treasury and the Fed are both, in effect, organs of Uncle Sam. Having the Fed buy T-notes is the equivalent of drinking ones own urine. There is a short-term utility to this, but it drops off bad fast, so:
While more — uh, poetic — than I ever want to be, I think Richard. The simplest way to think of this process during a liquidity trap, the only time it’s likely to be performed, is like a corporation refinancing long-dated fixed rate debt for short-dated floating rate debt. We’re trading a fixed liability for a floating liability.
As long as nobody’s willing to use the floating liability to leverage up, the buck stops there. Once they are, things get a little inflationary, with a cascade of unfortunate effects.
Regarding Bill Gross, I though that he was the subject of that new feature, _Scumbag Billionaire_ until I looked closely at the face. But, by a weird twist, Pimpco administers my [miniscule] pension. It would almost be worth losing the lot to see Gross go down. I’d definitely pay the lot to see Pimpco and JippyMo kiss the boojum. My contribution to making the world a better place . . . : )
I’m perfectly willing to lose my own life savings too, which have averaged 50-60% of my gross. Just give me a level playing field and I’m ready to go. In this confiscatory, tilted world, I’d rather go fishing.
That there is even a significantly nonzero possibility that I will watch this happen is flabbergasting.
You stole my word. :(
>You need to read what I write more carefully. I did not and have never said we will have hyperfinflation.
Ok fine. But many people do have this impression that if the Fed starts printing (as if they don't do this on a daily basis anyway), then we are immediately going to have hyperinflation. This highly popular meme is absurd. Even if China and other CBs all suddenly wanted to get out of dollar bonds, it would be a one-off event. You might see a 40% drop in the dollar, say over a year. But then it would stop since the selling pressure would be removed. That has nothing in common with hyperinflation. On top of all that, we are in a strongly deflationary period which will offset much if not all of any excess printing of dollars. Of course, Buiter might be right about inflation increasing when the recession ends.
This point may be a little pedantic, but if you look closely at the German inflationary experience in the early 1920’s, Gov’t bond yields did indeed remain subdued until the second half of 1922, but that seems to be related to very modest gov’t bond issuance until then. Gov’t bond issuance picked up dramatically, rising exponentially thereafter until the end of 1923.
Offsetting that perspective is the facdt that the currency was under consistent decline, really from 1914 on. So, to an investor outside of Germany, he would have been hurt badly by the depreciation of the mark, despite the stability of domestic gov’t bond yields until late 1922. In general, the worst part of the hyperinflation did not occur until 1923, so what happened prior to then was only a kind of warm up.
If anyone is curious about the details, I can cite 4 or 5 books specifically on the German hyperinflation of the early 1920’s.
I have little to add to this discussion other than another hearty “Go die in a fire” towards PIMPCO.
http://clusterstock.alleyinsider.com/2009/2/us-debt-levels-are-fine-debt-to-gdp-chart-is-wrong-and-meaningless
You wrote a post about the Total Credit Market Debt to GDP chart once. I’d be interested to find out if the Ned Davis Research chart is bogus or not.