Stacy Summary: In case you are bored or just curious this Sunday afternoon, I recommend the following inflation/deflation debate held by FinancialSense Newshour. It’s the third hour, listen to both the inflation/deflation debate and then the next segment with Marc Faber. By the way, my own organic fresh produce bill has gone down over 10% (and up to 20% on some items) in the past two or three months. After you listen to it, your comments below!
Tags: deflation · inflation89 Comments
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from ‘times online’
“Review of funding says students should pay higher interest rates on loans and have maintenance grants scaled back ”
Y do the english always attack their children!?! its so patheticc !!
BIS says quadrillion+.
The day this all started was years ago:
http://www.youtube.com/watch?v=5mPT6PYBR_o
After the Nasdaq crash, the global junk bond derivatives pyramid was ‘only’ six trillion, but they wanted ‘rebubbling.’ Rebubbling now means something like quintillion. Don’t worry, commodities prices are set for another decline, taking the currencies defacto pegged to these commodities with them.
How many more trillions will Obama and his criminals (ram emmanuel, axelrod, summers, berhake, geiner, dimond, harvey blankfein) give to wall street sheister scum?
http://theburningplatform.com/economy/america-is-falling-from-within
http://www.dailypaul.com/node/107850
Paul gets hearing on audit bill…
http://blogs.telegraph.co.uk/news/danielhannan/100010607/the-politician-who-cannot-tell-a-lie/
Amerman was more convincing. I become less convinced by Mish every day, especially after that poor performance. Even if he was right, he sounded like a whiner. And he rambled.
However, I must admit that I was impressed by Steve Keen’s deflation arguments. I’d like to see him debate Amerman.
Among inflationists I really like Eric Janszen’s latest analysis:
http://www.itulip.com/forums/showthread.php?t=11981
Ironic?
In A new way to pay the National Debt (1786), James Gillray caricatured Queen Charlotte and George III awash with treasury funds to cover royal debts, with Pitt handing them another moneybag. [ref picture link]
http://upload.wikimedia.org/wikipedia/commons/3/32/National-Debt-Gillray.jpeg
@alister
thank you!
Southsea bubble……On metal standard credit pop sucked out real money ie gold from the economy result deflation
Great Depression……On metal standard credit pop sucked out real money ie gold from the economy result deflation
Asian crash 1990……no debt and In credit on fiat ……credit pop sucked out excess credit from economy ie savings…..result deflation…but now inflation as savings have fallen.
Germany 1930s……no savings in fiat……credit bubble pops massive gov spending….hyperinflation
I know whom I think were closer to now. Governments are ruled by politicians egos they will allways buy today with tommorow.
Here are some old and new links that seem applicable:
7/7/2009 BRACE for “OCTOBER CRASH”
– http://www.youtube.com/watch?v=wa4sCDz0WJk
The present crisis is turning into HYPERINFLATION
– http://www.youtube.com/watch?v=KHZA4z1P0xw
– “Specflation” issues not withstanding…
@Bill Stewart
cheers for the links….I find the ‘october’ thing interesting…..my partner mentioned to me a few nights ago that this time of year seems to be when stuff happens….was it mike2 who posted recently that the us financial year ending/beginning oct (only since since 1976 I think) being a factor….so not a reason for previous oct world madness?….enzio von pfeil…..what a name…and for someone with an irish accent…..anyway he seems to be seeing the bigger picture more than the dutch guy!
U.S. Authorities Probing $100 Billion of Bonds Seized in Italy
http://www.bloomberg.com/apps/news?pid=20601092&sid=afX0BWHToC1g
ANOTHER shady men-in-italy-with-billions-of-bonds story.
My uneducated opinion is that the deflation scenario will continue for now; The unemployment numbers have to go down (so more will be spend/lend and taxincome goes up/less deficit) and the people have to get new confidence in the economy/have to be misled to invest again. I think the assets can return/remain to value due to China buying up everything for cheap and the US can continue borrowing: http://www.reuters.com/article/newsOne/idUSTRE57G0T020090817 http://online.wsj.com/article/SB125243309793493085.html Will China be able to curve deflation alone? no, but China invests heavily so it is an imporant factor. Or the main export product of the US (military hardware) possibly will go up due to “the threat” of N-korea and Iran, currently being hyped up again. The pharmaceutical companies in the US have/are made/making big bucks with the swine flu scam. There still is some economic activity, specially for debt parasites like Goldman Sachs one of the problems is creating “regular” jobs. Beside that the prices are always going up because its a global market; food/oil most important for inflation/deflation and the global demand has currently “crashed” but the demand is much bigger than the offer so looking at long term it will automaticly create inflation. There’s a huge cultural difference between Japanese consumers and American, beside it’s a total different economy; so to compare the deficit scenario of Japan with the US is comparing apples and oranges. It’s both fruit, but there it ends.
The crisis has been engineered; first the regulations were eased, hedge funds/futures had free play; artificial high demand for assets, created high prices; due to the profit motivated short sellers the bubble was stopped, then the banks got triliions for their addiction to make bad bets, but didnt continue lending. Yet the big banks like Chase are buying up smaller banks and consolidating power, beside small banks dont get bailed out. In the ’30 s it was great business for some as well. Power over the monetary system is being (tried to be) consolidated since 1694. So i think questions have to be asked whether the banks can’t lend or don’t want to, we don’t know what’s on the balance sheet; if we knew that we would know the answer. When will the deflation turn in to inflation? As soon the banks start lending and the consumers/businesses as well.
The consumer debts are manipulated because the credit card comapnies and banks set the extreme high interest rates at will, so that can be easily solved.
The big question remains; Are the banks not able to lend out or don’t they want to, because it’s beneficial. If the banks aren’t able to lend out what i find very hard to believe with the fractional reserve system; because the banks have to keep writing off bad bets, it will be as soon the governments set up the trashbank, where all bad toxic assets are put in to one bank like Geithner has purposed/working on and the Banks can set the price of their bad assets; it’s back to business. The national debt never will be paid off/always grow, something not to forget; the money goes indirectly back to private hands so it does end up in the economy one way or another (not all debt is just printed, then it would be zimbabwe); for the governments there aren’t many options but privatise/sell and cut social programs to bring down costs or the other way to reduce debt is to devalue the money with the current deflation the governments can print money without consequences. All that needs to happen is creating a new (real estate/asset) bubble and get the economy going again, i don’t believe the system is accidential; everything is calculated; That’s why i think the great ammounts of money print/lend will in the future create hyperinflation when the economy is recovering/recovered. I don’t hope that the deflation will be solved with a new world war, but that’s what happen in the ’30s, luckily the US has no money anymore to fight another war. So if the economy (purposely) totally crashes (replacement of the dollar (as world reserve currency) marks the end of the US monopoly economy) due to the “unstoppable” destructive deflational spiral or the other way around, unstoppable destructive debt inflational spiral; implement a new global system and start over again (which is already being worked on): everytime governments implement a new economic system/regulations better be cautious for example brenton woods. I think watching the numbers is like listnening to politicians, it’s all manipulated, corrupt and lies; Just need to look for cui bono….
Of course, there CAN be deflation with fiat money. All they need to do is to create debt so that the money does not go into circulation (wages and profits). They can create real estate debt (housing market) or other “asset debt”. But they also can always create inflation by letting the money into circulation.
The argument that there has never been deflation during fiat money is not impressive. The history is so short and most of it is post WWII history, when all the biggest economies were rebuild from scratches.
Good morning and thanks for one of the best discussions ever here! Love reading all these thoughtful comments. Okay, here is my opinion on the whole debate. I haven’t heard any of the experts so far, for example, in the Financial Sense series discuss the population’s role in demanding inflation. This has happened through history where it is the speculative population, whether during the tulip frenzy, the South Sea Scheme or the Assignat time that rioted and protested essentially for the government to create more money. these fiat currency bubbles seem to create in this order: inflation, then mild deflation, then hyperinflation, then deflationary collapse
Regardless of their ideology or politics, all politicians have to be elected and in the US, the baby boomers track record is that they have altered the entire fabric of society to meet its needs whether it was ‘free love’ during their teen and early 20′s, or yuppie scum during their prime working years; to a series of stock market and then housing bubbles as they entered their prime earning years and prepped for retirement; they are a demanding, giant baby population who has never been quiet in their history; so when, during that debate, Mish and Andrew say that the social security / medicare obligations will be reneged upon, I think only Andrew gets it correct that the government of that time will do what the people demand and they will demand that money be printed to meet those obligations . . . but I think after this hyperinflation, there will be deflation as Marc Faber says;
Someone or a combination of someones is correct!
@tim hay – just so you know, Prechter was calling for gold to go to $200 for the past 10 years, now he has revised that to $650 and says (two weeks ago on Financial Sense) that it would then possibly be a buying opportunity; but anyway, he has been wrong on his gold call for a very long time but that’s because he thinks gold will go down in a deflationary collapse, when as Mish points out, gold goes up during either deflation or hyperinflation, ie when fiat currencies are in turmoil
if deflation is the case, than there is a trick up the sleeves of the fed.
Inflation is too much skin. Deflation is not enough.
But flation will not be realized until an audit happens, and if audits are globally constructed sleeving…
As the great alec baldwin said: Cui bono?
The gold… just wont stay under $1000… Poor Ben, whiping his fony tears as he laughs all the way to the printing press.
Mugabe starts helikopter, Ben enters and together they spread their looooooove.
Stacey,
I have listened to it, but if Max’s idea that in fact SPECFLATION is what fundamentally determines whether we experience inflation, deflation or stagflation, then much of this sort of debate is of little relevance. Why? Because to the extent that money creation and its flow, and rule changing and goal post shiftin in mid game and mass media control and misinformation, are more or less under the control of the financial oligarchy with the politicians who are also in their pockets, then double guessing the decisions of the oligarchs, and their next likely move, will be of much more practical relevance than all the opining we have from otherwise brillian people who more or less assume that the rules of the game are fixed, and that the game itself is not fixed. Am I making sense? Could we get you and Max to address this question, please?
My silly 2 cents…Great deflation as people chase money trying to sell whatever has value thinking cash is king and then????
Incredible hyperinflation as people recognize that there are very little commodities (Food, gas, necessities) as compared to the so called wealth (IE worthless paper money, stocks, bonds, treasuries).
God help us all and pass the shotgun shells.
Having listened to a lot of this stuff it seems to me that the terms inflation and deflation have become useless. Those who have careers in economics can barely define these and so a meaningful discussion on the subject is impossible for the general population to glean anything from. Why can’t we just use expressions like money supply, prices, debt, credit, purchasing power and so on?
On the subject Jim Willy seemed to have a point when he said that there was both and that because of that havoc was being reaped.
Mish talked about Japan but as Schiff says Japan started from a point of having savings and a productive capacity. Another point was made that the Fed doesn’t want hyper-inflation because they want to keep the banks in business. Do they? Don’t they just want to keep a few of them in business?
In the end a lot of useful information came out of the debate but on the subject of inflation v deflation – nothing really.
Yes, that is a good point, BlackDoublas. Scores of banks have gone to the wall, and as long as the important ones, the ones with influence, the ones through which vested interests are milking the good people, are being kept afloat, Mish’s argument does not stick.
Another problem is that the rules of the game, and the goal posts, can be shifted, and will be shifted, at will by those with influence. So, all this theorising and debating is probably missing the point.
And if so, then I want to know more about the role Max’s concept of SPECFLATION can play in explaining the real game, the game played by the oligarchy, and try to make more or less educated guesses about the degree of control they actually have on outcomes, and their most likely intended next few moves.
And if part of the answer is that their control is not complete, and that their plans will come unstuck from time to time, then that also will need to be built into one’s understanding and the formations of expectations.
apologies for the typo, BlackDouglas.
To Stacy re your: “these fiat currency bubbles seem to create in this order: inflation, then mild deflation, then hyperinflation, then deflationary collapse.” This is also Marc Faber’s conclusion.
I agree, it’s the mild deflation that gets everyone confused [me also as it cost me mucho last year]. The current machinery is in gear to prevent almost any credit destruction.
For example, this is my guess only: GM bankruptcy in spite of bondholder reductions did not eliminate any credit [debt] when you figure in the government stuff. Looking at the banking sector debt, most has been “Enron’ed” into the ozone to hide it with gov blessings.
Even now the worst stuff, like actual casinos are lenghtening debt maturities or even selling new equity [God help those who buy]
The worst I have seen is that China seems to be supporting their “new” real estate bubble in HK with 1.5% mortgage rates. Lines are forming to “invest” in apartments which are selling at the highest rates EVER. Propably should not call this a bubble but more like an “Apollo Launch” to the moon.
As I understand it, SPECFLATION is looking at the volatility of all things priced in dollars due to currency flows in the dollar carry trade. It’s not about the inflation/deflation debate, though bailouts of the short-squeezed will likely be paid with inflation.
For SPECFLATION I’m imagining a rough sea that completely covers the entire globe. The sea represents dollars with bobbing boats and tilting tankers representing various classes of dollar-denominated assets. As the sea gets increasing rough and choppy nobody can really know what wave will rise or lower them next. All measures of value (altitude of wave) are completely relative and limited to only being able to see the horizon and no further.
The only way to escape this madness is to be in a submarine – gold – swimming below the surface. The only way to sustainably survive is to build on the sea bed, scavenging any real assets that sink down below the surface and whilst being willfully oblivious to the chaos and destruction above.
That was an engrossing debate. I wish the audio had been better on the second hour though.
It all depends how you define inflation/deflation. This complete butchering of the definition has created the arguments and confusion.
You must separate Asset price inflation/deflation and wage inflation/deflation from global money and credit. If you define inflation as the growth in the global supply of money and credit then without any constraint on the creation of such then you can only have inflation and disinflation (a slowing rate of inflation which feels like deflation). The issue becomes muddy when you try to define money and credit, IMF SDRs, derivatives, gov stimulus packages, rebates cash for clunkers, rebate cheques, etc. It is just like the US debt ceiling, whenever it gets close they raise it, so it really has no meaning. Globally, the ability to create money and credit in all forms is unlimited and without constraint. To add a layer of complexity there is a push and flow between international entities as in Japan, expanding their money and credit had little effect as the carry trade took it offshore and created inflation outside Japan. Now, the US is becoming the carry trade… As Schiff said recently, inflation in $$s and deflation in Gold, real money.
http://www.netcastdaily.com/broadcast/fsn2009-0912-3b.mp3
I listened to all three segments and by the end of the hairsplitting on definitions of inflation and deflation and what is included in the calculation of each I came away with a feeling that all of these models and terms used are fluid and the rules of the game can be changed.
But there are basics that remain, we are a debtor nation with nothing to sell except toxic paper including the dollar.
Nations that are not in debt and have products to sell, will move away from the US model and its currency and do well.
I am not educated in finance and find it gobblygook most of the time. Especially with statistical manipulation and computer programs written to drive markets where they please. Reality and true valuation is a moving target set afloat on a sea of pirates….
@ naomi,
“Reality and true valuation is a moving target set afloat on a sea of pirates….”
The price that dare not speak its name.
The ‘market’ was abolished along with mark-to-market. Since then all prices are, as you put it, ‘a moving target set afloat on a sea of pirates…’
Mish makes a good argument for deflation. I get it that debt comes first, printing fresh crisp container ships of Federal Reserve monopoly money, at taxpayer expense, comes second. But so what? What am I supposed to do with statements like “we are going to get more deflation and this is what people have to prepare themselves for?”
Prepare … how? Buy stocking up on really good Center Cut Pork Chops at 1.83 a pound? I live in New York. $1.83 gets you NOTHING in this town, even in a 99-cent store!
If Mish is critical of the Banking Oligarchy’s use of all that fresh Ponzi Panini, I can’t find it. If it’s there to be found, I suspect it occurs some 15 minutes after my eyes glaze over and I go into a freakin’ COMA listening to yet another reason why my Incredible Shrinking Dollar is DEflation, not inflation. (deflation 104, deflation 105, defla … zzzzzzz!)
As a result, Mish’s arguments for deflation and the continued need to print more money sounds like 5-Star Praise of Bernanke & Geithner’s plan to continue to play the Beta version of Grand Theft Taxpayer on the Fed’s computer.
I’m not saying Mish’s analysis is wrong. I’m saying Speak to me in a Language I can understand. If Deflation is what happened in the Great Depression then let’s talk about Depression!
C’mon Mish. Say it! Deeeee … Pressshhhhh … sshhhhuuuuun! We’re in a Depression! And the only way out is to wipe out the Debts of ALL Americans so that ordinary citizens can go about the all-important business of making Lloyd Blankfein rich by going into DEBT ,,, Again!”
And don’t show me anymore charts. The only visual I want to see on my computer screen is the Live Feed of Lloyd Blankfein and Larry Summers IMPALED on the horns of that Big Brass BULL in Bowling Green!
Very much enjoyed the deflation vs inflation debate. As Mich said the listener was the winner. As a small consumer it says with deflation the money you pay back a year from now is worth more than today the obverse is true with inflation…as of now Shedloch is right…
Very much enjoyed the deflation vs inflation debate. As Mich said the listener was the winner. As a small consumer it says with deflation the money you pay back a year from now is worth more than today the obverse is true with inflation…as of now Shedloch is right…Marc Faber as always is a total stud. I like him because he speaks to fundamentals but hes not in love with his ideas and like all good traders he understands that the market is right.
Thank you for that, Adam C
Sep 21, 2009 at 5:01 am
Powerful imagery, and helpful at that.
Would you mind following up with some comments on the following, please:
1. how about other currencies, or assets of non-us countries? How are these accounted for in a SPECFLATION theory of asset price movements?
2. Do you think that a SPECFLATION based theoretical framework could have greater predictive power than the traditional approaches, or do you see the almost senseless and incalculable bobbing of currency and asset values to be its sole prediction?
3. What, if any, implications do you see for investor borrowing to purchase assets, gold, property, etc.? Should all debt be shunned while this chaotic state lasts? If you are tempted to say YES, then perhaps most people could not buy a home for who knows how long, and if you agree, would this implication bother you as, perhaps, extreme and a potential reductio threat to your argument? Thanks.
Logic would suggest deflation followed by inflation due to the monetary supply being inflated. The new money created by the fed wont just disappear. It is just a matter of time until enters into circulation. The Weimar-Republic experienced it’s deflationary collapse in 1920; hyperinflation peaked in 1923.
My deflated 2c
The deflationists seem neither willing nor able to factor the irrationality of central bankers and politicians into their models. This is why they can’t/won’t anticipate massive monetary inflation.
@cb
Max and Stacy would be the best to ask for more analysis of SPECFLATION. I’m certainly looking forward to more.
All fiat currencies are going to get sucked into this perfect storm (which happens to be located in the Bermuda Triangle, btw) because they’ll appreciate/depreciate depending on the flows of the carry trade as well as having to adjust for the purchase of commodities and capital goods priced in dollars to balance trade accounts. Chaos is the only proper word to describe this situation. The seas will be made all the more choppy due to the hot air and bluster of politicians and central bankers.
I’m now imagining the speculative surface of these vast fiat waves being covered in quantum foam:
http://www.zamandayolculuk.com/cetinbal/AE/E_Expanding-spacetime-foam-01.gif
Both savers and speculators will begin to self-identify with the currencies they cling to as dollarism, yenism, yuanism, etc replace feelings of nationalism. The currency wars could evolve into fighting wars as the most ‘sane’ way to psychologically deal with all the uncertainity and the only meaningful predictions will be who is most likely to survive those wars and how.
Much or very little depends on what the next G20 comes up with on 24/25 September.
I think we will first continue down the deflationary road with a new collapse of commodities and the stock market coming sometime around Sept/Oct or Feb/March. The money that the fed is creating is nothing compared to the true credit destruction that has and is occurring. Just because the banks aren’t reporting it doesn’t mean it isn’t real.
The U.S government will continue to run ridiculous deficits as a response to each new downturn (and military conquest). While that is happening the global community will come up with some other system to use as a world reserve currency. Then the international community will reject our government debt and the dollar will crash. That is when we will see hyperinflation followed by the real deflationary collapse. Just in time for the boomers retirement.
Everyone acts like the U.S. government is printing money, it is not. The bankers at the fed are printing money, the government borrows money. We would be better off if the government would print at least some money so that it could be spent into the system with no interest attached. Then maybe we could avoid the credit crash that seems to happen every 60 years or so. CREDIT BASED MONETARY SYSTEMS ALWAYS COLLAPSE! Even if it is backed by gold! The reason is that the interest is never created so ever greater quantities of loans have to be issued until they can not be repaid. Then the collapse and the bankers start over again.
It could be we have both inflation and deflation. A credit collapse leads to deflation. Governments print money to create inflation to try and offset. Eventually they have to stop and then the deflationary collapse resumes. Even Zimbabwe is now in deflation after abandoning its own destroyed currency. There seems to be an awful lot of imponderables that preclude any precise predictions regarding timelines etc. Thankfully we have websites such as this to help us laypeople decipher the situation somewhat.
Oh hey, everybody, Mish is correct. Don’t protest your government, the problem LIES in these fraudulent banksters. M1, M2 or 3 doesn’t matter? really? Take your dollars out of your bank and keep them in your pillowcase. See if it matters then. Do not trust central bankers that can play shell games with massive “electronic funds”.