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!
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until we have a number to attach to the amount of bad debts in the system the trend will be deflation IMO.. everyone knows the amount of cash and credit that has been injected to revive the economy – approx. 17 trillion all in, but nobody knows for sure what the bad debt number is. Some have it pegged at 35 – 40 trillion in total which means the deflationary collapse is only half way through… I don’t think we’ll ever know the true number as the social unrest results from the collapse will focus attention on more pressing needs and problems than trying to guess how much, exactly, banks leveraged up during the ponzi phase of the expansion… History books written 50 years from now will refer to the ‘multi-trillion debt bubble’ that wiped out the economy. Also, some say that never has there been a deflationary spiral during the post Depression, fiat currency period we live. This is true, but does that mean that it’s impossible? No, I don’t think so. There is a first time for everything and this could be that time; probably is…
Agreed…greed got the lion’s share.
http://2.bp.blogspot.com/_5vkPiCEjjdg/SquuN6aN2QI/AAAAAAAAEfM/XA1pmWNYfRQ/s1600-h/11.gif
Swedish finance minister says this is the worst crisis in our time.. and we have not yet gone through the big one….
Oh boy are we gonna get it… while the banksters enjoy our taxpayer money!
Makes sense to me Max. Also, fiat currenices tend to have a short life span. Let’s go back to the split tally sticks. There would be more honesty than in today’s system.
Just for fun.
These are examples of . . . ?
Dept. of Defense
Peacekeepers
Federal Reserve
Homeland Security
Patriot Act
Friendly Fire
Pre-emptive War
Shared Sacrifice
Pacify
Aggressive Enforcement
Job Seekers
Banking Reform
Social Security
Asymmetrical Warfare
Material Witness
Enemy Combatant
Freedom Fighter
Debriefing
Secure Freedom
Can you think of anymore?
Government desires to put the damper on individual agency:
http://www.nytimes.com/2009/09/20/weekinreview/20goodman.html?_r=1&hp
Having trouble keeping straight on who the speakers are while listening. One point on the Great Depression that I appreciated was that it was caused in part by over-indebtedness. I do not think we should consider it a coincidence that the only other time in our history that household debt was = to annual GDP was in 1929. Nor do I think it’s a coincidence that the last time our income and wealth disparity was so wide was in 1929. Seems to be pretty straight-forward that you can not take money out of the hands of the majority of the people and expect the economy to function. Once $ becomes so concentrated into the hands of a few, it ceases to circulate.
On a personal note, I had a c. card with my bank that was separate from my checking account card. I never used it, b/c I only wanted to have it for an emergency. A month ago, they raised my rate to 29.99%. Afterwards, they must’ve realized that I actually didn’t owe anything on that account, so they cut my credit line all together and said it was in “both of our interests.”
I just don’t see how anyone expects people to get out from the massive amount of debt we already have when they’re killing people with high interest rates, additional taxes, lower wages, and decreased lines of credit. Isn’t there a chance that if more people default on loans and credit cards, credit default swaps and other bets can be triggered and hurt banks even more?
Seems that one of the more basic questions ought to be: how do we get $ into the hands of the people? I see unionization as one of the more practical ways to do that here in the US. But that still does little in the meantime to help people get out of debt.
Here’s the text of Obama’s speech referred to in the NYTimes article:
http://www.nytimes.com/2009/09/15/business/15obamatext.html
So the money replaces debts not being repayed..my questions..
1. If the banks don’t lend because they consider their assets to be worhless, when will that value be corrected ? What will that correction look like? How do banks expect to benefit and what effect does it have on interbank lending and doesn’t that drive prices up?
2. If the real economy learns there is a malign vacuum lodged deep inside their trade facilitators (the banks), who says the’ll not abandon them (and the dollar), and would’t this force prices up?
3. Old question: What will happen to prices if the US has to depend on its own manufacturing.
4. It just makes no sense at all to me that banks would not lend against real assets based on their imaginary holdings. Why stop now? What/who forces them?
I don’t understand the deflation argument. During to “credit expansion” all that ”New” money was spent and injected into the system. Now, just because asset prices are lowering; that doesn’t mean that all that money is being sucked up and brought out of the system. It’s moved on and is ‘inflating’ other assets.
@Max Keiser,
Just curious; are you selling your gold during this “deflationary” period, so that you can buy it back on the cheap?
Would gold (or better for me silver) go down during this deflationary period?..
1. If the banks don’t lend because they consider their assets to be worhless, when will that value be corrected ? What will that correction look like? How do banks expect to benefit and what effect does it have on interbank lending and doesn’t that drive prices up?
Requirements are set by the Basel Committee at the BIS in Switzerland. The Basel ii capital adequacy requirements will be in force on 01/01/10 in the US. Obama is fully backing this mandate with the help of Geithner who worked for the BIS before becoming Treasury Secretary.
http://business.theatlantic.com/2009/07/mark-to-market_is_back_–_with_a_vengeance.php
http://74.125.47.132/search?q=cache:TTdIQ24Cm6IJ:docs.edhec-risk.com/mrk/000000/Press/EDHEC_Position_Paper_Basel_II_Banking_Reform.pdf+lehman+bankruptcy+and+european+banks+capital+adequacy+directives&cd=5&hl=en&ct=clnk&gl=us&lr=lang_en&client=safari
http://www.marketsmediaonline.com/news_detailsSec.htm?wP=27&wPI=2&cN=4387&UID=210188107740105361028890714060516
The “new normal” will be capital denied to individual agency. Read Obama’s speech text. Risk management will drive prices and markets.
4. It just makes no sense at all to me that banks would not lend against real assets based on their imaginary holdings. Why stop now? What/who forces them?
Banks are obligated to follow the mandates of the Basel Committee and the Financial Stability Board at the BIS. The shock and awe about to hit US banks will most probably precipitate a credit freeze, imho. Keep an eye on the libor rate…just like last year. We almost had a meltdown, but the US banks eased off the banks concerning their securitization risks and pricing. There will be no mercy this time round.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSp9VoPeHquI
“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”
My question is how can one call it deflation when the dollar is weakening? If we go into a true deflationary spiral, then the dollar would strengthen. If the dollar strengthens then gold and silver would weaken. But it seems like the dollar is weakening, gold and silver are strengthening, and the asset prices are deflating.
Also, why isn’t the overstock of inventory called into the deflation question. The loss of market appeal is driving lower prices independent of a weak currency. The overstock is astronomical but rarely mentioned.
The deficit problem in the US is ignored but everyone but Stiglitz who is cheering for the UN. The deficit won’t be sustainable after 2009.
Mish & Prechter seem like something closer to astrologists rather than serious economic forecasters.
Interesting how Mish claims repeatedly that no one else can quite understand his ever-shifting definition of deflation, and yet he can’t for the life of him explain it himself.
Max: “Also, some say that never has there been a deflationary spiral during the post Depression, fiat currency period we live.This is true, but does that mean that it’s impossible? ”
It is impossible, isn’t it? Central Bank can always print money and create inflation. Inflation eats the debt and the housing bubble. The currency becomes the problem, but USA has all it’s debts in dollars, so that either is not a problem.. or is it?
Zerohedge is down, anybody knows why?
If we agree that inflation can mean the devaluing of money or the rise in prices . . . and also agree that money is a store of wealth . . . and that assets are a store of wealth . . . then isn’t monetary inflation and asset deflation the same thing? The net result is that you lose purchasing power of your store of wealth. Saying asset deflation is the same as deflation doesn’t make sense.
@frances
Thanks for the analysis. But Maybe you miss my point. If a bank values an asset (say a house) at 350.000 on its books while it is only worth 125.000 when sold Basel is not going to change that wrong number. Meanwhile Keen says banks know full well their competitiors and they themselves only hold 125.000 in assets. Therefore they are only motivated to extend loans based on that. But when will that mistake be corrected? And how? Maybe I don’t get it.
I fear you get inflation wrong. Inflation is an increase in the money supply. Keen and Max are of the opinion that the money supplied to have velocity in the market is shrinking, therefore deflation. That may stil mean the dollar depreciates against gold because a dollar should stand for the ability to purchase goods and servces, and as the US is depleted of manufacturing capacity and many dollars are bubbles anyway the dollar is just not that attractive. The intranational and international story are different i guess..
I think many bansk are holding their breath because they fear being killed off bij the govt funded banks..
@Obladi oblada:
Banks are insolvent and hiding out like bandits. Basel ii will make them admit to bankruptcy. There is no money in FDIC. Currently the system is disfunctional. Hence the need for federal backstop to money market funds and deposits (250,000).
The question will be one of regulation on risk: but risk is what brings returns. Basically the noose is being drawn tight on capital gains outside an elite group.
Here’s an article from the Guardian regarding Basel regulations and bank lending in the UK for housing:
http://property.timesonline.co.uk/tol/life_and_style/property/buying_and_selling/article6812286.ece
Disclaimer: I analyze literature not markets.
Monies spent in excess of the “savings pool” is inflationary.
Monies spent less than the “savings pool” is deflationary.
There is credit contraction(towards or inside the “savings pool”)…deflationary.
There is credit extended in excess of the “savings pool”….inflationary
The identification of the “savings pool” must involve a severe definition of Societal PRODUCTION…..eg. any STATE driven/directed production would become immediately SUSPECT.
All estimates of the “savings pool” of Societal Production must include & acknowledge & discount all STATE Regulatory//Revenue Impacts in order to further qualify all measures of Production.
Finally, can Societal Production be described as being in the strict condition of Exchange…or, merely a TRANSFER Mechanism.
The entire world operates on a STATE directed & controlled Mercantilism…NO EXCEPTIONS. There is no Exchange Mechanism AVAILABLE. It is all Transfer of Labour. Thus there is no Real “savings pool”…..simple another application of State Directed & sanctioned MONOPOLY…..
PS///Example. Fed X reported a 50% reduction in profits on a 20% reduction in revenues. They announced a 6% price hike for Jan. Only a Monopoly with access to “zero” funds could behave this way. Any “natural” company, under similar circumstances, would be compelled to lower prices to maintain cash flow & sell off assets to stay in business.
Whigdoom is all about Monopoly. The STATE is the Enforcer of Monopoly…..The example of the British & Dutch East India Cos. should inform all….nothin’ changed….just more refined & more enforced….you refer to it as Globalization of International relations….everybody else recognizes it in its Ancient Form….War, Conquest, Confiscation & Enslavement….and so it goes.
Gotta agree with Max, Mish, Keen and the Deflation camp. No inflation for the foreseeable future.
O & O:
Inflation acts as a vector. Just increasing the money supply does not inherently create inflationary forces. This was played out when Bernanke said he did not see his bailout bonanza as inflationary. It wasn’t.
Faber is indicating he believes that there will be inflation in commodities. I believe he indicates this would be bullish for gold. But how long term can anything related to the dollar retain value? Related to being that gold, silver, and paper currencies are all intrinsically tied to dollar value being the dollar is reserve currency. The decoupling doesn’t seem to be happening as the countries are turning to the IMF for sdr allocations. IMF is planning on devaluing the dollar and rethinking the currency basket against which the sdr is valued.
Deficits are inflationary as well:
http://economix.blogs.nytimes.com/2009/05/28/inflation-fears/
SDR allotments of 250B disrupt normal currency flows:
http://www.chrismartenson.com/forum/imf-print-sdr-funny-money/15129
A two-tiered economy might see inflationary forces at one level and deflationary forces at another level: sort of like the ocean sea water with different pressure gradients.
Money as a store of value? Don’t count on it.
RED ALERT
RBS OUT OF MONEY!
http://news.bbc.co.uk/1/hi/business/8265515.stm
I smell more “QE” coming
Mike
Now we all knew this… but still..
“Federal Reserve accounts for 50% of Q2 treasury purchases”
http://www.zerohedge.com/article/federal-reserve-accounts-50-q2-treasury-purchases
On another, Mugabe in talks with Bernanke on how to implement Mugabe-economics on global scale.
RED Alert x10 !
HSBC
The Dollar is FINISHED!
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6211858/HSBC-bids-farewell-to-dollar-supremacy.html
Dollar looks like strling after World war 1 !
Mike
Mish made an ass of himself, deflationary scare, then back to business. All the deflationists (Mish, Hugh Hendry,Shilling) are some spin-off off of Robert Precter’s analysis. Mega uncontrolable deflation is a myth. When has this ever happened in fiat history?
“history is the story of who rides whom…and how”…..E.G.
@Mike, that’s a link with a BOOM in it…
I wonder what good old Helicopter Ben will do now (we all know don’t we)…
Check out gold and silver charts coming days… It will almost certainly be called the parabolic chart of the year!
50% !!!
@BenBenanke
Number 4: Know you heard this before, never get high on your own supply
@China
Number 6: That God damn credit, dead it. You think a crackhead payin’ you back, shit forget it
Ten Crack Commandments
http://www.youtube.com/watch?v=6ihPOTDxMfE
@AdamC:
Nice Analysis!
inflation of the necessities; deflation of everything else – this will be the ultimate destination for 6-billion plus.
Hows about Max sticking this clip on next epsiode.
Wall Street Fighter IV
http://www.youtube.com/watch?v=Nlpsvq0k4MI&feature=rec-HM-r2
@Brain:
Like we don’t know the title of the book, but we will be squashed flat inside the leaves. Who is the author?
Tonights Movie:-
Rollover:-
Stacy Herbert………… Jane Fonda
Max Keiser……………..The Leading Bloke
Alan Greenspan……The old Bloke
http://www.youtube.com/watch?v=ju1qdHhdQQk&feature=related
Mike
Finished both. Faber always manages to see all the angles.
My thoughts on the deflation/inflation debate…
It’s both: we’re in a state of DISINFLATION. Only if the speed of debt destruction continually outpaces money printing is it deflation (or if you just price things in gold). The policy has always been continual inflation and the policy will be enforced.
Disinflation explains why asset prices are falling whilst consumer goods are still rising. The uncertainty disinflation causes leads to price volatility regardless of actual changes in the credit+money supply.
Major Kudos to Brian…otherwise known as Monopoly, Sir…..Anglo-Saxon-Norman Heaven. …Happiness to All….little Benthamites All. Wal-Marts & McDonalds & Coca-Kola for all those Patriotic Barracked Helots….SS Numbers…SS what’s the diff???
If the experts have trouble deciding whether it is inflation or deflation then what chance do we normal people have? These are guys that have been in the game for decades, not a newbie college graduate trying to impress people that I could have more easily dismissed. And then we got an economist saying the money creation is not happening in the way we would normally believe. At one point even they had problems agreeing what the definition on inflation and deflation really was. That just makes me even more confused!
If banks do create debt money without the need for government base money and still have the money multiplier going too, then in my mind the banks are the one controlling inflation/deflation. All banks need to lend money in order to survive, the question is how much they can lend until it hurts, the more they lend the more money is created in the system and that then leads to increased inflation. As of now we see the banks are reluctant to lend money, which in my bizarre thought halts the inflation process and since it takes time to recall loans/pay back loans from the public/business sector we end up in a vacuum for a time being with no inflation created and no deflation. But if the paybacks/recalls of loans continue for some years without banks loosening up and give new loans then I see real deflation happening. Also if all government stimulus money ends up in the banks that are the ones controlling the flow of money in the first place then we can’t decide whether it is inflation or deflation without looking at the flow of lending and paybacks to and from the banks – which now seems to go slow. If inflation and deflation is the increase in money supply or decrease in money supply. I guess I end up with thinking it is for now a stagnation period(in lack of better word) the buffer zone between inf/def that nobody seems to want to be in.
@Palantiri:you know your argument reminds of a discussion I had with my ex-sister-in-law…she wanted to know about schizophrenia…I realized she was of that particular mindset that had already demonized the schizophrenic merely because a PH.D. had diagnosed that person as such…so I began to explain that within the mind and the brain all the various states of mind exist( paranoia, schizophrenia, neurosis, psychosis, etc..) and unfortunately if and when you are before one of the esteemed diagnosticians( psychiatrists) and one of the several states might be clearly evident…even though but for a moment…alas in that moment, you are deemed a schizophrenic…labeled forever to suffer the societal trauma that those folks are placed under..so I believe that this argument: [ deflation v. inflation ] is very much like that…all the pressures of the economy are swirling about and the one that a particular economist latches onto at a particular moment is fixated ( as though a gaseous form to a solid) and labeled just as the schizophrenic…and thus it is my belief that in this command and control economy ( and this is pure conjecture) all the facets are in play: inflation, deflation, disinflation, hyperinflation and hyperdeflation….it all depends which side of the crystal you view the system…anyway that’s my take on it…
@Max, I wrote a letter to the biggest newspaper and tv-channel here in Sweden. Not that it matters because I dont have any high hopes.. but if it does.. I will get back to you!
I must admit I’ve been a gold bug for the past 7 years. I’m now selling most of my gold and silver. Keeping about 8 percent of my “wealth” in gold and the 2 percent in silver. The rest I’m not sure of what I’m doing with it.
The man that pointed it out to me is Robert Prechter the elliott wave guy. Here’s his take on deflation from the Financial Sense News Hour September 5, 2009
http://www.netcastdaily.com/broadcast/fsn2009-0905-3a.mp3
@Max
Re: PMF “911 Inside Trading”
http://fromthewilderness.com/free/ww3/index.shtml#inside
May 27, 2009
Liquidity drowns meaning of ‘inflation’
By Henry C K Liu
The conventional terms of inflation and deflation are no longer adequate for describing the overall monetary effect of excess liquidity recently released …
… Falling demand deflates commodity prices, but not enough to restore demand because aggregate wages are falling faster. When financial institutions deleverage with free money from the central bank, the creditors receive the money while the Fed assumes the toxic liability by expanding its balance sheet. Deleverage reduces financial costs while increasing cash flow to allow zombie financial institutions to return to nominal profitability with unearned income and while laying off workers to cut operational cost. Thus we have financial profit inflation with price deflation in a shrinking economy.
What we will have going forward is not Weimar Republic-type price hyperinflation, but a financial profit inflation in which zombie financial institutions turn nominally profitable in a collapsing economy. The danger is that this unearned nominal financial profit is mistaken as a sign of economic recovery, inducing the public to invest what remaining wealth they still hold, only to lose more of it at the next market meltdown, which will come when the profit bubble bursts. …
… Debt denominated in fiat currency is borrowed wealth to be repaid later with wealth stored in money protected by monetary policy. Bank deleveraging with Fed new money cancels private debt at full face value with money that has not been earned by anyone, that is with no stored wealth. That kind of money is toxic in that the more valuable it is (with increased purchasing power to buy more as prices deflate), the more it degrades wealth because no wealth has been put into the money to be stored, thus negating the fundamental prerequisite of money as a storer of value. …”
Fictitious assets down (all dumped or underwritten by the state now), real commodities up, zombie banks refloated, taxpayers soaked — their wealth transferred via rapidly devaluing tokens being issued free to banks, who can then bid for whatever they like.
The bastards have won. A reading of the post on this thread is a mix of varouis blendings of the meanings of inflation/deflation.
My understanding from Austrian economics is:
Inflation is an increase in quantity of money and/or credit, while delation is the opposite.
Prices: Generally falling prices I call “Falling Prices” and never deflation, while generally increasing prices I call “Increasing Prices” and never inflation.
You cannot have Infation with Falling Prices. Be careful to consider the destruction [written off not hidden] of credit. The period of Oct 08 – Mar 09 was a periond of Deflation with Falling Prices al la Bear Stearns & Lehman.
Today, I believe we are in an Inflation period with Rising Prices, soon to approach hyper-inflation. Be careful NOT to include the credit which is now being hidden al la Enron on various balance sheets. This credit is NOT being reduced or destroyed, just hidden and growing.
http://www.theaustralian.news.com.au/story/0,25197,26103086-12377,00.html
“ha”
Well, it seems Jim Willie is striking back at Denninger…
But that’s not the message…
check out his radio broadcast for sept 19th
He touches on Silver, Swine Flu, China, and crappy banks that may be failing in the next couple weeks
Oh and the BIS !!!!
http://www.contraryinvestorscafe.com/partners.php?pid=62242
From Anon in ZH
Stimulus Explained
Imagine this scenario:
It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.
The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.
The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.
The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.
The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.
At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism …
And that, ladies and gentlemen, is how governments are doing business today.
@harry_w: that’s about what I had in mind…the paradigm shift creates a new language to describe the current deflation/inflation debate….the trillions in abeyance within the numerous banks seems to have a self perpetuating sense of solvency that would be non-existent if the liquidity had not been infused into the illiquid system….thus Max brings to light the hyper fast track algorhythmic trading that manages to give the appearance of a blossoming stock market and a robust economy…affording the major bank traders with untold bonuses ..once again it becomes: “the bonuses and fees stupid” while the mainstay: the physical economy takes a back seat….or is pushed off the cliff whichever the case may be…A virtual economy with avatars inhabiting the rooms within are substituting for any form of day to day reality based economy…I was only kidding when I suggested that a trader may never leave his G-5 Gulfstream while making trillions online and never have to land……So I ask: Is this the wave of the future?????
@y’all
I think we might have to send someone out for more drinks!
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”.