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If I can presume to speak for Jesse, I think this statement is exactly what he is trying to address. If our economy were a constrained system, this would be true. But we have a purely fiat currency, and therefore this result is a choice.Jason wrote:At some point the tipping point is reached in the ability to take on additional debt and major deflation (not enough cash to go around) is the result. I believe we are there!
If "we" choose to do nothing and let the system run its course, then yes, we have deflation.Jesse wrote:The growth rate of dollars is slowing at the same time that the 'demand' for dollars, the velocity of money and the creation of new commercial credit, is slowing. GDP is negative, and the growth rate of money supply is still positive, and rather healthy. This is not a monetary deflation, but rather the signs of an emerging stagflation fueled by slow real economic activity and monetization, or hot money, from the Fed. The monetary authority is trying to lead the economic recovery through unusual monetary growth. All they are doing is creating more malinvestment, risk addiction, and asset bubbles.
A year ago, I predicted a big bank holiday to sort out the bad debt. And in any reasonable system, this would have happened. Who would have expected $12 trillion dollars worth of money and guarantees to the banks? (Or whatever the current total is.) Likewise, if the government gave $1 trillion dollars to the people, we would spend it, and we would have inflation despite debt paydowns. This won't happen, but there are always ways to cause money to be spent when you can create any amount of it.sljck wrote:Many like to constrain future policy decisions with historic precedents, but these are unprecedented times, and the policy makers are unreasonable.
sljck wrote:If "we" choose to do nothing and let the system run its course, then yes, we have deflation.
If "we" choose to do what is being done--monetization--then we have stagflation.
If "we" choose to monetize all the debt needed to run our current course--essentially defaulting--then we have hyperinflation.
This is precisely what the 'Fed' has done and continues to do.
Very well said!!! Agree 100%JMarsigli wrote:I have not followed the debate specifically on this board, so please excuse me if I'm repeating arguments. Here's my $.02:
The US is different than Zimbabwe or Russia. We are credit based, they were not. Milton Friedman's point on inflation being a monetary phenomenon is nearly useless in reality inside the current US system.
The Fed can print all they want, but if nobody is buying, if nobody is working, and if no money actually makes it into the real economy then prices are not likely to go up. Supply and demand is the only economic rule that truly matters. Increasing the money supply has not increased the money chasing goods. There is still no demand. Besides, when demand does return, the government will have to raise taxes. That's deflationary.
During the later stages and after the Great Depression, businesses got used to PROFITLESS PROSPERITY. This is a very important concept that economists and inflationistas are ignoring. Profitless prosperity happens in a credit driven society when there is an excess supply of labor and excess production capacity. We are at a historical low capacity utilization. If and when demand returns, pressing prices up, factories will call back workers and will very quickly balance the supply side to the demand side. Plus, new labor will probably be cheaper than those laid off before the d-process. This capacity glut results in continued price competition instead of price escalation. So where is the inflation?
The only possibility I see for inflation is not actually inflation at all (at least how I would define it, demand pressure on goods). We may see inflation from a loss of our "stability premium", where the dollar value drops compared to foreign currencies. This could raise the price of foreign goods, such as oil. However, as US consumers are the economic driver of much of world GDP, this will likely end up as a deflationary pressure as well. A lower dollar value means the US consumer will be able to buy less. This will turn China upside down. They'll have to cut costs or close factories. Their other option is to replace their private sector and start dumping dollar holdings on the market by purchasing US goods. The People's Republic will have to feed their people somehow. If the people cannot work for food then they'll have to start spending dollar reserves to make up the difference. This would result in serious inflation as well as real job creation in the US.
I'm all eyes on China right now. If it gets bad enough then they'll start buying more N. American food and fertilizers. Food stocks are in very short supply right now, and are pretty much the only category where inventory is falling faster than demand (demand -20%, inventory -35%). Every other category has dropped inventory about 1/2 as fast as demand has dropped (which is more inflation moderation).
Anyway, pick it apart.
This sounds pretty similar to Gary North's argument, one I don't really care for because he doesn't back it up with any data. North tells a good story, but there are plenty limits to his idea that the government can (and will) solve deflation by printing all the money needed.sljck wrote:A year ago, I predicted a big bank holiday to sort out the bad debt. And in any reasonable system, this would have happened. Who would have expected $12 trillion dollars worth of money and guarantees to the banks? (Or whatever the current total is.) Likewise, if the government gave $1 trillion dollars to the people, we would spend it, and we would have inflation despite debt paydowns. This won't happen, but there are always ways to cause money to be spent when you can create any amount of it.
The whole point is that policy will determine 'flation. We don't have any good outcomes left to choose, but "we" can certainly choose between some sort of default and some sort of deflation.
I read this Jesse article. It's pure garbage. All he is doing is making wild claims and stating them as if they are fact. He does nothing to back his claims up or articulate his points (i.e. "hot money"). Jason said it best:sljck wrote:Like us all, I'm very interested in where 'flation is headed, so I have been reading the financial blogs about it for a year. In my opinion, the best yet post in the 'flation debate is this:
http://jessescrossroadscafe.blogspot.co ... ostic.html
Judging from the comments on Naked Capitalism, Mish, and Deninger, many think highly of Jesse's commentary, and I agree.
My problem with any analysis, including your well-thought one is the unreliability of data or intention. For those that believe in the positive FED, you have the careful balancing act of writing guarantees (that could be characterized as M3) to put upward pressure on deflation in order to land the plane carefully, but then recalling the guarantees as the economy heats up again. Fine. I don't know if they can fit through that window--they tried in the 70's and they created stagflation. Every time they lowered r, investors got skittish about bonds, they bounced out, and it raised i. It took a carefully raised r to boost investor confidence because of a responsible FED, and the Keynesian conservative tax cut to stimulate GDP to get us out of the mess - thank you Reagan and Volcker. Now, perhaps there is so many people worldwide holding bonds that they don't have the luxury to bounce out. Or, as some Chinese analysts have seen, the Chinese decide that they can go it alone and can weather the catastrophe better than we for they will have the actual goods in warehouses. This is a policy debate or international intrigue. Will they or won't they?JMarsigli wrote:I read this Jesse article. It's pure garbage. All he is doing is making wild claims and stating them as if they are fact. He does nothing to back his claims up or articulate his points (i.e. "hot money"). Jason said it best:sljck wrote:Like us all, I'm very interested in where 'flation is headed, so I have been reading the financial blogs about it for a year. In my opinion, the best yet post in the 'flation debate is this:
http://jessescrossroadscafe.blogspot.co ... ostic.html
Judging from the comments on Naked Capitalism, Mish, and Deninger, many think highly of Jesse's commentary, and I agree.
"Skirting around the 800lb gorilla while still trying to pay homage! LOL"
Jesse completely avoids the effects of fractional reserve banking on multiplying actual money. In our system, money shrinks when total debt does. Debt must always expand or we have a deflationary spiral. There's no way around this argument. The Fed is trying to replace the lost consumer, business, and investor debt, and hopes it will spur enough confidence so the private sector or overseas interests will take on more debt themselves. They know they can never print/go into debt enough to replace everyone else on the globe (without causing a crash).
This oft quoted line is misleading. The lost wealth was not destroyed money for the most part. $8+ trillion in stocks, but stocks are a zero-sum game. $6 trillion in housing and other junk--which would be partially destroyed but the banks have not allowed this. We all agree that velocity has decreased accordingly. As Denninger loves to point out, no net deleveraging has occurred in our country, and he backs it up with data every time. The government need not print anywhere near $14 trillion to cause serious inflation.JMarsigli wrote:I agree with you that the government can print $14+ trillion to replace the loss in household wealth, the countless trillions lost through credit contraction (factoring in a velocity multiplier, of course), and whatever extra amount would be necessary to put us back in front of the debt at your heals game.
Suit yourself with your garbage-o-meter. But you are mistaken that he presented no data--total lending in credit markets and the growth in money supply were both shown. And since we all know that GDP is shrinking, this is pretty much all the data needed to show stagflation.JMarsigli wrote:I read this Jesse article. It's pure garbage. All he is doing is making wild claims and stating them as if they are fact.
Or we default. And stretching the default for a few months or maybe even years is certainly within "our" powers, save China saying "absolutely not." I don't think China is in a position to do that right now.JMarsigli wrote:Debt must always expand or we have a deflationary spiral.
Not sure how you can reference Karl and then follow it up with a statement like the one in bold. Karl is a deflationist through and through. Then again maybe you disagree with him? I wouldn't second guess him though. The guy is right WAY more than he is wrong.This oft quoted line is misleading. The lost wealth was not destroyed money for the most part. $8+ trillion in stocks, but stocks are a zero-sum game. $6 trillion in housing and other junk--which would be partially destroyed but the banks have not allowed this. We all agree that velocity has decreased accordingly. As Denninger loves to point out, no net deleveraging has occurred in our country, and he backs it up with data every time. The government need not print anywhere near $14 trillion to cause serious inflation.
It is a land grab. The big 4 or 5 banks, with government backing, pick away at the smaller banks while FDIC insurance fees, along with the rest of the costs of doing business (defaults, etc.) increase. The WAMU deal is a perfect example. Wells Fargo picked through the mortgages taking the cream of the crop and still paid 15 cents on the dollar.pjbrownie wrote:My problem with any analysis, including your well-thought one is the unreliability of data or intention. For those that believe in the positive FED, you have the careful balancing act of writing guarantees (that could be characterized as M3) to put upward pressure on deflation in order to land the plane carefully, but then recalling the guarantees as the economy heats up again. Fine. I don't know if they can fit through that window--they tried in the 70's and they created stagflation. Every time they lowered r, investors got skittish about bonds, they bounced out, and it raised i. It took a carefully raised r to boost investor confidence because of a responsible FED, and the Keynesian conservative tax cut to stimulate GDP to get us out of the mess - thank you Reagan and Volcker. Now, perhaps there is so many people worldwide holding bonds that they don't have the luxury to bounce out. Or, as some Chinese analysts have seen, the Chinese decide that they can go it alone and can weather the catastrophe better than we for they will have the actual goods in warehouses. This is a policy debate or international intrigue. Will they or won't they?JMarsigli wrote:I read this Jesse article. It's pure garbage. All he is doing is making wild claims and stating them as if they are fact. He does nothing to back his claims up or articulate his points (i.e. "hot money"). Jason said it best:sljck wrote:Like us all, I'm very interested in where 'flation is headed, so I have been reading the financial blogs about it for a year. In my opinion, the best yet post in the 'flation debate is this:
http://jessescrossroadscafe.blogspot.co ... ostic.html
Judging from the comments on Naked Capitalism, Mish, and Deninger, many think highly of Jesse's commentary, and I agree.
"Skirting around the 800lb gorilla while still trying to pay homage! LOL"
Jesse completely avoids the effects of fractional reserve banking on multiplying actual money. In our system, money shrinks when total debt does. Debt must always expand or we have a deflationary spiral. There's no way around this argument. The Fed is trying to replace the lost consumer, business, and investor debt, and hopes it will spur enough confidence so the private sector or overseas interests will take on more debt themselves. They know they can never print/go into debt enough to replace everyone else on the globe (without causing a crash).
Then there's those like myself that believe in the negative FED, the one that falsifies data to hide true values of debt to keep the players happy, or the FED that creates bubbles, then crashes them, then consolidates the losses through taxpayer stimulus to their public face, Goldman Sachs. Then we have to figure out what they're doing with this M3 TARP crap that is all hush-hush. Perhaps they're the benevolent dictators, doling it out as needed, but who trusts benevolent dictators when they have all of the opportunity and history of becoming malevolent. Are they just causing a temporary take and consolidation (many little banks have been and are going to be destroyed with their buddies holding the rest of the pie). Are they going to print just enough to actually crash the dollar in order to make America impotent and internationalize the banking structure with one world currency? Would they allow the inflation to happen then come in and rescue us with some other international fiat currency? Who knows? I just don't trust them. I have read too much of the Book of Mormon to trust them.
http://www.housingwire.com/2009/09/25/f ... -at-256bn/The Federal Reserve’s gross purchases of mortgage-backed securities (MBS) from the government-sponsored enterprises (GSEs) reached $25.6bn for the week September 17 through September 23. The spending confirms the Federal Open Market Committee’s (FOMC) report that the Fed is on track to buy $1.25trn in agency MBS, and intends to wind down the purchasing program before its anticipated conclusion at the end of Q110.
Barclays Capital analysts reported that the Fed has bought MBS at a “steady pace of $25bn per week.” It may be the last week of steady purchases, as the analysts expect the pace to slow slightly in the weeks to come.
You know, there may be one institution even more bankrupt than Washington and that's the 'Fed'! What a ponzi operation!Jason wrote:http://www.housingwire.com/2009/09/25/f ... -at-256bn/The Federal Reserve’s gross purchases of mortgage-backed securities (MBS) from the government-sponsored enterprises (GSEs) reached $25.6bn for the week September 17 through September 23. The spending confirms the Federal Open Market Committee’s (FOMC) report that the Fed is on track to buy $1.25trn in agency MBS, and intends to wind down the purchasing program before its anticipated conclusion at the end of Q110.
Barclays Capital analysts reported that the Fed has bought MBS at a “steady pace of $25bn per week.” It may be the last week of steady purchases, as the analysts expect the pace to slow slightly in the weeks to come.
Interesting that you avoided bringing up the wealth effect of dropping home values, the decreased bank lending that resulted, and the other two parts I added. Stocks are not zero-sum. That argument says stocks go up exactly as much as other investment vehicles go down. The relationship is not linear. Stocks can rise due to interest. Was any money actually created? No. But do rising values have a psychological effect on spending? Absolutely. In the case of home values, consumption spending increases about 8% of the home value increase. Lose that value and you'll lose at least 8% spending. That's seriously deflationary.sljck wrote:This oft quoted line is misleading. The lost wealth was not destroyed money for the most part. $8+ trillion in stocks, but stocks are a zero-sum game. $6 trillion in housing and other junk--which would be partially destroyed but the banks have not allowed this. We all agree that velocity has decreased accordingly. As Denninger loves to point out, no net deleveraging has occurred in our country, and he backs it up with data every time. The government need not print anywhere near $14 trillion to cause serious inflation.
That little graphic does not justify the majority of his claims. It's not even related to the majority of his long argument.sljck wrote:Suit yourself with your garbage-o-meter. But you are mistaken that he presented no data--total lending in credit markets and the growth in money supply were both shown. And since we all know that GDP is shrinking, this is pretty much all the data needed to show stagflation.
Lol, you "dislike the religious fervor" but you seem married to this dogma that government can control inflation! That seems a little contradictory to me. Besides, if the policy makers could stop deflation then they would have already, and unemployment would be going down as the miners rush to the quarries.sljck wrote:I'll step out now. I dislike the religious fervor of the 'flation debate. There is a choice of outcomes for the policy makers, and it is not just a theoretical choice. For those that prefer more moderate views, I once again recommend Jesse's site; I find it exceptional, and I have read them all. (And he sells nothing, not even ads.)
I think this justifies my argument that the Fed cannot control the market at will. I may be splitting hairs if we got into the definitions, but I think most recessions are inflationary caused, where this one and the GD were d-processes. I don't think we can compare the '70's stagflation to today because those recessions were caused by inflation, this one the opposite. There was too much money in the system then, too much velocity, and lowering rates spurred even more borrowing. Plus, people weren't holding off on purchases because they knew things would cost much more tomorrow. The psychology is completely opposite today, and nobody is buying forward without receiving a government handout first. In addition, price controls caused supply constraints, another inflationary force. I don't see the rock bottom interest rates today doing much of anything besides benefiting the banks (steep yield curve). Low rates back then spurred home purchases. That's not happening now, and rates are probably higher than they should be because we're losing the stability premium, which lowers rates.pjbrownie wrote:My problem with any analysis, including your well-thought one is the unreliability of data or intention. For those that believe in the positive FED, you have the careful balancing act of writing guarantees (that could be characterized as M3) to put upward pressure on deflation in order to land the plane carefully, but then recalling the guarantees as the economy heats up again. Fine. I don't know if they can fit through that window--they tried in the 70's and they created stagflation. Every time they lowered r, investors got skittish about bonds, they bounced out, and it raised i. It took a carefully raised r to boost investor confidence because of a responsible FED, and the Keynesian conservative tax cut to stimulate GDP to get us out of the mess - thank you Reagan and Volcker. Now, perhaps there is so many people worldwide holding bonds that they don't have the luxury to bounce out. Or, as some Chinese analysts have seen, the Chinese decide that they can go it alone and can weather the catastrophe better than we for they will have the actual goods in warehouses. This is a policy debate or international intrigue. Will they or won't they?
Well the difference between then and now is then, the FED was contracting the money supply and raising rates. They were also much more transparent back then. Now, not so much. They're also doing quite the opposite now that they did then, supposedly. Hard to tell when M3 is a hat trick.JMarsigli wrote:I think this justifies my argument that the Fed cannot control the market at will. I may be splitting hairs if we got into the definitions, but I think most recessions are inflationary caused, where this one and the GD were d-processes. I don't think we can compare the '70's stagflation to today because those recessions were caused by inflation, this one the opposite. There was too much money in the system then, too much velocity, and lowering rates spurred even more borrowing. Plus, people weren't holding off on purchases because they knew things would cost much more tomorrow. The psychology is completely opposite today, and nobody is buying forward without receiving a government handout first. In addition, price controls caused supply constraints, another inflationary force. I don't see the rock bottom interest rates today doing much of anything besides benefiting the banks (steep yield curve). Low rates back then spurred home purchases. That's not happening now, and rates are probably higher than they should be because we're losing the stability premium, which lowers rates.pjbrownie wrote:My problem with any analysis, including your well-thought one is the unreliability of data or intention. For those that believe in the positive FED, you have the careful balancing act of writing guarantees (that could be characterized as M3) to put upward pressure on deflation in order to land the plane carefully, but then recalling the guarantees as the economy heats up again. Fine. I don't know if they can fit through that window--they tried in the 70's and they created stagflation. Every time they lowered r, investors got skittish about bonds, they bounced out, and it raised i. It took a carefully raised r to boost investor confidence because of a responsible FED, and the Keynesian conservative tax cut to stimulate GDP to get us out of the mess - thank you Reagan and Volcker. Now, perhaps there is so many people worldwide holding bonds that they don't have the luxury to bounce out. Or, as some Chinese analysts have seen, the Chinese decide that they can go it alone and can weather the catastrophe better than we for they will have the actual goods in warehouses. This is a policy debate or international intrigue. Will they or won't they?
What do you think PJ?
I'm undecided on this. Stimulus definitely creates/saves some jobs, makes life easier, and keeps sales turning. On the other hand, confidence goes a long ways. I thought investors really worried about policy during this recession, and the sentiment was "do nothing and wait to see what Washington does first". That definitely hurts recovery. Also, the short term benefit will always crowd out real growth in the private sector. Any recovery will be to a lower level of per capita production (higher gov:private sector) unless significant production advancements outweigh the government growth. I also think the jury is still out on whether or not stimulus actually helps recovery (during deflation). Many now argue (ex: Christina Romer) that Great Depression stimulus was actually closer to on balance stimulus, thus tax hikes worked against more spending elsewhere.pjbrownie wrote:...I'm one of those that argues that stimulus works, but its inefficient and won't give you full employment. It keeps the economy dour if stable. Cuts helps spur better because they're more efficient. Doing nothing makes investors more confident because they're not worried about some government price freeze, or monetary rate shift. They trust markets.
Not in my neighborhood, which was way overpriced anyway. I'd agree elsewhere. However, I see a problem in the future where one buyer got the $8k first time credit + $6000 state grant, but a neighbor did not. If the grantee decides to sell then they can take 14K less with no skin off their backs, which will lower neighborhood home values. The poor people who did not win the government lottery are overpaying, and will have to sit for a long time before their house value catches up to what they paid.pjbrownie wrote:On the housing market, as one who is hunting in the housing market, it has gone up at least in Utah on the low end. Low rates and stimulus have helped freeze the fall and shore up the low end only. I'm having a hard time getting a deal because they go too fast.
Stability premium is the low rate t-bills pay compared to other, less stable countries. We pay low interest on borrowed money because our system is considered the least corrupted, we generally respect property rights, our debt:GDP ratio is low compared to other similarly developed nations, and we were (hopefully still are?) considered as close to zero default risk as you can get. In my opinion, US mortgage rates are lower as a result of our stability premium (repo's and other more technical financing structures linked to short term treasury rates are behind a lot of MBS financing).pjbrownie wrote:Explain the stability premium, what do you mean by that? I've never heard of the term.
I'm okay with stimulus if it goes directly to infrastructure. This way it is an investment. ROI's on roads and dams usually pay for themselves four times over. The jobs created have a multiplier effect. However, if you just do a tax cut, it does the same thing and more efficiently. Liberals will say that the tax cuts will just be put under the mattress but studies have now shown that savings has an event great multiplier, it's just more long term.I'm undecided on this. Stimulus definitely creates/saves some jobs, makes life easier, and keeps sales turning. On the other hand, confidence goes a long ways. I thought investors really worried about policy during this recession, and the sentiment was "do nothing and wait to see what Washington does first". That definitely hurts recovery. Also, the short term benefit will always crowd out real growth in the private sector. Any recovery will be to a lower level of per capita production (higher gov:private sector) unless significant production advancements outweigh the government growth. I also think the jury is still out on whether or not stimulus actually helps recovery (during deflation). Many now argue (ex: Christina Romer) that Great Depression stimulus was actually closer to on balance stimulus, thus tax hikes worked against more spending elsewhere.
This creates more instability, but it also creates more opportunities. Downturns have a a very short run, but they are deep. I prefer taking all of the medicine now versus dragging it out.Anyway, my preference is to quit building bubbles, and let the ones the market creates on its own clear themselves out quickly. New, very low bottoms are great for the middle class and help equalize wealth imbalances. For example, how many retirees with savings would have loved to purchase super cheap homes?
Code: Select all
Not in my neighborhood, which was way overpriced anyway. I'd agree elsewhere. However, I see a problem in the future where one buyer got the $8k first time credit + $6000 state grant, but a neighbor did not. If the grantee decides to sell then they can take 14K less with no skin off their backs, which will lower neighborhood home values. The poor people who did not win the government lottery are overpaying, and will have to sit for a long time before their house value catches up to what they paid.Rents have gone down 20-30% in the 10 months I was in Minnesota. The rent vs buy equation is weighted heavily towards rent still....pjbrownie wrote:I'm okay with stimulus if it goes directly to infrastructure. This way it is an investment. ROI's on roads and dams usually pay for themselves four times over. The jobs created have a multiplier effect. However, if you just do a tax cut, it does the same thing and more efficiently. Liberals will say that the tax cuts will just be put under the mattress but studies have now shown that savings has an event great multiplier, it's just more long term.I'm undecided on this. Stimulus definitely creates/saves some jobs, makes life easier, and keeps sales turning. On the other hand, confidence goes a long ways. I thought investors really worried about policy during this recession, and the sentiment was "do nothing and wait to see what Washington does first". That definitely hurts recovery. Also, the short term benefit will always crowd out real growth in the private sector. Any recovery will be to a lower level of per capita production (higher gov:private sector) unless significant production advancements outweigh the government growth. I also think the jury is still out on whether or not stimulus actually helps recovery (during deflation). Many now argue (ex: Christina Romer) that Great Depression stimulus was actually closer to on balance stimulus, thus tax hikes worked against more spending elsewhere.
This creates more instability, but it also creates more opportunities. Downturns have a a very short run, but they are deep. I prefer taking all of the medicine now versus dragging it out.Anyway, my preference is to quit building bubbles, and let the ones the market creates on its own clear themselves out quickly. New, very low bottoms are great for the middle class and help equalize wealth imbalances. For example, how many retirees with savings would have loved to purchase super cheap homes?
You are correct about the stimulus. It is ENTIRELY what is stabilizing the low end. It may have the psychological effect of keeping the furnaces stoked if it goes away, but I'm not sure. If there was no stimulus, I would not consider buying a home at all, preferring instead to wait for trends to go north.Code: Select all
Not in my neighborhood, which was way overpriced anyway. I'd agree elsewhere. However, I see a problem in the future where one buyer got the $8k first time credit + $6000 state grant, but a neighbor did not. If the grantee decides to sell then they can take 14K less with no skin off their backs, which will lower neighborhood home values. The poor people who did not win the government lottery are overpaying, and will have to sit for a long time before their house value catches up to what they paid.
The Fed's recapitalizing of the big banks (hence the appearance of increasing the money supply) does not constitute printing excess but the bare minimum needed to shore up the banking system and prevent a complete collapse. The last stats I saw on stimulus spending stated only 1/4 of the funds had been spent. Oil is artificially supported because the Saudi's have cut 1/4 of their production to shore up pricing. At $2/barrel production costs they are still making piles of money. Fuel costs help keep transportation costs up thus stabilizing food prices. I haven't seen the creep up in prices you mention....perhaps you can provide some statistics....Original_Intent wrote:We are currently seeing credit deflation and monetary inflation. Prices are dropping because credit deflation has an immediate effect on the price of goods and monetary inflation takes 18-24 months to hit the the streets.
Thus things that are bought on long term credit usually - homes, cars,high end electronics etc. are dropping in price. Day to day stuff like food as well as long term things like gold, silver, are steadily creeping upwards. I expect that stock market prices are going to also continue upwards as the price of stoks are in dollars. So expect the DJIA etc to continue upwards, however their value in current dollars will actually be dropping imho. It will all be inflation. Of course on the downside for stocks is the commercial real estate bubble which still has not popped.
Also, do not trust CPI numbers as a measure of inflation, they manipulate that in so many ways. The reason they quit measuring inflation by M1 numbers and started using the CPI is the M1 could not be manipulated the way the CPI can.
Exactly correct Jason. Here's a more in depth look:Jason wrote:The Fed's recapitalizing of the big banks (hence the appearance of increasing the money supply) does not constitute printing excess but the bare minimum needed to shore up the banking system and prevent a complete collapse. The last stats I saw on stimulus spending stated only 1/4 of the funds had been spent. Oil is artificially supported because the Saudi's have cut 1/4 of their production to shore up pricing. At $2/barrel production costs they are still making piles of money. Fuel costs help keep transportation costs up thus stabilizing food prices. I haven't seen the creep up in prices you mention....perhaps you can provide some statistics....Original_Intent wrote:We are currently seeing credit deflation and monetary inflation. Prices are dropping because credit deflation has an immediate effect on the price of goods and monetary inflation takes 18-24 months to hit the the streets.
Thus things that are bought on long term credit usually - homes, cars,high end electronics etc. are dropping in price. Day to day stuff like food as well as long term things like gold, silver, are steadily creeping upwards. I expect that stock market prices are going to also continue upwards as the price of stoks are in dollars. So expect the DJIA etc to continue upwards, however their value in current dollars will actually be dropping imho. It will all be inflation. Of course on the downside for stocks is the commercial real estate bubble which still has not popped.
Also, do not trust CPI numbers as a measure of inflation, they manipulate that in so many ways. The reason they quit measuring inflation by M1 numbers and started using the CPI is the M1 could not be manipulated the way the CPI can.
Exactly correct Jason. Here's a more in depth look:Jason wrote:The Fed's recapitalizing of the big banks (hence the appearance of increasing the money supply) does not constitute printing excess but the bare minimum needed to shore up the banking system and prevent a complete collapse. The last stats I saw on stimulus spending stated only 1/4 of the funds had been spent. Oil is artificially supported because the Saudi's have cut 1/4 of their production to shore up pricing. At $2/barrel production costs they are still making piles of money. Fuel costs help keep transportation costs up thus stabilizing food prices. I haven't seen the creep up in prices you mention....perhaps you can provide some statistics....Original_Intent wrote:We are currently seeing credit deflation and monetary inflation. Prices are dropping because credit deflation has an immediate effect on the price of goods and monetary inflation takes 18-24 months to hit the the streets.
Thus things that are bought on long term credit usually - homes, cars,high end electronics etc. are dropping in price. Day to day stuff like food as well as long term things like gold, silver, are steadily creeping upwards. I expect that stock market prices are going to also continue upwards as the price of stoks are in dollars. So expect the DJIA etc to continue upwards, however their value in current dollars will actually be dropping imho. It will all be inflation. Of course on the downside for stocks is the commercial real estate bubble which still has not popped.
Also, do not trust CPI numbers as a measure of inflation, they manipulate that in so many ways. The reason they quit measuring inflation by M1 numbers and started using the CPI is the M1 could not be manipulated the way the CPI can.