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View Full Version : Does USA 2009 = Argentina 2001? Part I: Falling economy reaches terminal velocity - Eric Janszen



EJ
06-25-09, 11:12 PM
http://www.itulip.com/images/peso300.jpgDoes USA 2009 = Argentina 2001? Part I: Falling economy reaches terminal velocity

• Slowed by green parachutes
• Bond market suspends disbelief
• Why China is nervous

We have all heard that the U.S. economy cannot go the way of Argentina in 2001 when foreign investors expressed lost confidence in the government and refused to roll over maturing short-term government bonds. Money fled the country as foreign currency reserves dwindled. A balance of payments crisis facilitated by investor panic led to the very outcome investor’s feared: the world’s largest ever sovereign bond default, a collapsing currency, and hyperinflation.

That can never happen here in the U.S., we are told. The U.S. owes its foreign debts in its own currency. U.S. lenders will never shoot themselves in the foot by allowing a dollar debt and currency crisis to develop because they depend on the U.S. for trade to support their own domestic economies. Foreign central banks, such as the People's Bank of China, will continue to step in to rescue the U.S. They will not fail the U.S. as the IMF failed Argentina. They will keep buying U.S. debt forever no matter how large U.S. fiscal deficits become, or how much bad debt the Federal Reserve takes onto its balance sheet, or how long it takes for the U.S. economy to recover.

But this is no more than an argument that the U.S. is not likely to experience a replica of an Argentina 2001 debt and currency crisis, and of course that is true. But that does not mean that a related, equally unseemly but fundamentally different catastrophic result may follow from similar causes and crisis triggers. Evidence abounds that the U.S. is trapped in a cycle of economic contraction and declining creditworthiness from which an Argentine style default with U.S. characteristics is all but inevitable.

Here we take a deep dive into the macro economics of the Argentine crisis—GDP growth, consumption, investment, inflation, industrial production, unemployment and a dozen other details of the Argentine economy in the period before it collapsed at the end of 2001. We compare the same macro economic measures during the U.S. economic crisis that started in 2008.

A few items, such as currency reserves, stand out in ways that show how different the U.S. situation is now from Argentina’s then, but most of the macro economic comparisons reveal astonishing similarities, especially measures of output and inflation.

Argentina and Ka-Poom Theory

We had not re-visited the case of Argentina since 1998 when we developed our now ten-year-old Ka-Poom Theory (http://www.itulip.com/kapoomtheory.htm). We did so because simplistic Keynesian and monetarist models of inflation and deflation neglect the critical factor of capital flows on net debtor economies like the U.S. and Argentina in crisis. In the kind of crisis that is most likely to grip the U.S. with anything but fleeting economic troubles, capital flows become the only economic factor that matters and others that monetarists dwell on, such as bank credit, become irrelevant. "Inflation is always and ever a monetary phenomenon" is great marketing for hawkish monetary policy but lousy economics.

We needed our own theory because we wanted to know what to do with the proceeds of investments in technology companies that we planned to liquidate before the stock market bubble we were in at the time collapsed, which bubble was also a theory to most in 1998 but was to us a fact, its collapse an inevitability to be timed not debated. (http://www.itulip.com/GlobeArchiveJanszen.htm)

Ka-Poom Theory lays out an economic process. It begins with a post credit bubble economic collapse, such as occurred in 2000 and again in 2008, that immediately results in debt deflation and a contraction in bank credit. The credit contraction then spills over into the real economy to produce monetary deflation as demand and output fall. But the period of deflation is brief because the economics orthodoxy of our time calls for radical and immediate fiscal and monetary policy action to slow the contraction of money and credit and boost demand.

We call this part of the Ka-Poom process “disinflation” to distinguish it from the self-reinforcing process of monetary and credit deflation that gripped the U.S. in the 1930s, aka a deflation spiral. No deflation spiral has never occurred anywhere else ever since, yet many economists still opine on deflation spirals and liquidity traps, as if gold backing still held back credit and money expansion as it did in the early 1930s. These economists apparently have not noticed that even during the gold standard era any government wishing to produce money to pay for war first went off the gold standard—temporarily of course—after which money and inflation appeared in abundance no matter the circumstances of the economy, high unemployment or low, high debt levels or low. Since the 1930s governments skip the step of dropping off the gold standard and go right to the printing, and for any number of political purposes other than war. Many have to excess, with Zimbabwe as the most recent and illustrious example. Deflation is the penultimate red herring of modern central banking.

The second inflationary part of the Ka-Poom process occurs if re-inflation of a crashed economy by fiscal and monetary stimulus goes haywire for reasons of trade and finance, as in the case of Argentina in 2001 and dozens of other indebted nations throughout the world before and several since.

Worth noting: in 1998 we used the early 1990s Argentina inflation crisis as one of our models for Ka-Poom Theory as the 2001 version was not yet available. In 1998 the early 1990s Argentina hyperinflation was already a distant memory, and economics papers of the time lauded Argentina’s economic stabilization program that brought inflation down to low single digits. We did not know at the time that Argentina was set up for a recurrence of its 1990s debt crisis and inflation. Paradoxically, the collapse of U.S. stock market bubble in 2000 caused a U.S. recession that spread to Argentina, among other places in the world, and that recession was itself a catalyst for the 2001 Argentine crisis that resulted in hyperinflation there.

Our readers understand economics as an ongoing process rather than a series of disconnected events as deflation and inflation are usually presented. It is not either deflation or inflation, here it is one then the other. The axiom of Ka-Poom Theory, that defines a specific economic, trade, and finance process that occurs under circumstances unique to our time, is that the appearance of a sharp period of deflation after a bubble collapses is in and of itself a warning sign of potential impending out-of-control inflation. That is why we give it a special name disinflation to distinguish it from deflation.

To understand why disinflation in a post-bubble context points to a period of future high inflation we compare the 2000 and 2001 Argentine economy to the economy we are sit inside today here in the U.S. The U.S. escaped the high inflation “Poom” phase in 2002 by dint of the Greenspan credit bubble that produced the housing bubble and others. Will we escape again?

Ben Bernanke 2009 cannot play Paul Volcker 1980

Even as oil and other prices rise to price in future inflation from the Fed’s and Congress’ re-inflation policies, current chairman Ben Bernanke cannot in 2009 raise interest rates as Paul Volcker did in 1980. Conditions then—low unemployment, positive GDP growth, and high inflation—are the precise opposite of those that prevail here in the middle of our FIRE Economy Depression.

Argentina's economy started to blow up when its fiscal deficit exceeded 3% of GDP in 2001 and its gross external debt, the majority of it short term, exceeded 55% of GDP while the nation fell into recession. The recession reduced the nation's economic output and thus its ability to earn income to repay its foreign debts.

The CBO projects the U.S. fiscal deficit at 12.3% in 2009, and increasingly short-term external debt now exceeds 100% of GDP. Meanwhile GDP is shrinking. U.S. Q1 2009 GDP growth came in at minus 6.3% and 5.5% in Q1 2009, setting the stage for an Argentina type crash, but with American characteristics. In fact, if the U.S. were any other country that owed so much to so many but in foreign currencies we’d have seen a “Poom” inflationary event long ago.

The fact that the U.S. owes its foreign debt in dollars only limits the extent and speed of an Argentina type economic crisis for the U.S. Counter intuitively, if monetary and fiscal policy today allowed the money supply to fall, and demand and economic output to decline further, and CPI inflation to fall below 2% or so, a debt and currency crisis for the U.S. is virtually assured.

If Bernanke pulled a Volcker today, raising interest rates and cutting the money supply, he’d launch a process to send the U.S. economy into a hyperinflation.

The circumstances facing the U.S. today and in 1980 are apples and oranges.


http://www.itulip.com/images/1980vs2009.gif






The Paul Volcker Fed raised interest rates when unemployment was low and falling, and inflation was high and rising. Today unemployment is high and rising, and inflation low and falling, although rising long term interest rates and commodities are pricing in future inflation.

With high unemployment and negative GDP, how can the Fed raise interest rates? In this environment high interest rates are the greatest risk to economic growth and output, and thus U.S. ability to repay debts. If the idea of raising them is to reduce inflation and interest rates, we will see the opposite of that intended result. That is why we do not expect to see short term interest rates raised until early 2011, but expect to see long term rates as high as 7% by the end of 2010.

Eerie Timely Parallels between Argentina and the U.S. economies

Argentina’s economy collapsed at the end of 2001 after a decade of mismanagement of the political economy led to a year of financial and economic turmoil that culminated in sovereign debt default, collapse of the currency, and hyperinflation.

As much as the Argentina economy may appear on the surface to not apply to the U.S.--Argentina is not a superpower that issues the world’s leading reserve currency--basic laws of economics, trade, and finance can be stretched but not broken.

Argentina broke several laws in the year 2001 and paid dearly for it. The U.S. between mid 2008 and 2009 broke more than one economic law, aggressively flaunted others, and is on the verge of breaking several more. We cannot accept uncritically the conceit that U.S. geopolitical advantages give our economy a permanent get out of jail free card. Thresholds of tolerance may be exceeded, we just don’t know exactly where they are. We are getting close if Chinese officials are openly discussing alternatives, and this airing of grievances is in fact part of the leading edge of the "Poom" process as in Argentina in the period before the actual crisis.

The latest: A top Communist Party research chief said Thursday that China should buy gold and U.S. real estate rather than Treasuries, according to a Reuters report. (http://www.marketwatch.com/story/chinese-official-urges-buying-of-gold-us-land)

Why China is nervous

Three charts out of dozens we show you in Part II lay out our case.


Argentine Inflation 1995 - 2009

http://www.itulip.com/images/argcpiNOTES.gif





In the year before the bond default in December 2001 and ending in late 2003, CPI inflation increased from -4% deflation to 120% inflation on an annual basis. Here at iTulip we call this process a “Ka-Poom” of deflation and inflation.

The Argentine peso, un-pegged from the U.S. dollar, collapsed by 73% in a few months, and over the next two years inflation wiped out savings and erased all debts.

Argentine Exchange Rates 1995 - 2009

http://www.itulip.com/images/argexchgNOTES.gif





The bond market disintegrated.

Argentine Bond Market 1995 - 2009



http://www.itulip.com/images/argembisprdNOTES.gif





A U.S. bond crisis will never get this bad, but then it doesn’t need to for bond holders to lose most of their money.

In Part II we show you how many developments in the U.S. economy since 2008 bear striking similarities to the antecedents of the Argentine crisis in 2001, and a few key differences. The grandfather of such crises: out of (political) control fiscal deficits.

All government debt and currency crises are rooted in runaway fiscal deficits. Each nation has its own threshold, depending on trade balance, size and composition of external debt, currency reserves, and other factors. Argentina’s threshold in 2001 was 3% of GDP.

Argentine Fiscal Surplus/Deficit 1995 - 2009

http://www.itulip.com/images/argfiscNOTES.gif





Argentina’s quarterly fiscal deficit threshold before triggering a crisis: 3% of GDP

http://www.itulip.com/images/usadeficitNOTES.gif





Compared to the U.S. projected fiscal deficit of 12.3% in 2009, Argentina’s government spending in 2001 was austere. In March 2009 we projected a worse case U.S. fiscal deficit of 8% in 2009 and 12% in 2010. As usual, we were optimistic.

Inflation before and after a Ka-Poom event

You might think that before Argentina’s economy blew up in a hyperinflationary conflagration that the central bank over-expanded the money supply leading to high inflation, and that the inflation spooked foreign investors. But as you may have already guessed from the first chart that shows negative and falling CPI going into the crisis, the opposite is true: the money supply fell in the year leading up to the crisis even as bond prices fell and yields increased.

http://www.itulip.com/images/argmoneyNOTES.gif





Here at iTulip we refer to this as the “Ka” or “disinflation” phase of the Ka-Poom deflation-inflation process.

The economy was caught in a vicious cycle of declining economic output and negative credit expansion. The bond markets demanded higher interest rates to compensate for higher default risk. Credit contracted even more, and further reduced economic output. This is the liquidity trap that the Fed hopes to avoid by purchasing long-term debt directly to hold down long-term interest rates. Unfortunately, as in Argentina in 2001, it appears to not be working; 10-year Treasury bond interest rates are up 200 basis points so far this year. The mistake is to think that for a net debtor that failed to escape from a liquidity trap is headed toward a deflation spiral as in the U.S. in the 1930s. Ka-Poom Theory forecasts the opposite outcome.

Where is the U.S. in the Ka-Poom deflation-inflation process? Is the U.S. economy in the kind of deflationary crisis that led to a hyperinflationary outcome for Argentina in 2001?

U.S. Economy reaches terminal velocity

Here on earth falling objects accelerate at a rate of 32 feet per second per second until the downward force of gravity equals the upward drag force of the surrounding air. A man, for instance, who leaps from an airplane, arms outstretched, stops falling faster after reaching a terminal velocity of approximately 120 miles per hour after hurdling for15 seconds. He hasn’t landed—he’s still falling—but no at least his rate of descent is not still increasing.

Different falling objects have varying maximum speeds depending on shape and density. So it is with the many measures of our economy that are hurdling toward the ground after our financial system blew up in 2008.

Keep this in mind when you read the economic news items such as yesterday’s that sent the stock market up.
Durable goods orders rise for second straight month in May (http://finance.yahoo.com/news/Durable-goods-orders-up-in-apf-3897498982.html?x=0&sec=topStories&pos=3&asset=&ccode=)
June 24, 2009 (Martin Crutsinger, AP Economics Writer)

WASHINGTON (AP) -- Orders to U.S. factories for manufactured goods from computers to aircraft surged in May for a second straight month. And a gauge of business investment rose last month by the most in nearly five years.

Together, the data Wednesday signal that the recession could be at or near a bottom.
Here are the durable goods data that caused all the excitement.

http://www.itulip.com/images/durableorders1992-Jun2009.gif





Recession bottom? Maybe so or maybe not. The collapse in Durable Goods Orders appears to have finally achieved an economic “terminal velocity” of -25% year over year.

Here we look for a rise in production resulting from an increase in orders. How about Durable Materials Production?
http://www.itulip.com/images/durableproduction1947-Jun2009.gif
Terminal Velocity of Durable Materials Production: -33%?





So far, Durable Materials Production continues in freefall with no sign of slowing. But orders are picking up, so maybe if in the next few months orders are not held up or canceled manufacturers may turn these into actual production. If so we can expect to revisit Durable Materials Production over the next few months and see it rising or at least no longer in free fall.

Durable Materials Production covers both household and business sector spending. An economy like the U.S. economy that is more than 70% based on consumer spending can’t recover without a rise in consumer demand. Producers are watching closely, ready to pounce on increased demand. This should show up right away as a rise in Durable Consumer Goods production. Has it?

http://www.itulip.com/images/durableconsumer1947-Jun2009.gif
Terminal Velocity Durable Consumer Production: -28%





While still negative, consumer goods production bounced last month as it usually does at the end of a recession. But then it may be heading back down again. To get further evidence that this change may indicate a more lasting trend change, we check into Total Business Inventories. Have they slowed their rate of descent?

http://www.itulip.com/images/businessinventories1993-Jun2009.gif
Terminal Velocity of Business Inventories: -$80 billion?





The rate of increase in the decline in business inventories has not let up yet. For further clarification we check into Final Sales of Domestic Purchasers.

http://www.itulip.com/images/finalsales1947-Jun2009.gif
Terminal Velocity of Final Sales: -$340 billion?





Final Sales is GDP minus the change in business inventories. It is the same as PCE, private fixed investment, government consumption expenditures, and gross investment, all added together with net exports of goods and services.

This very comprehensive measure is giving us an ugly still-in-free-fall reading. The number is not only huge but is the very first negative reading on record since the end of WWII.

FIRE Economy Depression Version 2.0

In every respect this depression is worse than the one that preceded WWI, with world stock markets and trade falling far more quickly in the year since April 2008 than occurred during the first year of The Great Depression.

http://www.itulip.com/images/worldstockmarkets1920-2009.gif


http://www.itulip.com/images/worldtrade1029-2009.gif





Central bankers believe that the only policy error that central banks and governments made in the early 1930s that resulted in The Great Depression was to fail to counter debt deflation with sufficient monetary and fiscal stimulus quickly enough, to supply parachutes of money to slow the descent of the economy. That’s the theory, and so the major difference between the first year of this economic collapse and the 1930 version is the scale of cash injections into the economy via monetary and fiscal policy.

http://www.itulip.com/images/worldmoneysupply.gif
Global Money supply growth 1930s vs 2008

http://www.itulip.com/images/worldfiscalsurplus.gif
Global fiscal deficits 1930 vs 2008


Credit: A Tale of Two Depressions (http://www.voxeu.org/index.php?q=node/3421)





Will it work for the U.S.?

If there is one place to watch the Bernanke Fed’s great experiment play out this year, it is here in the measure of Personal Consumption Expenditures (PCE).

http://www.itulip.com/images/pce1947-Jun2009.gif

Terminal Velocity of PCE: -$200 billion?





During the FIRE Economy Depression, PCE registered its first ever year over year negative growth rate. After a bounce off -$100 billion last month, this month PCE resumed falling and is now at -$150 billion. We’ll return in a month to see where we are. If it is lower still, watch out. That means the U.S. economy may still be trapped in a vicious Argentina 2001 type of production-consumption down cycle.

Naturally, PCE cannot rise at a sustained pace until unemployment has stopped rising.

http://www.itulip.com/images/unemploy1947-Jun2009.gif

Terminal Velocity of Unemployment: 6 million?





See that tiny blip at the top of the long rise in the number of unemployed? That might develop into a full-blown reversal and decline in unemployment as we saw at the end of previous recessions. But be careful: we have seen a half dozen similar blips during this depression since we warned about Unemployment by industry: Recession or depression? (http://www.itulip.com/forums/showthread.php?p=59666#post59666), so we’ll have to look for other signs to confirm whether or not we are seeing a recovery this time, unlike the other six false starts. In Argentina in 2001, a similar rate of rising unemployment to 20% leading up to the crisis continued through the crisis before peaking in the middle of 2002 at 24%.

The money’s got to come from someplace to finance increased consumer spending, either from personal incomes, savings, or new borrowing. A look at personal income and debt will help us confirm whether the Fed, Congress, and governments around the world pulled the ripcord early enough and supplied big enough green parachutes to slow the economy’s descent.

http://www.itulip.com/images/personalincomedebt1947-Jun2009.gif


Terminal Velocity of Personal Income and Consumer Debt: Negative?





Change in consumer debt just turned negative for the first time on record. CMDEBT is a measure of credit demand not supply, by the way. Until we see personal incomes rise along with consumer debt, we will not chime in with the latest calls for a “bottom” in the FIRE Economy Depression.

Set-up for a Balance of Payments Crisis?

Before we get to specific parallels between recent macro-economic developments in the U.S. since mid 2008 and Argentina in 2001, two additional exhibits show the trajectory of tools that support the economic recovery we need to avoid a “Poom” type inflation crisis.

http://www.itulip.com/images/reservebankcredit1990-Jun2009.gif

Terminal Velocity of Reserve Bank Credit: $1.2 trillion?





No sign of relief to the banking system here. Maybe the Fed is cutting Net Free or Borrowed Reserves as the banks recover?

http://www.itulip.com/images/netfreereserves1960-Jun2009.gif


Terminal Velocity of Net Free or Borrowed Reserves: $800 billion?





With borrowing levels by banks from the Fed reaching new highs last month it’s hard to conclude that the U.S. banking system is on the mend.

All in all, we remain, like our foreign creditors, in a period of suspension of disbelief. We all want to believe that the U.S. can come out of this economic crisis without a debt and balance of payments crisis such as Argentina suffered in 2001. No one wants that--not our creditors, not U.S. politicians, no one. But in the real world we don’t always get what we want. If certain thresholds are surpassed, feedback loops take over that are difficult if not impossible to break.

Next we look at how the current U.S. crisis might evolve into an inflationary crisis--an Argentine debt crisis with U.S. characteristics--or not, and signs to look for to indicate whether conditions are improving or worsening, and provide key indicators that help us determine where we are in the process.


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America in 24 month's time? (http://www.itulip.com/forums/showthread.php?p=41130#post41130)

http://www.itulip.com/images/5peso300.jpgDoes USA 2009 = Argentina 2001? Part II: Four Crisis Indicators ($ubscription) (http://www.itulip.com/forums/showthread.php?p=106498#post106498)

All the pieces necessary for a Ka-Poom inflationary crisis are in place, and several have already occurred. How can we tell if the process is following through?

We start to answer the question by restating the key event of the Argentina crisis in 2001, the loss in confidence in the repayment of debt with full-valued currency, leading to capital flight and a self-fulfilling process of devaluation and debt default. more... ($ubscription) (http://www.itulip.com/forums/showthread.php?p=106498#post106498)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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ASH
06-26-09, 01:22 PM
Deflation is the penultimate red herring of modern central banking.

If deflation is the red herring before the ultimate one, what is the ultimate red herring -- de-fanged reserve fraction requirements?

metalman
06-26-09, 02:32 PM
rattling the volcker worshiper's cages, are we? good thread on volcker over here... (http://www.itulip.com/forums/showthread.php?t=8951)

now... i'll read the rest... see if i can't find 1 - 2 points out of your 2354 point argument to nitpick... :)

ASH
06-26-09, 02:41 PM
now... i'll read the rest... see if i can't find 1 - 2 points out of your 2354 point argument to nitpick... :)

It's either nitpicking the editing, or nothing, on this post. :) Stuff like that jumps out at some folks who have the misfortune to be sensitized to it, distracting from the important content. Presentation does matter a little -- it's why we tend to communicate on these fora in complete sentences rather than texting shortscript.

As for the content -- everything made sense, and Part II was particularly valuable by outlining concrete metrics from which to derive a "POOM" warning indicator. These posts were the most useful in months.

jpatter666
06-26-09, 03:26 PM
It's either nitpicking the editing, or nothing, on this post. :) Stuff like that jumps out at some folks who have the misfortune to be sensitized to it, distracting from the important content. Presentation does matter a little -- it's why we tend to communicate on these fora in complete sentences rather than texting shortscript.

As for the content -- everything made sense, and Part II was particularly valuable by outlining concrete metrics from which to derive a "POOM" warning indicator. These posts were the most useful in months.

Agreed. To shamelessly steal Gardner's Bible quip:

Reading iTulip straight through is at least 70 percent discipline, like learning Latin. But the good parts are, of course, simply amazing. EJ is an extremely uneven writer, but when he's good, nobody can touch him.

Now -- after I drain a bottle of Maalox, I'll start contemplating how to react to this.

sn1p3r
06-26-09, 07:11 PM
I thought the Argentinian Ka-Poom theory was about Gov Sanford's whereabouts :p

metalman
06-26-09, 07:47 PM
I thought the Argentinian Ka-Poom theory was about Gov Sanford's whereabouts :p

off metalman goes to argentina to visit the gal he met on the internets... he hears the women are cute there...

http://www.hostilehorizons.com/Gnome/HelloArgentina%21.jpg

dang!!!

let's see how long fred leaves this one up... :cool:

Ghent12
06-26-09, 08:07 PM
It's either nitpicking the editing, or nothing, on this post. :) Stuff like that jumps out at some folks who have the misfortune to be sensitized to it, distracting from the important content. Presentation does matter a little -- it's why we tend to communicate on these fora in complete sentences rather than texting shortscript.so i was like OMG im scared str8 when i red this!!!

Yes, the small imperfections did jump out to me too and served as a distraction. I made a concerted effort to go over the sentence again and full absorb what I could from it anyways :)

So I increased my PM portfolio by 450% today...

magicvent
06-26-09, 09:07 PM
If you expect long term rates to be 7% next year, why not just short them?

bart
06-26-09, 10:09 PM
Great article as usual EJ, and I'm in general agreement... except for the portions based on two of the non iTulip charts - the world stock markets and the world money supply.


I just spent quite a while to build another one for the stock market comparison, and even visually estimated the data from the non iTulip one... and its just plain wrong!


Here are the starting quarter dates of the Great Depression in various countries (source: Romer) sorted by start dates and as you can see, they're mostly nowhere around the June 1929 date at which that stock chart starts.


<table x:str="" style="border-collapse: collapse; width: 124pt;" border="0" cellpadding="0" cellspacing="0" width="165"><col style="width: 76pt;" width="101"> <col style="width: 48pt;" width="64"> <tbody><tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt; width: 76pt;" height="18" width="101">Germany</td> <td class="xl28" style="width: 48pt;" width="64">1928,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Brazil</td> <td class="xl28">1928,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Poland</td> <td class="xl28">1929,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Canada</td> <td class="xl28">1929,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Argentina</td> <td class="xl28">1929,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">United States</td> <td class="xl28">1929,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Italy</td> <td class="xl28">1929,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Belgium</td> <td class="xl28">1929,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Switzerland</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Czechoslovakia</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Netherlands</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">India</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Great Britain</td> <td class="xl28">1930,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Japan</td> <td class="xl28">1930,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">South Africa</td> <td class="xl28">1930,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">France</td> <td class="xl28">1930,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Sweden</td> <td class="xl28">1930,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Denmark</td> <td class="xl28">1930,4</td> </tr> </tbody></table>


Using the basic idea that the original article from which those charts came was about the GD, I brought the data visually forward 3-4 months to match up with Sept 1929 and also used the most recent closing prices of many world stock markets.
In other words, both charts are based on stock market peaks... and I could also make a case that September 1929 is too early for the start of the *world* Great Depression, which would make the comparison between then & now look even better.


The black is of course the Dow from 9/1929 on, the red is from the chart with an incorrect starting date and the hot pink is the Dow Jones World Index... and its also a spaghetti chart since someone will inevitably ask "What about the ____ stock market?".
And the extra stock markets show that the Dow Jones World Index is a reasonable compromise for most key world markets.


But the bottom line is in all three extra dark lines... and shows that world stock markets are NOT currently worse than the comparable period of the Great Depression.


Here's my new chart:

http://www.nowandfutures.com/images/bear_markets_world1929_today.png




Here's the one I consider to be incorrect and misleading.

http://www.investorsinsight.com/cfs-file.ashx/__key/CommunityServer.Blogs.Components.WeblogFiles/john_5F00_mauldins_5F00_outside_5F00_the_5F00_box/jmotb062209image002_5F00_5AA52721.jpg





I'll be working on a similar comparison chart for global money supply soon, but I expect similar results.

FRED
06-26-09, 10:29 PM
Thank you, bart. That's what we call iTulip factual rigor!

FRED
06-26-09, 10:30 PM
If you expect long term rates to be 7% next year, why not just short them?

Can you spot the UST short seller in this picture?


http://www.itulip.com/images/bondshorters.jpg

bart
06-26-09, 11:11 PM
Here's the one on global money supply, which again is just plain wrong or misleading.



The one I just built:

http://www.nowandfutures.com/images/money_supply_world1929_today.png





The misleading or incorrect one:

http://www.itulip.com/images/worldmoneysupply.gif



I urge extreme caution for anyone trying to draw conclusions from those misleading or outright wrong charts.

bart
06-26-09, 11:21 PM
duplicated

FRED
06-27-09, 12:19 AM
Here's the one on global money supply, which again is just plain wrong or misleading.



The one I just built:

http://www.nowandfutures.com/images/money_supply_world1929_today.png





The misleading or incorrect one:

http://www.itulip.com/images/worldmoneysupply.gif



I urge extreme caution for anyone trying to draw conclusions from those misleading or outright wrong charts.

All well and fine to assert one is right and the other is wrong, but what evidence do you have to help us decide?

bart
06-27-09, 12:39 AM
All well and fine to assert one is right and the other is wrong, but what evidence do you have to help us decide?

Go to the source central bank sites, download the broad money stats, convert them to dollars using then current exchange rates and do a chart. Do a similar exercise with all the stock indexes.

The primary issue though is one of timing or start dates. They started their money stats in 1925 & 2004. The Great Depression started in 3Q 1929 (or later - see Romer for start dates in different countries), which is at least 4.75 years after 1925. Adding that to 2004 gets us to a start of 3Q 2008, which is almost a full year after the markets peaked.

The original article from which the misleading charts came was entitled "A Tale of Two Depressions", and one should expect that the charts would start when the Great Depression started or close to it - not 9-12 months off. Arbitrarily starting them when industrial production peaks is misleading at best, even excluding how much of global GDP is service based.

The same issue applies to stocks, although the date difference is smaller at 3-9 months.
Additionally, their stock chart doesn't name the current day world stock index that they're using... and I'm unaware of any major one or even an average that shows performance as bad as their current day chart shows.

Jim Nickerson
06-27-09, 12:53 AM
Here's what Eicengreen and O'Rourke stated with regard to the presentation of the data in their graphs.

Comparing the Great Depression to now for the world, not just the US



This and most other commentary contrasting the two episodes compares America then and now. This, however, is a misleading picture. The Great Depression was a global phenomenon. Even if it originated, in some sense, in the US, it was transmitted internationally by trade flows, capital flows and commodity prices. That said, different countries were affected differently. The US is not representative of their experiences.


Our Great Recession is every bit as global, earlier hopes for decoupling in Asia and Europe notwithstanding. Increasingly there is awareness that events have taken an even uglier turn outside the US, with even larger falls in manufacturing production, exports and equity prices.


In fact, when we look globally, as in Figure 1, the decline in industrial production in the last nine months has been at least as severe as in the nine months following the 1929 peak. (All graphs in this column track behaviour after the peaks in world industrial production, which occurred in June 1929 and April 2008.) Here, then, is a first illustration of how the global picture provides a very different and, indeed, more disturbing perspective than the US case considered by Krugman, which as noted earlier shows a smaller decline in manufacturing production now than then.
http://www.voxeu.org/index.php?q=node/3421

bart
06-27-09, 01:07 AM
Here's what Eicengreen and O'Rourke stated with regard to the presentation of the data in their graphs.

Comparing the Great Depression to now for the world, not just the US



This and most other commentary contrasting the two episodes compares America then and now. This, however, is a misleading picture. The Great Depression was a global phenomenon. Even if it originated, in some sense, in the US, it was transmitted internationally by trade flows, capital flows and commodity prices. That said, different countries were affected differently. The US is not representative of their experiences.



Our Great Recession is every bit as global, earlier hopes for decoupling in Asia and Europe notwithstanding. Increasingly there is awareness that events have taken an even uglier turn outside the US, with even larger falls in manufacturing production, exports and equity prices.



In fact, when we look globally, as in Figure 1, the decline in industrial production in the last nine months has been at least as severe as in the nine months following the 1929 peak. (All graphs in this column track behaviour after the peaks in world industrial production, which occurred in June 1929 and April 2008.) Here, then, is a first illustration of how the global picture provides a very different and, indeed, more disturbing perspective than the US case considered by Krugman, which as noted earlier shows a smaller decline in manufacturing production now than then.

http://www.voxeu.org/index.php?q=node/3421



And I did note that above as well as touched on it in The Great Depression parallels... busted (http://www.itulip.com/forums/showthread.php?t=10477) thread:

The original article from which the misleading charts came was entitled "A Tale of Two Depressions", and one should expect that the charts would start when the Great Depression started or close to it - not 9-12 months off. Arbitrarily starting them when industrial production peaks is misleading at best, even excluding how much of global GDP is service based.

...


Here are the starting quarter dates of the Great Depression in various countries (source: Romer) sorted by start dates and as you can see, they're mostly nowhere around the June 1929 date at which that stock chart starts.


<table style="border-collapse: collapse; width: 124pt;" x:str="" border="0" cellpadding="0" cellspacing="0" width="165"><col style="width: 76pt;" width="101"> <col style="width: 48pt;" width="64"> <tbody><tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt; width: 76pt;" height="18" width="101">Germany</td> <td style="width: 48pt;" class="xl28" width="64">1928,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Brazil</td> <td class="xl28">1928,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Poland</td> <td class="xl28">1929,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Canada</td> <td class="xl28">1929,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Argentina</td> <td class="xl28">1929,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">United States</td> <td class="xl28">1929,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Italy</td> <td class="xl28">1929,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Belgium</td> <td class="xl28">1929,3</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Switzerland</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Czechoslovakia</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Netherlands</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">India</td> <td class="xl28">1929,4</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Great Britain</td> <td class="xl28">1930,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Japan</td> <td class="xl28">1930,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">South Africa</td> <td class="xl28">1930,1</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">France</td> <td class="xl28">1930,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Sweden</td> <td class="xl28">1930,2</td> </tr> <tr style="height: 13.2pt;" height="18" valign="bottom"> <td style="height: 13.2pt;" height="18">Denmark</td> <td class="xl28">1930,4</td></tr></tbody></table>

Not only that, but using April 2008 is even further after the current stock market peak and current official recession start date (and in the other direction) that June 1929 is ahead of the actual start of the Great Depression.


It still seems quite misleading to me, and significantly skews all the charts.

How many have read that article and all the references and links to it on other sites, and don't realize that most of the charts are not aligned with either the start of the Great Depression or the current recession?

Jim Nickerson
06-27-09, 01:25 AM
And I did note that above as well as touched on it in The Great Depression parallels... busted (http://www.itulip.com/forums/showthread.php?t=10477) thread:


...



Not only that, but using April 2008 is even further after the current stock market peak and current official recession start date (and in the other direction) that June 1929 is ahead of the actual start of the Great Depression.


It still seems quite misleading to me, and significantly skews all the charts.

How many have read that article and all the references and links to it on other sites, and don't realize that most of the charts are not aligned with either the start of the Great Depression or the current recession?

It struck me that the Eichengreen and O'Rourke's point was to present their opinion of 1929 vs. recently based as they wrote, and as was quoted above, on "peaks in the world industrial production." I assume their data are correct, and that their graphs correctly reflect correct data.

Whether or that presentation agrees with the reality of 1929 vs. now as you perceive it, Bart, or as you think it is best displayed is not an argument that I believe will be sorted out on these pages. They wrote what they wrote on the basis of their qualifications in presenting the graphs. Unless you can disprove the correctness of their data, the reasonable thing appears to be to take their study for what it shows as a valid comparison.

metalman
06-27-09, 01:31 AM
It struck me that the Eichengreen and O'Rourke's point was to present their opinion of 1929 vs. recently based as they wrote, and as was quoted above, on "peaks in the world industrial production." I assume their data are correct, and that their graphs correctly reflect correct data.

Whether or that presentation agrees with the reality of 1929 vs. now as you perceive it, Bart, or as you think it is best displayed is not an argument that I believe will be sorted out on these pages. They wrote what they wrote on the basis of their qualifications in presenting the graphs. Unless you can disprove the correctness of their data, the reasonable thing appears to be to take their study for what it shows as a valid comparison.

agree with your point, jim. am not convinced that eichengreen's and o'rourke's representations of the data are not valid.

bart
06-27-09, 01:44 AM
Fair enough Jim. I believe that the facts clearly speak for themselves.

Making comparisons and conclusions about the Great Depression while not using the accepted start date, and also not using the current recession start date strikes me as less than wise.

Per my experience, the majority of regular folk who have looked at those charts whether here or at other sites don't even realize that the original writers are going way out there with basing the charts on industrial production peaks, and are drawing incorrect and potentially very costly conclusions.

bart
06-27-09, 01:47 AM
agree with your point, jim. am not convinced that eichengreen's and o'rourke's representations of the data are not valid.


Fair enough - that's three of you.

I won't bother to spend 4 hours on two charts next time to bring up a point here that my emails have shown that most don't understand and didn't get.
I'm not upset, just disappointed.

jk
06-27-09, 07:09 AM
Fair enough - that's three of you.

I won't bother to spend 4 hours on two charts next time to bring up a point here that my emails have shown that most don't understand and didn't get.
I'm not upset, just disappointed.
i, for one, found your charts and - even more so - the discussion here quite illuminating. you can't say Eichengreen and O'Rourke's charts were wrong, although you can - and did! - argue that they are misleading, and highlight that element of their construction that produced what you feel are misleading results.

more data is better. i would also point out that the money supply charts are of different forms- yours a rate of change chart, theirs a chart of money supply size itself. you'd need to take the first derivative of their chart, then align the start dates to see if there's any difference at all. if so, that would mean that someone has wrong, or at least wrongly labeled data.

Tybee Island
06-27-09, 07:50 AM
Bart:

I think your charts are superb and very enlightening. Thank you for taking the time to construct them.

Tybee

cjppjc
06-27-09, 10:08 AM
Bart:

I think your charts are superb and very enlightening. Thank you for taking the time to construct them.

Tybee

Absolutely agree. No one spends more of their time trying to enlighten the rest of us as Bart. If I were Bart after spending all the time he does posting all the charts he does. I would kick back, put my feet up, and say "It's great to be the king."

we_are_toast
06-27-09, 10:46 AM
i, for one, found your charts and - even more so - the discussion here quite illuminating. you can't say Eichengreen and O'Rourke's charts were wrong, although you can - and did! - argue that they are misleading, and highlight that element of their construction that produced what you feel are misleading results.

more data is better.

In the end, we all make our own investment decisions. The more good data the better. Where else but iTulip can someone present an alternative perspective of the data and make a strong, intellectually rigorous, case in defense of their position. That's why I read iTulip.

Bart's perspective only adds to the strong presentation by EJ and the iTulip team.

FRED
06-27-09, 11:47 AM
Fair enough Jim. I believe that the facts clearly speak for themselves.

Making comparisons and conclusions about the Great Depression while not using the accepted start date, and also not using the current recession start date strikes me as less than wise.

Per my experience, the majority of regular folk who have looked at those charts whether here or at other sites don't even realize that the original writers are going way out there with basing the charts on industrial production peaks, and are drawing incorrect and potentially very costly conclusions.

Points taken on the start dates for the data. However, we stand by the point that we make with the global money markets and fiscal spending charts and want to make sure that readers don't miss that point in the data minutia.

In the first year of this debt deflation crisis versus in 1930 governments are spending vastly more money more quickly to try to spend their way out of one kind of trouble, and in our opinion into another kind of trouble. In the final quarter of 2008 and first quarter of 2009 alone governments spent $2.2 trillion on fiscal stimulus as GDP fell. This level of deficit spending dwarfs any that occurred during The Great Depression.



http://www.itulip.com/forums/../images/globalstimuluspercentgdp.gif

Global fiscal stimulus as a percent of GDP: China, Spain and the U.S. lead the pack


http://www.itulip.com/forums/../images/globalstimulusAmount.gif
Global fiscal stimulus in dollars: China, the U.S., and Saudi Arabia lead the pack


At the same time, GDP is declining.


http://www.itulip.com/images/globalgdp2001-2010.gif


Global fiscal spending to GDP ratio today dwarfs 1930, and all of the data we have confirms this fact. It reflects a very different view toward deficit spending held by governments today that developed out of the Great Depression and WWII experience.

This response by governments was not exactly a surprise to iTulip readers, any more than was the economic crash that led governments to execute on their "spend your way out of economic depression" philosophy.


http://www.itulip.com/images/fiscalworld.gif


Without a doubt, the U.S. is leading the pack in the deficit spending area, as far as we know--if China's GDP numbers are to be believed.


http://www.itulip.com/images/gsfiscaldeficit.gif
Fiscal Deficit/GDP 1930 to 2009 (Goldman Sachs)


The focus of our analysis is on the U.S. and how its bet on fiscal stimulus is setting the economy up for a dire outcome if the stimulus fails and leaves the U.S. with gigantic debts and not enough cash flow to pay it off. One chart that went into the analysis but was not published with it should give readers pause. It backs up our assertion that the composition of U.S. foreign debt is becoming more precarious in the manner of Argentina in the late 2000.


http://www.itulip.com/images/chinatotalliabilitiesMar2003-Mar2009.gif
Change in composition of debt to China, the USA's "IMF"


The same Goldman analysis that produced the chart above also forecasts the positive GDP impact of stimulus to peak in Q3 2009, which is one of the reasons we viewed the rally from March as a "first bounce." Note that Goldman expects the stimulus to begin to exert a negative impact on the economy in the final quarters of 2010.


http://www.itulip.com/images/gsstimulusimpact.gif


Safe to say that is not going to happen--we'll get more stimulus spending before it does. :eek:

As for the global money supply, again the philosophy and practice today are quite different than in the early 1930s. Compare interest rates in major countries in 1930 versus today and you'll see what I mean. That said, it's not strictly relevant to our point; what matters is not the global money supply but the difficulty that the U.S. is having expanding broad money, as your excellent M3 chart shows. :D

jtabeb
06-27-09, 01:09 PM
Here's the one on global money supply, which again is just plain wrong or misleading.



The one I just built:

http://www.nowandfutures.com/images/money_supply_world1929_today.png





The misleading or incorrect one:

http://www.itulip.com/images/worldmoneysupply.gif



I urge extreme caution for anyone trying to draw conclusions from those misleading or outright wrong charts.

Bart, Thank you for the charts.

I have to ask:

you seem to be making a MAJOR implication as to what it would MEAN if the start of the derpression is misaligned.

Could you please (for me, since I'm a simpleton) explicitly state what the implication is? It looks to be a big one, and I'm missing it, so I have to ask, because I want to CLEARLY UNDERSTAND what you are saying.

Thank you.

Chris
06-27-09, 05:33 PM
Thanks for the analysis EJ. It leads me to one question though. Who is going to war against who?

BadJuju
06-27-09, 08:15 PM
Fair enough - that's three of you.

I won't bother to spend 4 hours on two charts next time to bring up a point here that my emails have shown that most don't understand and didn't get.
I'm not upset, just disappointed.

Thanks for your work, bart! It is always great to have someone out there that helps to clarify or even dispel misinformation. And you have done a great job, from my perspective, since I have been here! :cool:

Keep it up, buddy. Your efforts are definitely appreciated here.

metalman
06-27-09, 08:42 PM
And I did note that above as well as touched on it in The Great Depression parallels... busted (http://www.itulip.com/forums/showthread.php?t=10477) thread:


...



Not only that, but using April 2008 is even further after the current stock market peak and current official recession start date (and in the other direction) that June 1929 is ahead of the actual start of the Great Depression.


It still seems quite misleading to me, and significantly skews all the charts.

How many have read that article and all the references and links to it on other sites, and don't realize that most of the charts are not aligned with either the start of the Great Depression or the current recession?

ok if i send your version to Barry Eichengreen (http://www.voxeu.org/index.php?q=node/101) & Kevin H. O’Rourke (http://www.voxeu.org/index.php?q=node/703)? i'd like to hear what they say.

whitetower
06-28-09, 03:52 AM
I remember studying Eichengreen in my doctoral program in Intl Relations back in the mid-90s. He's in the camp of the Great-Depression-could-have-been-avoided-by-looser-money/credit-policies. The chief culprit for the Great Depression being "Great": lingering attachments to the gold standard.

He was also a bigwig advisor to the IMF in the late 90s if I recall. He's basically a monetarist, although sometimes it's hard to tell the difference between them and Keynesians in that they both want to throw money at the "problem" of recession.

(Check out this recent article (http://www.econ.berkeley.edu/~eichengr/vargas_found_5-11-09.pdf)by Eichengreen -- is he a monetarist or Keynesian?)

Going back to E.J.'s and iTulip's main point: there has never truly been "deflation" since the Great Depression, due to the influence of economists and international trade theorists like Eichengreen.

Bizarrely however, inflation/hyperinflation is essentially thought as a "normal" and welcome condition to these modern theories of political economy.

metalman
06-28-09, 11:27 AM
I remember studying Eichengreen in my doctoral program in Intl Relations back in the mid-90s. He's in the camp of the Great-Depression-could-have-been-avoided-by-looser-money/credit-policies. The chief culprit for the Great Depression being "Great": lingering attachments to the gold standard.

He was also a bigwig advisor to the IMF in the late 90s if I recall. He's basically a monetarist, although sometimes it's hard to tell the difference between them and Keynesians in that they both want to throw money at the "problem" of recession.

(Check out this recent article (http://www.econ.berkeley.edu/%7Eeichengr/vargas_found_5-11-09.pdf)by Eichengreen -- is he a monetarist or Keynesian?)

Going back to E.J.'s and iTulip's main point: there has never truly been "deflation" since the Great Depression, due to the influence of economists and international trade theorists like Eichengreen.

Bizarrely however, inflation/hyperinflation is essentially thought as a "normal" and welcome condition to these modern theories of political economy.

you can always tell a fire economy economist but you can't tell him much... :)

he's clearly identified by what he cannot see... asset price inflation (what bubble?)... only wage price inflation.

asset price inflation good, wage price inflation bad.

who benefits from one not the other?

pure politics.

Mega
06-28-09, 12:54 PM
YYYYEEESSSSSS...................
Enough of all this twoddle.............Mega require a bit of guide-ance on how to get a Hot Bitch & Fast car sort of a thing.......????

The Next Bubble will be?

I honesty don't know, but i bet that Goldman & J P Morgan are trying to "Magic" one up right now. I guess that Atomic power will from 2011 start to gather pace.

Mike

bart
06-28-09, 08:08 PM
ok if i send your version to Barry Eichengreen (http://www.voxeu.org/index.php?q=node/101) & Kevin H. O’Rourke (http://www.voxeu.org/index.php?q=node/703)? i'd like to hear what they say.

Send them here if you like:
The Great Depression tight parallels... busted (v 2.0) (http://www.itulip.com/forums/showthread.php?t=10575)
It's still a work in progress but there's changes to my original article and a new chart, as well as commentary on their article and charts.

I still maintain that its quite misleading, especially for the average person.

I've seen multiple conclusions on the 'net like "It’s a Depression alright" which in my opinion can be quite a dangerous conclusion to make especially given things like the US industrial production index having dropped 53% during the Great Depression... and 48% in the mid 1970s recession.


And *many* thanks to all that commented on my charts & work, it does help. :)

It can get quite frustrating at times to try and cleanly and clearly get a point or points across, especially when I see how things are misinterpreted (*cough, cough*) on various blogs via incoming emails to me, etc.

bart
06-28-09, 08:22 PM
i would also point out that the money supply charts are of different forms- yours a rate of change chart, theirs a chart of money supply size itself. you'd need to take the first derivative of their chart, then align the start dates to see if there's any difference at all. if so, that would mean that someone has wrong, or at least wrongly labeled data.

From the data and understanding that I do have about world money supply history, I believe that their data is generally correct.

But its misleading, partially because it starts in 1925 instead of 1929, partially because its yearly and partially because the data from current day is not current.

As far as the chart style (change rate vs. a level), my chart could be off a bit since I visually estimated their data points, but if you look at my actual line shape and extend the scale in your mind I think you'll see that it comes quite close to matching theirs.

I also chose to go with change rates since that's my convention, and I also already had the current data in that format.

bart
06-28-09, 11:19 PM
Points taken on the start dates for the data. However, we stand by the point that we make with the global money markets and fiscal spending charts and want to make sure that readers don't miss that point in the data minutia.

In the first year of this debt deflation crisis versus in 1930 governments are spending vastly more money more quickly to try to spend their way out of one kind of trouble, and in our opinion into another kind of trouble. In the final quarter of 2008 and first quarter of 2009 alone governments spent $2.2 trillion on fiscal stimulus as GDP fell. This level of deficit spending dwarfs any that occurred during The Great Depression.


Very much agreed Fred (as my own comparison chart show in the new The Great Depression tight parallels... busted (v 2.0) (http://www.itulip.com/forums/showthread.php?t=10575) thread), and sorry for diverting the thread into relative minutia.

Hopefully the side points will move into that thread instead of confusing this one, which overall is one of iTulip's best in my opinion.

Truly excellent work on Argentina, and my own data confirms the iTulip data/chart on China.



Safe to say that is not going to happen--we'll get more stimulus spending before it does. :eek:

As for the global money supply, again the philosophy and practice today are quite different than in the early 1930s. Compare interest rates in major countries in 1930 versus today and you'll see what I mean. That said, it's not strictly relevant to our point; what matters is not the global money supply but the difficulty that the U.S. is having expanding broad money, as your excellent M3 chart shows. :D

There's virtually no doubt in my mind about more stimulus ahead, and not just in the US... like the $600 billion move by the ECB last week.

Thanks for the atta-boy on my M3, and I also should remind you about MZM and that it tracks M3 reasonably well - or vice versa.

http://www.nowandfutures.com/images/m3b_mzm.png


Apologies again for the diversion, I went a bit over the top with my d posts due to concerns about misinterpretations on those depression charts.

bart
06-28-09, 11:38 PM
Bart, Thank you for the charts.

I have to ask:

you seem to be making a MAJOR implication as to what it would MEAN if the start of the derpression is misaligned.

Could you please (for me, since I'm a simpleton) explicitly state what the implication is? It looks to be a big one, and I'm missing it, so I have to ask, because I want to CLEARLY UNDERSTAND what you are saying.

Thank you.


How about an analogy?
A friend tells you something that he did in the past that's distasteful at best and you think it was 2 years ago, but it turns out later that it was 20 years ago. My point is that your opinion of him or her would be quite different after you found out that it was *actually* 20 years ago.

It's also, more specifically, an issue of using a yardstick that you thought was one thing (the start of the Great Depression) but turned out to be something else (the peak of industrial production). The conclusions drawn would likely be quite different.

Even more specifically, the world money supply in my current chart shows as having dropped *much* more now than during the comparable period in the 1930s. And the added note ("neither credit nor government debt is included in the data.") is intended as a warning that neither period include either credit or government debt, both of which are huge factors. In other words and as EJ's article covers quite well, take as many factors of the whole picture into account as possible.

I also want to stress that its not so much that the other charts were wrong (and I likely over reacted since I handle so many emails, conversations and forum posts where folk have been inadvertently misled - and it does get to me sometimes) as it is that partial or incomplete or wrongly understood charts can be worse than none at all.

Wiley
06-29-09, 12:34 AM
Is there data to support the "bubble" in Argentina's economy pre-crisis. What is the comparison to our bubble in consumption/debt, money expansion, etc?

It would seem that our would be larger by orders of magnitude and what does that portend for the outcome if we follow their path?

bart
06-29-09, 01:20 AM
This may help some.


http://www.nowandfutures.com/download/argentinaM1-3CreditReserves1993-2005.png

FRED
06-29-09, 12:11 PM
Two additional charts from an analysis we did in 2007 on the first Argentine hyperinflation in the early 1990s:



http://itulip.com/images/argentinaGDPinflation.gif
The peso was managed via a currency board starting in 1989
following the hyperinflation as part of the stabilization program.
Inflation fell from over 50% to near zero starting in 1985
before climbing to the above 20% before rising in an
out-of-control hyperinflation.

http://itulip.com/images/argentinaGDPinflation2.gif
Close up of the inflation event from 1988 to 1989

d_limiter
06-30-09, 09:46 PM
And *many* thanks to all that commented on my charts & work, it does help. :)


I just want to add to the chorus - thanks for the additional explanation and charts. I feel I can just barely follow main points EJ makes, and so I really rely on commentary from you and others to help me understand the implications.

Jay
06-30-09, 10:04 PM
Even more specifically, the world money supply in my current chart shows as having dropped *much* more now than during the comparable period in the 1930s. And the added note ("neither credit nor government debt is included in the data.") is intended as a warning that neither period include either credit or government debt, both of which are huge factors.
This bears on a point that I have been ruminating over: even though the dollar is a piece of crap, since world trade and world financial transactions are primarily denominated in the dollar, which is now hard to come by (artificially?), does that mean it has a natural floor? At least until the various and sundry weaker powers of the world, who look to be constantly playing catchup, can wean the world off the greenback? It looks to me that the Fed and the Treasury might still have a few tricks up their sleeves.

FRED
07-02-09, 12:47 PM
In the Argentina vs USA article last we asked:


http://www.itulip.com/forums/../images/unemploy1947-Jun2009.gif

Terminal Velocity of Unemployment: 6 million?

Today we get our answer: No. Total unemployed since the start of the FIRE Economy Depression now stands at 7,300,000.


http://www.itulip.com/images/unemploy1947-Jul2009.gif


The trend is still rising.


http://www.itulip.com/images/unemploymentmonthlyJan2007-June2009.gif

bart
07-02-09, 02:03 PM
This bears on a point that I have been ruminating over: even though the dollar is a piece of crap, since world trade and world financial transactions are primarily denominated in the dollar, which is now hard to come by (artificially?), does that mean it has a natural floor? At least until the various and sundry weaker powers of the world, who look to be constantly playing catchup, can wean the world off the greenback? It looks to me that the Fed and the Treasury might still have a few tricks up their sleeves.

Tough question since its based so much on sentiment & opinion... but basically I don't think any currency these days has a "natural floor".

No question that the world's major central banks have many more tricks up their sleeves - for all I know, we could see something like the Plaza Accord in 1985 in the future. I also don't think that things like the SDR will have less importance as the months & years go by and also think it likely that other currencies will be added to the SDR around the end of this year

My basic take is that the major currencies take turns depreciating against each other, which masks that they're all losing purchasing power. It's misdirection in a way for one to be focused on the movements of one currency or currency group against another.





And on the basic Argentina parallel, here's a general picture of velocity there from 1990-2005.

http://www.nowandfutures.com/d2/argentina_velocity1995-2005.png

Jay
07-03-09, 12:43 AM
Tough question since its based so much on sentiment & opinion... but basically I don't think any currency these days has a "natural floor".

No question that the world's major central banks have many more tricks up their sleeves - for all I know, we could see something like the Plaza Accord in 1985 in the future. I also don't think that things like the SDR will have less importance as the months & years go by and also think it likely that other currencies will be added to the SDR around the end of this year

My basic take is that the major currencies take turns depreciating against each other, which masks that they're all losing purchasing power. It's misdirection in a way for one to be focused on the movements of one currency or currency group against another.
It sure will be interesting to see if the US is able to formally and unilaterally depreciate the dollar again in a world in which every country is fending off an economic meltdown and has no interest in seeing their own exports crash to save the US. How many military bases do we have again? ;)
And there's no evil Soviet beast lurking this time...

As for Argentinian velocity, did it pick up just before inflation started, or just after? I guess another way to frame the question is whether another event (printing?) got the ball rolling and subsequently velocity took price level into the stratosphere or if a velocity shift was the inciting inflationary event. Difficult and possibly unanswerable, I know. When did they start printing in force?

ThePythonicCow
07-03-09, 01:33 AM
How many military bases do we have again? ;) Two years ago, according to a not necessarily reliable source quoting a not necessarily reliable source (The Worldwide Network of US Military Bases (http://www.globalresearch.ca/index.php?context=va&aid=5564)): "the US is thought to own a total of 737 bases in foreign lands."

bart
07-03-09, 01:36 AM
It sure will be interesting to see if the US is able to formally and unilaterally depreciate the dollar again in a world in which every country is fending off an economic meltdown and has no interest in seeing their own exports crash to save the US. How many military bases do we have again? ;)
And there's no evil Soviet beast lurking this time...

Indeed, and my Plaza Accord example was just one of a myriad of possibilities.

I don't believe that the US will have any trouble devaluing the dollar - it has literally happened almost every week since 2002, with only a few exceptions (as Finster's FDI shows).

And although there's no "Soviet beast" (love it :)) this time, a short time looking around in tinfoil hat mode will show a lot more beasts available and waiting.




As for Argentinian velocity, did it pick up just before inflation started, or just after? I guess another way to frame the question is whether another event (printing?) got the ball rolling and subsequently velocity took price level into the stratosphere or if a velocity shift was the inciting inflationary event. Difficult and possibly unanswerable, I know. When did they start printing in force?


In the Argentina case in that chart, velocity took off well after the corralito (you couldn't send money out of the country - it was "corraled") was imposed and the peso lost over 3/4 of its value. The main point of the chart is to show that it did take off at the time.

Effectively, events in December 2001 were very obvious to anyone who was paying attention. In other words, the chart lagged the actual "currency event". Velocity itself, especially as represented in my charts, is a fluid concept since it has more than one definition. The various velocity charts only show one of the definitions - the central bank and government response.

At the beginning of a real "currency event", it's quite obvious. Its caused by things like a government announcement, a political event, an "unexpected" war, an assassination or some other similar shock. In the US, I strongly suspect that there will be little warning and probably very little time to respond effectively.
In my opinion, the simplest thing to do is look at is the gold price itself - if it takes off without any obvious reason, its likely telling the story that a few insiders know what's coming. Anyone without substantial hard assets at this time in my opinion is taking a gigantic risk with their future.

Jay
07-03-09, 11:55 AM
In the Argentina case in that chart, velocity took off well after the corralito (you couldn't send money out of the country - it was "corraled") was imposed and the peso lost over 3/4 of its value. The main point of the chart is to show that it did take off at the time.

Effectively, events in December 2001 were very obvious to anyone who was paying attention. In other words, the chart lagged the actual "currency event". Velocity itself, especially as represented in my charts, is a fluid concept since it has more than one definition. The various velocity charts only show one of the definitions - the central bank and government response.

At the beginning of a real "currency event", it's quite obvious. Its caused by things like a government announcement, a political event, an "unexpected" war, an assassination or some other similar shock. In the US, I strongly suspect that there will be little warning and probably very little time to respond effectively.
In my opinion, the simplest thing to do is look at is the gold price itself - if it takes off without any obvious reason, its likely telling the story that a few insiders know what's coming. Anyone without substantial hard assets at this time in my opinion is taking a gigantic risk with their future.
It would make sense that in a typical "currency event" velocity takes off after the inciting event , i.e. once the populace, who are behind the insiders time wise, realize there is a problem they start spending like mad to get what they can when they can. But the big wigs are out in front of the initial event getting their moolah out of dodge first. So it makes sense to me that velocity would lag the inciting event. Is that also typical in other cases? If that is so, as you have said, watch the gold price and don't be caught short handed. Did Argentina invoke any restrictive PM laws at the time? Thanks Bart.

<table style="border: thin solid gray; background: rgb(254, 254, 254) none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial; margin-right: 1em; line-height: 1;" border="1" cellpadding="2" cellspacing="0"><caption>Poverty in Argentina</caption> <tbody><tr> <th>Date of
measurement</th> <th>Extreme
poverty</th> <th>Under
poverty
line</th> </tr> <tr> <td>May 2001</td> <td>11.6%</td> <td>35.9%</td> </tr> <tr> <td>Oct 2001</td> <td>13.6%</td> <td>38.3%</td> </tr> <tr> <td>May 2002</td> <td>24.8%</td> <td>53.0%</td> </tr> <tr> <td>Oct 2002</td> <td>27.5%</td> <td>57.5%</td> </tr> <tr> <td>May 2003</td> <td>26.3%</td> <td>54.7%</td> </tr> <tr> <td>2nd sem 2003</td> <td>20.5%</td> <td>47.8%</td> </tr> <tr> <td>1st sem 2004</td> <td>17.0%</td> <td>44.3%</td> </tr> <tr> <td>2nd sem 2004</td> <td>15.0%</td> <td>40.2%</td> </tr> <tr> <td>1st sem 2005</td> <td>13.6%</td> <td>38.5%</td> </tr> <tr> <td>2nd sem 2005</td> <td>12.2%</td> <td>33.8%</td> </tr> <tr> <td>1st sem 2006</td> <td>11.2%</td> <td>31.4%</td> </tr> <tr> <td>2nd sem 2006</td> <td>8.7%</td> <td>26.4%</td> </tr> <tr> <td>2nd sem 2007</td> <td>5.9%</td> <td>20.6%</td> </tr> <tr> <td>1st sem 2008</td> <td>5.1%</td> <td>17.8%</td> </tr> <tr> <td>2nd sem 2008</td> <td>4.4%</td> <td>15.3%</td></tr></tbody></table>

bart
07-03-09, 12:56 PM
It would make sense that in a typical "currency event" velocity takes off after the inciting event , i.e. once the populace, who are behind the insiders time wise, realize there is a problem they start spending like mad to get what they can when they can. But the big wigs are out in front of the initial event getting their moolah out of dodge first. So it makes sense to me that velocity would lag the inciting event. Is that also typical in other cases? If that is so, as you have said, watch the gold price and don't be caught short handed. Did Argentina invoke any restrictive PM laws at the time? Thanks Bart.

You can look at US financial flows data to see that bigwigs are already getting out of dodge, have been for some time and without fanfare.

One of the things that makes velocity so difficult to nail down is that its primarily a confidence thing and therefore based on human opinion - notoriously fickle and changing.
Since there isn't sufficient historical data as far as I know to put together a real Weimar velocity chart, I punted one together a while back by playing fast & loose with a definition just so I could see an example of its variability (and this is its first public appearance). In other words, the answer to your question is that it doesn't always lag but usually does.


http://www.nowandfutures.com/images/weimar_velocity_proxy.png




Argentina wise, I'm unaware of any special PM laws enacted but the prices skyrocketed within a very short time.
Also keep in mind that Argentina and most other countries in the area have seen hyperinflation in relatively recent times, and have active black & grey markets so a PM law wouldn't be very effective.


By the way, cool table on poverty rates. You saved me some time in creating a chart. :)

Jay
07-03-09, 01:20 PM
In other words, the answer to your question is that it doesn't always lag but usually does.


http://www.nowandfutures.com/images/weimar_velocity_proxy.png

So, by inference, this chart shows that in Weimar, people started spending first?



Argentina wise, I'm unaware of any special PM laws enacted but the prices skyrocketed within a very short time.
Also keep in mind that Argentina and most other countries in the area have seen hyperinflation in relatively recent times, and have active black & grey markets so a PM law wouldn't be very effective.
So, if you hypothetically possessed PM's ;), hold them until the US black market is created.... ;):eek::D and hopefully don't piss off the govmint in the interim...



By the way, cool table on poverty rates. You saved me some time in creating a chart. :)
Probably the best compliment I could get here, from the jedi master himself... awesome.

bart
07-03-09, 02:07 PM
So, by inference, this chart shows that in Weimar, people started spending first?

Mostly no. In my opinion, the relative dip between late 1922 and mid/late 1923 was an adjustment period where there still was some small hope that things wouldn't get worse, and the late blowoff stage was when virtually everyone know it was all over for the Reichsmark.

Keep in mind that the political context was a huge factor - German "pride" and nationalism and the feelings about the Versailles ripoff were *very* strong.

If I had all the data before 1919, you'd also see other spikes based on WWI and then another on the Versailles penalty box agreement. The huge majority of the time with high inflation or hyperinflation, an actual event leads velocity - much like the "event" of Bear Stearns led the period when velocity collapsed resulting in disinflation/deflation.

The main reason to me of tracking velocity today is to track any leading indicators of central bank pumping that will lead back to a more normal velocity - the "soft landing" scenarios, or a signal that the Fed is truly serious about creating some inflation.




So, if you hypothetically possessed PM's ;), hold them until the US black market is created.... ;):eek::D and hopefully don't piss off the govmint in the interim...

A US black market in our future? :eek:
Oh the (hypothetical) humanity!... :eek: :rolleyes: ;)

In my opinion, eBay & craigslist are mild evidence of what's to come. The average premium on PMs is pretty steep, even for significant sized bars etc.

An example with gold, silver has higher premiums on average.

http://www.nowandfutures.com/daily/gold_spot_vs_ebay.png








Probably the best compliment I could get here, from the jedi master himself... awesome.

The Jedi Master would be Finster. He kindly loans me a few beasties from the Manor dungeon now & then to help keep the charting force strong... ;)

Jay
07-03-09, 03:47 PM
The main reason to me of tracking velocity today is to track any leading indicators of central bank pumping that will lead back to a more normal velocity - the "soft landing" scenarios, or a signal that the Fed is truly serious about creating some inflation.
Do I read this as you use velocity to confirm other leading central bank pumping indicators, or as the leading indicator itself? I would guess it is the former. Also, does a more normal velocity indicate a soft landing, or impending high inflation (or both :D:eek:)!



The Jedi Master would be Finster. He kindly loans me a few beasties from the Manor dungeon now & then to help keep the charting force strong... ;)Thems good beasties.

bart
07-03-09, 05:30 PM
Do I read this as you use velocity to confirm other leading central bank pumping indicators, or as the leading indicator itself? I would guess it is the former. Also, does a more normal velocity indicate a soft landing, or impending high inflation (or both :D:eek:)!


Yes, it is the former. Virtually all of my velocity measures have some central bank monetary measure as part of them.

We're back to a semantic or definition issue with "more normal". In other words, the closer it gets to what it was two or so years ago the more it points to impending high inflation.

It is, best guess, currently back to levels of the late 1960s & early 1970s, which is about 10% higher than it was at the stock market peak in the late 1920s.



And for my next trick, here's a brand new update of my world velocity tracking.

http://www.nowandfutures.com/images/velocity_world.png

surfersdsb
07-08-09, 08:37 PM
Mr. Jantzen I am a believer in your analysis and have structured my portfolio accordingly. I am reading a number of different well respected journals and articles that differ on the short and intermediate effects of inflation. They point to a number of factors that if the stock market weakens or moves sideways that deflation is the primary fear.

Below is a part of a report which I believe lays out some very cogent arguments.


Below I have laid out the link between Fed actions and the economy is far more indirect and complex than the simple conclusion that Federal asset growth equals
inflation. The price level and, in fact, real GDP are determined by the intersection of the aggregate demand (AD) and aggregate supply (AS) curves. Or, in economic parlance, for an increase in the Fed’s balance sheet to boost the price level, the following conditions must be met:

1) The money multiplier must be flat
or rising;
2) The velocity of money must be
flat or rising; and
3) The AS or supply curve must be
upward sloping.
The economy and price changes are moving downward because none of these conditions are currently being met; nor, in our judgment, are they
likely to be met in the foreseeable future.


Total U.S. debt as a percent of GDP surged to 375% in the first quarter, a new post 1870 record, and well above the 360% average for 2008.
Therefore, the economy became more leveraged even as the recession progressed. An over-leveraged economy is one prone to deflation and stagnant growth. This is evident in the path the Japanese took after their stock and real estate bubbles began to implode in 1989. At that time Japanese debt as a percent of GDP was 269% (Chart 5). This percentage actually continued to move higher until 1998 when it peaked at 345%, below the current level in the U.S. While the Japanese increased leverage for nine years after the bubble highs, neither highly inflated stock and real estate prices nor economic performance could be sustained as debt repayment became more burdensome.

Of the pieces that I have read there is little concern of dollar devaluation. The argument that they have used is that as long as the bank reserves are not released into the economy inflation given the above factors will have a hard time gaining ground.


As a long term wall street oil trader one thing I have learned is don't fall in love with your position and be open to all information.

Thanks in advance for your response.

Morelia
07-10-09, 01:11 AM
EJ wrote:

> Argentina and Ka-Poom Theory

> We had not re-visited the case of Argentina since 1998
> when we developed our now ten-year-old Ka-Poom (http://www.itulip.com/kapoomtheory.htm) Theory (http://www.itulip.com/kapoomtheory.htm).

"<small>Poom: A random or not so random (file:///Users/na/Documents/%21itilip.com/Pages/index.htm#Disasters_R_Us) exogenous event that exposes the true level of risk </small><small>[blah, blah, blah] </small><small>causing lenders to [B]loose confidence in the future purchasing power of the dollar and seek alternative reserve assets."</small>

10 years of misspelling "lose" does not inspire confidence, either.

Please correct this ASAP.

FRED
07-10-09, 04:57 PM
Mr. Jantzen I am a believer in your analysis and have structured my portfolio accordingly. I am reading a number of different well respected journals and articles that differ on the short and intermediate effects of inflation. They point to a number of factors that if the stock market weakens or moves sideways that deflation is the primary fear.

Below is a part of a report which I believe lays out some very cogent arguments.


Below I have laid out the link between Fed actions and the economy is far more indirect and complex than the simple conclusion that Federal asset growth equals
inflation. The price level and, in fact, real GDP are determined by the intersection of the aggregate demand (AD) and aggregate supply (AS) curves. Or, in economic parlance, for an increase in the Fed’s balance sheet to boost the price level, the following conditions must be met:

1) The money multiplier must be flat
or rising;
2) The velocity of money must be
flat or rising; and
3) The AS or supply curve must be
upward sloping.
The economy and price changes are moving downward because none of these conditions are currently being met; nor, in our judgment, are they
likely to be met in the foreseeable future.


Total U.S. debt as a percent of GDP surged to 375% in the first quarter, a new post 1870 record, and well above the 360% average for 2008.
Therefore, the economy became more leveraged even as the recession progressed. An over-leveraged economy is one prone to deflation and stagnant growth. This is evident in the path the Japanese took after their stock and real estate bubbles began to implode in 1989. At that time Japanese debt as a percent of GDP was 269% (Chart 5). This percentage actually continued to move higher until 1998 when it peaked at 345%, below the current level in the U.S. While the Japanese increased leverage for nine years after the bubble highs, neither highly inflated stock and real estate prices nor economic performance could be sustained as debt repayment became more burdensome.

Of the pieces that I have read there is little concern of dollar devaluation. The argument that they have used is that as long as the bank reserves are not released into the economy inflation given the above factors will have a hard time gaining ground.


As a long term wall street oil trader one thing I have learned is don't fall in love with your position and be open to all information.

Thanks in advance for your response.

EJ writes in:

surfersdsb,



Your question is a good one, and your approach to not fall in love with a position is wise. My view is that "all models are wrong, but some are useful."

Unlike most analysts who expect inflation, I do not foresee it coming directly as a result of the actions of monetary authorities. I also do not see domestic debt levels as a critical threshold, either. Rather I see the combination of foreign debt, fiscal deficits financed by foreign debt, and trade and deficits financed by capital inflows as the weak points that make the U.S. vulnerable to a balance of payments, currency, and debt crisis. Indirectly inflation results from these.

This analysis From capital flow bonanza to financial crash (http://www.voxeu.org/index.php?q=node/2478) is helpful both in explaining the phenomenon of a Capital Inflow Bonanza and the results when such a period ends. The glaring omission in this analysis is represented in the two graphs below.


http://www.itulip.com/images/exportcapital.gif

http://www.itulip.com/images/importcapital.gif




The U.S. imports more than 30 times as much of the world's capital flows as Spain, for example, yet the U.S. economy is only 9 times larger.

The question is, what happens to the U.S. economy if it cannot continue to import 75% of the world's capital flows? What occurs is a Sudden Stop.

The situation is unique. In the past, nations that enjoyed reserve currency status were net capital exporters. One can only speculate, but some version of a currency and debt crisis as has occurred in other countries under these circumstances is more likely than a stag-deflation as Japan, a net capital exporter, has experienced.

metalman
07-12-09, 01:47 PM
EJ wrote:

> Argentina and Ka-Poom Theory

> We had not re-visited the case of Argentina since 1998
> when we developed our now ten-year-old Ka-Poom (http://www.itulip.com/kapoomtheory.htm) Theory (http://www.itulip.com/kapoomtheory.htm).

"<small>Poom: A random or not so random (file:///Users/na/Documents/%21itilip.com/Pages/index.htm#Disasters_R_Us) exogenous event that exposes the true level of risk </small><small>[blah, blah, blah] </small><small>causing lenders to [B]loose confidence in the future purchasing power of the dollar and seek alternative reserve assets."</small>

10 years of misspelling "lose" does not inspire confidence, either.

Please correct this ASAP.

nitpick this (http://www.nationalreview.com/comment/goldberg200409130630.asp) asap.

rabot10
07-12-09, 06:16 PM
nitpick this (http://www.nationalreview.com/comment/goldberg200409130630.asp) asap.

hey thats all good and fine but what about the trip to Vegas?

linnj
08-10-09, 06:35 PM
Bart:

I have a query about month-to-month graphical comparisons of various downturns. Is a "month" today equivalent to a "month" in 1992 or 1980 or 1929? Because of the rise of computers, inventory control takes place at a faster rate now. Also, the housing market can clear faster now because of computer-aided housing searches. So would the graphs of the current downturn have to be stretched to make a better comparison with the older data?

bart
08-10-09, 07:21 PM
Bart:

I have a query about month-to-month graphical comparisons of various downturns. Is a "month" today equivalent to a "month" in 1992 or 1980 or 1929? Because of the rise of computers, inventory control takes place at a faster rate now. Also, the housing market can clear faster now because of computer-aided housing searches. So would the graphs of the current downturn have to be stretched to make a better comparison with the older data?

Hot damn... interesting question, it even caused a little smoke to come out of my ears as the brain had to be engaged - and on a Monday. ;)

Overall, I don't have any real problem with someone extending or compressing the stats if they think it would help but for me I don't see much advantage. People are pretty much the same and respond similarly now, and most "basics" are similar (as in fear, greed, other sentiment measures, and "total" money supply) - and in my opinion that's a much bigger factor than inventory adjustment speed or computer aided housing searches.

There's also much faster & stronger response from the Fed now as compared to then, and monetary lags are quite similar over time too.

You might get something out of my first attempt ( http://www.nowandfutures.com/great_depression_old.html ) to do comparisons between then & now since many of the charts show the entire period of the '30s - although they're not as clean or easy to understand as my more current work ( The Great Depression tight parallels... busted (v 2.0) (http://www.itulip.com/forums/showthread.php?t=10575) - the text is out of date but the charts are as current as possible).

Lastly, there's always:
"History doesn't repeat itself, but it does rhyme."
-- Mark Twain

FRED
08-10-09, 07:28 PM
Hot damn... interesting question, it even caused a little smoke to come out of my ears as the brain had to be engaged - and on a Monday. ;)

Overall, I don't have any real problem with someone extending or compressing the stats if they think it would help but for me I don't see much advantage. People are pretty much the same and respond similarly now, and most "basics" are similar (as in fear, greed, other sentiment measures, and "total" money supply) - and in my opinion that's a much bigger factor than inventory adjustment speed or computer aided housing searches.

There's also much faster & stronger response from the Fed now as compared to then, and monetary lags are quite similar over time too.

You might get something out of my first attempt ( http://www.nowandfutures.com/great_depression_old.html ) to do comparisons between then & now since many of the charts show the entire period of the '30s - although they're not as clean or easy to understand as my more current work ( The Great Depression tight parallels... busted (v 2.0) (http://www.itulip.com/forums/showthread.php?t=10575) - the text is out of date but the charts are as current as possible).

Lastly, there's always:
"History doesn't repeat itself, but it does rhyme."
-- Mark Twain

Our issue with now versus then is that in those days capital flows were not terribly relevant to inflation but today they are all that matter.

linnj
08-11-09, 03:05 PM
Bart:

Your mention of the "basics" led me to think of this analogy: automobiles have had many changes since 1929 to now, but their speeds are still pretty much the same. The "basic" limit on automobiles is not their inherent speed but the quality of the road system.

Information storage, transmission, and retrieval have had tremendous increases in speed, but the transport of goods (and energy) are constrained by their infrastructures*. So if we were to make comparision of market changes then and now, we would have the least mismatch if we were to focus on transportation and energy issues.

*Another "basic" constraint faced by transportation may be its degree of regulation.

bart
08-11-09, 10:34 PM
Our issue with now versus then is that in those days capital flows were not terribly relevant to inflation but today they are all that matter.

Mostly true, although the trade balance and gov't debt and USDX are three of the stats and do tell part a significant part of the story.

Those charts are also US only so inevitably only tell part of the full story, albeit enough to show that now is very far from a repeat of then - which is and was my primary point, as noted in the title of that thread.





Bart:

Your mention of the "basics" led me to think of this analogy: automobiles have had many changes since 1929 to now, but their speeds are still pretty much the same. The "basic" limit on automobiles is not their inherent speed but the quality of the road system.

Information storage, transmission, and retrieval have had tremendous increases in speed, but the transport of goods (and energy) are constrained by their infrastructures*. So if we were to make comparision of market changes then and now, we would have the least mismatch if we were to focus on transportation and energy issues.

*Another "basic" constraint faced by transportation may be its degree of regulation.

Yep, we're basically tracking.