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View Full Version : Inflation versus Deflation Tournament Game 3 - Part I: The endless saga continues - Eric Janszen



EJ
07-29-10, 10:23 PM
http://www.itulip.com/images2/boom.jpg

Inflation versus Deflation Tournament Game 3 - Part I: The endless saga continues

"Those who cannot remember the past are condemned to repeat it." - George Santayana

Deflation is back in the headlines. Quantitative easing (QE) is the call.


Can the government and the Fed keep the money supply growing and prevent deflation?
Is the deflation a real threat?
How much QE is required?
Or is QE irrelevant?
Double-dip recession or staggering recovery?
Gee, can’t we just depreciate the dollar again?
From the Complaints bin: Hey, where’s the inflation you forecast?
Stealth inflation. Deal with it.

Will the Fed hit the QE launch button soon to head off impending deflation? The question makes two assumptions. One, that the Fed faces a clear and present deflation threat. Two, that QE is an important policy tool to fight deflation. We find clues to the answers in the outcome of the previous two games of the now 12-year-old deflation versus disinflation tournament.

Inflation versus Deflation: Game 1 (1998 to 2001)

Newcomers to the deflation versus inflation debate tournament may be unaware that Game 1 of the debate occurred in the late 1990s. Many economic forecasters were convinced that the collapse of the NASDAQ market bubble was certain to produce a 1930s runaway debt deflation, as first described after the fact by Irving Fisher in his DEBT-DEFLATION THEORY OF GREAT DEPRESSIONS, 1934 appeared to be in full swing in the closing quarter of the year 2000:
Starting from a condition of over-indebtedness, once the process of debt liquidation gets underway after a private credit market shock such as occurred in 1930, “…each dollar of debt still unpaid becomes a bigger dollar, and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, the liquidation defeats itself. While it diminishes the total number of dollars owed, it may not do so as fast as it increases the value of each dollar owed. “Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed. Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: The more the debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing.
Pierre L. Siklos of Wilfrid Laurier University in What is Deflation? (http://eh.net/encyclopedia/article/siklos.deflation) offers a modern definition, improving on the inventor:
Deflation is a persistent fall in some generally followed aggregate indicator of price movements, such as the consumer price index or the GDP deflator. Generally, a one-time fall in the price level does not constitute a deflation. Instead, one has to see continuously falling prices for well over a year before concluding that the economy suffers from deflation.
I argued starting in 1998 that the risk of “a persistent fall in some generally followed aggregate indicator of price movements” was well understood by the Greenspan Fed. The central bank planned radical reflation measures to prevent it. As a result, we’d get a brief period of deflation known as disinflation in the economics literature.

The debate is over four possible short-term and long-term outcomes of asset bubbles and reflations:


Deflation (reflation fails and disinflation turns into runaway deflation ala Fisher’s definition)
Disinflation (reflation succeeds after a brief period of deflation)
High inflation (reflation succeeds too well and leads to high inflation but not hyperinflation)
Hyperinflation (reflation succeeds too well and leads to runaway inflation)

My short-term forecast for each post-bubble period has been for disinflation with a long-term forecast of high inflation after the economic conditions that created the asset bubbles comes to a head.

My 1998 short-term post tech bubble disinflation forecast was mostly but not entirely correct.


http://www.itulip.com/images2/nodeflation2001.gif

As it turned out, we didn’t get any deflation at all, brief or otherwise. The disinflation was of the falling inflation variety rather than a period of negative inflation.

For Game 1, score one for the believers in the power of an aggressive central bank operating without the constraints that existed during the 1930s in the U.S. Not only did the Greenspan Fed halt the debt deflation process but maintained low rates and loose lending standards so as to give rise to the housing, commercial real estate, and private equity bubbles.

The economics blogging community has expanded vastly since Game 1 of the inflation versus deflation debate tournament began in 1998. The outcome and lessons of the first debate are either unknown to newcomers or has been largely been forgotten. Too bad because that experience taught us that in the absence of the 1930s circumstance of fixed exchange rates and a philosophy of allowing debt deflation to run its natural course, central banks can and will create sufficient liquidity to prevent a disinflation from turning into deflation. The lesson applied to Game 2.

Inflation versus Deflation: Game 2 (2005 to 2009)

The inflation versus deflation debate re-appeared three years into the housing bubble that started in 2002 (http://www.itulip.com/qc082002.htm) as observers began to worry about the aftermath. In 2005 I wrote “Debtor Nations Dream of Deflation” for AlwaysOn and made a presentation to Trident Capital that forecast a large-scale credit and financial crisis resulting from mortgage credit risk to arrive “within two to three years.”

As late as early 2008, the assertion that a massive recession was certain to follow from the aftermath of the housing bubble was still debated by mainstream economists. Here I am in January 2008 debating a Chicago School economist on the coming recession that began the month before but was not officially announced until a year alter, after the Presidential elections.

Anticipating a recession so severe as to require New Deal type stimulus programs to pull the economy out of a death spiral, I hopefully suggested energy infrastructure development programs that promised a return on investment rather than one-off jobs programs that add to the already untenable liabilities on the national balance sheet. The economist debating me held the view that bubbles are good. You don’t hear that much anymore.


<object height="385" width="480">


<embed src="http://www.youtube.com/v/kqOOnbMMemE&hl=en_US&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="385" width="480"></object>


Yet even though I forecast an ugly recession I expected only a brief period of deflation between the time the panic started and the time Fed and fiscal reflation kicked in. The long-term forecast remains stagflation with episodes of disinflation until, eventually, the tools used to prevent disinflations from turning into deflation lead to a debt and dollar crisis.

I argued that reflation was going to put a floor on commodity and wage prices while demand continued to stagnate due to persistent high unemployment. The result: relatively high input costs, especially energy, for producers that they cannot pass on the consumers. I understand the skepticism about my long-term forecast, that inflation should be showing up in the aggregate data by now, and we’ll get to that question shortly in this analysis, but the fact is that disinflation not deflation occurred and for the reasons I explained.

The U.S. economy never experienced deflation during The Great Recession. The peak of deleveraging in early 2009 was the moment when the deflation forecasters were most certain that they’d gotten it right and I’d gotten it wrong. The charts below settle the argument once and for all.

The chart below shows CPI inflation for two periods, from January 1929, about a year before the start of The Great Depression, and January 2006, about a year before the start of The Great Recession.


http://www.itulip.com/images2/CPI1933vs2010deflation.gif

As you can see, in the early 1930s deflation far exceeded the one-year period of negative inflation that meets the definition of deflation. Note that consumer prices fell for nearly four years at the start of The Great Depression, with deflation reaching -10% and staying there for close to two years.


http://www.itulip.com/images2/CPI1933vs2010disinflation.gif

The disinflation of The Great Recession as we forecast here in 2006, by contrast, lasted only three months and did not exceed -2% in any month.

The analysts who predicted deflation were wrong, but oddly the argument over the outcome of the debate persists. A thunderstorm is not a hurricane. The the score after 10 years of bubble booms and busts is: disinflation 2, deflation 0.

Of course, the Great Depression didn’t stop when deflation ended in 1933 three and a half years into the decade-long depression that most historians will tell you didn’t end until the start of WWII in 1940.

Japan’s economy continues to drift in and out of periods of disinflation and inflation 15 years after its stock and housing bubbles collapsed.

From my perspective, writing on this topic since 1998, the financial crisis of 2008 was a continuation of the financial and economic crisis of 2001 and 2002 that was cut short by aggressive monetary policy and lax lending standards that created the housing, private equity, and other asset bubbles.

If you buy into my theory, the implication of the “recovery” we are enjoying today, such as it is, should be obvious: once this period of reflation fails, an even greater crisis awaits as the combined effect of the 2001 to 2003 and 2008 to 2010 reflations creates a public credit and money crisis.

I’m frequently asked by the media if I think there will be another bubble. At this point I don’t think so. In any case, our economy can’t survive another bubble, crash, and bailout that ratchets public debt to $2 trillion or more per year.


http://www.itulip.com/images2/uscannotsurviveanotherbubble.gif

Policy can halt a deflation process but not magically return the economy to sustainable growth. This is extremely important to keep in mind as we put Games 1 and 2 of the inflation debate behind us and move on to Game 3.

Inflation versus Deflation: Game 3 (2010 to ???)

Those of us who understood what the Fed was capable of expanding its balance sheet "infinitely" as Greenpan liked to say won the first two games, but is the tournament over? Might Game 3 go differently?

To begin to answer this question, let’s compare the three key periods of economic periods crisis to get our heads around the time scale.


http://www.itulip.com/images2/depressionscomparedCPI.gif

The Great Depression lasted about ten years. A massive, one time depreciation of the dollar against gold in 1933 followed by modest fiscal stimulus ended the deflation for four and a half years until politically motivated austerity measures brought deflation and recession back in 1938. The Depression as measured by persistent deflation didn’t end for good until a year into WWII. The massive government works program called war ended The Great Depression by permitting deficit and inflation levels that at the time could only be politically justified in time of war.

Starting from 1995, Japan’s Depression has lasted five years longer but never produced an extended period of deep deflation. With no period of deflation exceeding -2%, Japan’s “deflation” is in fact a series of alternating periods of disinflation and mild inflation.

Japan has recently taken a turn for the worse. Stuck between dependence on fiscal stimulus for growth and a shrinking tax base due demographics, matters will come to a head there within a few years. A friend who runs a hedge fund in NYC is worried “Japan lights up like a roman candle” within three years when I spoke to him last week. In a global economy as tightly coupled through trade and financial markets, the potential impact of a crisis among U.S. creditors Japan and China may be a sudden withdrawal of lending that produces a fiscal crisis here at home.

If you take away nothing else from the chart above it’s that we in the U.S. are clearly in the early years of a long and difficult period. After a successful reflation in 2009, the early stages of a broad-based inflationary process are in train, punctuated by periods of disinflation.

Inflation, you say? Even our astute readers are having trouble seeing the early signs.

From the Complaints bin: Hey, where’s the inflation you forecast?

Readers are going to need to pay extra close attention to this section because the inflation that we forecast has arrived right on schedule. However, the transition from a low inflation to a high inflation environment does not arrive like a bolt of lightening but rather slowly and subtly.

Here is our inflation forecast from the end of 2008:

Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager...
- Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again (http://www.itulip.com/../showthread.php?p=66592#post66592)

My theory back in late 2008 was good news, bad news story in the wake of economic policy to fight deflation with low interest rates, dollar depreciation, QE, and fiscal stimulus. The good news: no deflation spiral. The bad news, while the Fed put a floor on commodity prices and prevented disinflation from developing into deflation, the Fed can’t print purchasing power; unemployment will remain high and demand weak even as producer price inflation returns to its pre-crisis inflation rate. As a result producers will have to manage input costs that they cannot pass on to consumers today just as they did in the energy inflation period from late 2007 to mid 2008. Expressed as data, the phenomenon looks like this:


http://www.itulip.com/images2/PPIvsCPI2006-2010.gif

Producer prices rise faster than consumer prices


For lack of a better term, we’re calling the gradual loss of purchasing power that does not show up in the money aggregates a Stealth Inflation. To track the stealth inflation phenomenon we’ve developed the iTulip Consumer Purchasing Power Index.


http://www.itulip.com/images2/consumerpurchasingpower1950-2010.gif

Our Consumer Purchasing Power graph shows a ratio of finished goods producer prices to consumer prices. The absolute ratio is not important but the trends are. Note that periods when producers are able to pass on rising producer costs to consumers are periods of rising consumer purchasing power and living standards, such as from after WWII until the early 1970s, and from the start of the FIRE Economy in 1980 to the beginning of the end of it in 2001.

The erosion of consumer purchasing power from 1971 to 1974 did appear as high wage and price inflation starting in the mid 1970s, when both producer and consumer prices were rising; consumer purchasing power declined more slowly as inflation worked its way into wage rates through employment contracts. But from 1971 to 1974, before the memorable inflation of the late 1970s showed up in the aggregates, consumer purchasing power fell hard. Those of us old enough to remember the era recall that packaging got smaller and lower quality ingredients were substituted for higher quality ingredients. Starting in 2001, consumer purchasing power began to fall again except for the short FIRE Sales period we expected in early 2009.

From a consumer perspective, the process looks like this:

http://1.bp.blogspot.com/_FC8pEiNFZO8/Sq_62Qnuc9I/AAAAAAAAAtw/eqyfYyyM-68/s400/Picture+5866jti.JPG (http://1.bp.blogspot.com/_FC8pEiNFZO8/Sq_62Qnuc9I/AAAAAAAAAtw/eqyfYyyM-68/s1600-h/Picture+5866jti.JPG)


They are both rolls of Northern bathroom tissue. "Big rolls." The one on the left came from a package I bought last month. The one on the right I purchased this month.
From: The Incredible Shrinking Toilet Paper Roll Rip-Off (http://www.jtirregulars.com/2009/09/incredible-shrinking-toilet-paper-roll.html)


http://routingbyrumor.files.wordpress.com/2008/05/unilever-shrinks-breyers-again-consumerist_com.jpg?w=494&h=343 (http://routingbyrumor.files.wordpress.com/2008/05/unilever-shrinks-breyers-again-consumerist_com.jpg)



Here’s a photo of the downsized Breyers cartons posted at consumerist.com (http://consumerist.com/382041/breyers-ice-cream-shrinks-to-15-quarts)

For as long as this ice cream lover can remember, Breyers Ice Cream was sold in half-gallon (64 ounce) cartons. First, Unilever downsized the half-gallon carton to 1.75 quarts (56 ounces), which was a 12.5% reduction. Now, they have downsized the 1.75 quart carton to 1.5 quarts (48 ounces). This means the original half-gallon carton of Breyers is now 25% smaller at 1.5 quarts. The 1.25 quart carton of Breyers Ice Cream can’t be too far away.

To make things worse, unless we’re mistaken, the price of a carton of Breyers Ice Cream has gone up while the size has shrunk. But even at the same price per carton, a 25% decrease in product equals a 33% increase in price-per-ounce. For instance, even if the cost of a carton of Breyers held steady at a hypothetical price of $4.00, you used to get 64 ounces for that $4.00. But now, you will pay $5.33 for 64 ounces (one-and-a-third cartons), a 33% price increase. Factor in the increase in the price of a carton, and you’re probably paying 40% or 50% more than you did, say, a year ago.
From: Unilever Shrinks Its Products Again: Breyers Ice Cream Now 25% Smaller! (http://routingbyrumor.wordpress.com/2008/05/25/unilever-shrinks-its-products-again-breyers-ice-cream-now-25-smaller/)
The maker of Mars and Snickers has shrunk the size of the bestselling chocolate bars in what amounts to an under the counter price rise.

While the bars have been reduced by 7.2 per cent from 62.5g to 58g, their prices have remained the same.
From: Shrinking Mars bar: Size cut by 7.2% but price stays the same (http://www.dailymail.co.uk/news/article-1190395/Shrinking-Mars-bar-Size-cut-7-2-price-stays-same.html)
Once upon a time “bath size” bars of soap were all five ounces. Most have now been downsized to 4.5 ounces.
The latest move, however, is to go even smaller. Dial for Men is a prime example.
*MOUSE PRINT: The 4.5 ounce bar is now 4.0 ounces — over 10% smaller

http://www.mouseprint.org/wp-content/avert/dialsoapsmall.jpg (http://www.mouseprint.org/wp-content/avert/dialsoaplarge.jpg)

OLD NEW




So these three packs are 12 ounces instead of the old 13.5 ounces, but still priced the same.
From: Dial Soap: The Incredible Shrinking Bar (http://www.mouseprint.org/2007/11/05/dial-soap-the-incredible-shrinking-bar/)


And on and on.

From a consumer products complaint management perspective, the stealth inflation looks like this.

Remember, these letters were written at the depth of the recession when purchasing power of cash holders is supposed to be rising:
SMALLER PACKAGING FOR SAME PRICE

From: "kellogg@casupport.com"
Sent: Tuesday, September 23, 2008 7:30:58 PM
Subject: Re: Consumer Affairs 013649751A

Mr. X,

Thank you for contacting us regarding our recent reduction of our carton sizes on select Kellogg's cereal. We appreciate the opportunity to respond. The Kellogg Company remains committed to providing consumers with healthy and nutritious foods at a fair price. As you know, recent economic pressures have affected all of us as we see higher prices on goods and services we purchase for our families and homes. As a company, we also face significantly higher prices for ingredients, energy, packaging materials, labor, equipment, freight and warehousing. To help offset those increased costs, Kellogg is reducing the size of some of our products to help consumers. We hope we may count you among our valued family of consumers in the years ahead as we continue to offer you delicious and nutritious products at an affordable price.

Sincerely,

Consumer Affairs Department
013649751A
Kellogg North America
PO Box CAMB
Battle Creek, MI 49016-1986
Posted Thu September 25, 2008 12:00 pm, by DEBORAH B. written to Kellogg Company
From: Deborah
To: kellogg@casupport.com
Cc: Clark
Sent: Thursday, September 25, 2008 7:29 AM
Subject: Fw: Consumer Affairs 013649751A

Consumer Affairs Department

Per your email above: “As you know, recent economic pressures have affected all of us as we see higher prices on goods and services we purchase for our families and homes. As a company, we also face significantly higher prices for ingredients, energy, packaging materials, labor, equipment, freight and warehousing.”

It is interesting that the response by Kellogg to the economic situation is to reduce package size while maintaining cost. As a family, we also face the same higher prices - and paying the higher cost of gas to commute to work and school is significant. Our response is somewhat different however. Since it is not possible for us to reduce the hours that we work and still get paid the same amount of money (which would allow us time to go out and get a second job (Wow, I wonder if my boss would go for that), we are forced to reduce our spending. That means finding the best deals we can on all goods that we buy, and purchasing smaller quantities for the same price we paid for larger packages is NOT an option. I will look for product that is on sale, less expensive, and not repackaged in smaller quantities just so that YOU can continue making the same amount of money, paying C Level staff a ridiculous salary and annual bonuses.

Shame on Kellogg.
Deborah
There’s a member thread here (http://www.itulip.com/forums/showthread.php/13326-Inflation-snapshots-December-2009?p=137672#poststop) that documents the stealth inflation phenomenon.

We hope readers took advantage of our late 2008 recommendation and bought the good stuff in 2009 at the prices that junk is being sold at today, and good luck finding high quality products at any price. Inexpensive low quality clothes can still be found, in fact in some cases cheaper than having them dry cleaned. In case you hadn’t noticed, dry cleaning prices are up. Here’s how consumers have responded:
Operators in other regions haven’t been so lucky. The Midwest suffered the worst, with June sales down 3.0% and the second quarter off 4.9%. Also seeing a substantial decline were operators in the South, where June sales fell 3.1%, and second-quarter sales dropped 3.0%.

Southern drycleaners reported continued pricing pressure as a factor in the poor results. “We haven’t increased prices since May 2008 [and] are doing promotions to increase piece counts,” one operator says. “Thus, the average revenue per piece is down a bit from a year ago. Maybe — just maybe — we are near the bottom of the decline, but the chance for recovery seems fragile or even unlikely.”

The West saw mixed results, with sales for June 2010 up 1.5%, and totals for the quarter slipping a slight 0.6%. “These increases came only after much time, effort and money were spent on marketing,” one operator says. “We have been working very hard to increase sales.”

“Business is terrible,” another Western operator says. “Having to offer so many coupons and specials, my margins are deteriorating. And the economy has driven so many consumers to wash-and-wear — especially in the summer.”

Northeast Shows Signs of Growth; Others Struggling (http://www.americandrycleaner.com/article.cfm?articleID=18183)
Ian P. Murphy, Editor , American Drycleaner
Published 07/28/2010
If the forecast is stealth inflation -- formerly known as stagflation -- punctuated by periods of disinflation until a final debt and currency crisis, what of the recent disinflation sightings?

(http://www.itulip.com/forums/showthread.php/16435-Inflation-versus-Deflation-Tournament-Game-3-Part-II-Will-history-repeat?p=169898#post169898)

http://www.itulip.com/images2/miceinabucket1.jpg

Inflation versus Deflation Tournament Game 3 - Part II: Will history repeat? (http://www.itulip.com/forums/showthread.php/16435-Inflation-versus-Deflation-Tournament-Game-3-Part-II-Will-history-repeat?p=169898#post169898)


Is the deflation a real threat?
How much QE is required?
Or is QE irrelevant?
Double-dip recession or staggering recovery?
Gee, can’t we just depreciate the dollar again?
The coming deficit “surprise”

Even though the long-term economic picture depicts stealth inflation followed by rising aggregate price levels, the short-term picture is disinflation. To understand why, readers have to remember the primary tool of deflation fighting: depreciation of the dollar against oil and the currencies of U.S. trade partners.

Depreciating the dollar from 84 to 73 between March and October 2009 was primarily responsible for the surge of inflation that pushed the PPI up from -4% to 6% between June 2009 and April 2010.

Remember when Hank Paulson used to incredulously espouse the strong dollar policy even as the dollar plunged in 2007 and 2008? We don’t hear that anymore. Not talking strong dollar policy is as close as U.S. officials can get to conveying a weak dollar policy without being explicit.

As the recovery of our debt-ladened economy stumbles along, the last thing the Fed and Treasury want is a stronger dollar, but for the past several months that’s exactly what they’ve gotten.


http://www.itulip.com/images2/dollarvsPPI2006-2010.gif

The chart above shows the trade weighted dollar, food import prices, and finished producer food prices to reveal the relationship over time. A falling dollar produces rising import prices that over time show up as rising finished producer prices. Conversely, a stronger dollar leads to falling import prices and a falling PPI later, assuming more or less the same demand over the period.

The euro debt crisis pushed the exchange rate value of the dollar up from 73 to 78 between November 2009 and June 2010. The delay between a rising dollar and PPI inflation or disinflation is approximately six months; by April 2010 the PPI was falling again.
U.S. policy makers have to figure out a way to stop the dollar from continuing to appreciate and soon or disinflation may threaten to develop into full-blown deflation. We believe the chances of that happening are close to zero. The recent lull in the euro debt crisis has helped by allowing the dollar to weaken against at least one major currency, but the U.S. needs more. more... ($ubscription) (http://www.itulip.com/forums/showthread.php/16435-Inflation-versus-Deflation-Tournament-Game-3-Part-II-Will-history-repeat?p=169898#post169898)
Tulip Select (http://www.itulip.com/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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FRED
07-29-10, 10:59 PM
Bump for timestamp test.

cjppjc
07-29-10, 11:34 PM
I enjoyed reading this piece very much. Still it feels and tastes alot like deflation now. Ok maybe disinflation. The first chart is good at showing what deflation looks like. So until a currency event in the U.S. shows itself, will the answer will be smaller packages at the same price?

charliebrown
07-30-10, 03:41 AM
Is it possible that prices go up and down over the next few years, not changing much over the entire span, but a grunt's wage's decline? People I know who are losing their jobs are settling for much less pay.

I do see the quality decline issue everywhere, clothes, small and large appliances, tools, toys etc. The feature list of products is ever increasing but durability and reliability seem to be on the decline

we_are_toast
07-30-10, 06:02 AM
Anticipating a recession so severe as to require New Deal type stimulus programs to pull the economy out of a death spiral, I hopefully suggested energy infrastructure development programs that promised a return on investment rather than one-off jobs programs that add to the already untenable liabilities on the national balance sheet.

For me, this has been the most disappointing aspect of this entire administration. Rahm Emanual was right that a crises should not be wasted, but that's exactly what they did. Instead of applying the stimulus in a way that could have started the economic transformation to reliance on sustainable energy sources, they wasted the money on road building and directionless tax cuts. I disagree with Krugman an Finster (I know Finster will give me static for even putting his name in the same sentence with Krugman), but I don't think just dropping the money from helicopters, to people who couldn't control their finances in the first place, would be very effective.


If the forecast is stealth inflation punctuated by periods of disinflation until a final debt and currency crisis.

This sounds like a major clarification of Ka-Poom. My understanding of Ka-Poom now is, Ka-pop, Ka-pop, Ka-pop... Kaaaaaaaaa-Poom, while not knowing how many Ka-pops before the Kaaaaaaa-Poom.

ThePythonicCow
07-30-10, 06:16 AM
Japan’s “deflation” is in fact a series of alternating periods of disinflation and mild inflation. The graph just before this statement shows Japanese CPI below zero from months 55 to 103. That's not "disinflation" (declining inflation), rather it's "deflation" (negative CPI, for 4 years in this case.)

This is a nit, as the deflation is quite mild. It does suggest to me that you (EJ) might have been slightly over eager to use one of your favorite words - disinflation. The correct statement would be, I believe:

Japan’s “deflation” is in fact a series of alternating periods of <s> disinflation</s> mild deflation and mild inflation.

ThePythonicCow
07-30-10, 06:36 AM
Still it feels and tastes alot like deflation now.
You're good! Even EJ, in an earlier article on this subject, at <a href="http://www.itulip.com/forums/showthread.php/14515-Great-Recession-Fallout-Part-I-Economic-Mutations-Eric-Janszen">Great Recession Fallout- Part I: Economic Mutations (February 2010)</a> wrote that we might not be able to taste or smell the economic illness afflicting us now:

The physical world—the buildings and houses, industries, and some of the jobs—left over from the debt boom remain. These ever so slowly devolve as the debt left over from the boom, combined with the government policies intended to counter the short-term effects of private market debt deflation, such as the weak dollar, together act like radioactivity, slowly and invisibly changing the economy, and not for the better.

http://www.itulip.com/images2/pamphletcantseeit.jpg


From a pamphlet created by the U.S. government in the 1940s to educate
the American public about the dangers of nuclear fallout

The process--commodity price inflation combined with asset price deflation--is so devilishly gradual that we tend to adjust to it over time, and only by reviewing landmarks can we keep track of what is happening to us and our world as influenced by economic change.

RebbePete
07-30-10, 07:21 AM
Very interesting, and well thought out, as usual. I do have a question - are you using the "official" CPI figures? If so, are you really comparing apples to apples, considering CPI is calculated so much differently today than it was in the 1930's. I'm thinking, in particular, of the infamous owner's equivalent rent and hedonic adjustments. I believe I have read other places on the net that, if you calculate CPI the same way it used to be, pre-Clinton, we did see a brief period of deflation during the last few years.

- Pete

cjppjc
07-30-10, 07:46 AM
You're good! Even EJ, in an earlier article on this subject, at <a href="http://www.itulip.com/forums/showthread.php/14515-Great-Recession-Fallout-Part-I-Economic-Mutations-Eric-Janszen">Great Recession Fallout- Part I: Economic Mutations (February 2010)</a> wrote that we might not be able to taste or smell the economic illness afflicting us now:

All things have a certain texture feel, and taste to them. I think part of the problem the inflationists face is the constant drum beat in the media of "a Japan style deflation." That exact phrase must come up on CNBC 10 times a day. It helps create the feeling and taste that deflation is what we are living. For people like EJ who have a different opinion, and spend their time trying to support it, they have an easier time ignoring these outside voices. For the rest of us, not so easy. If all I hear day after day is Islamic terrorists want to destroy America, or the earth is warming, I start to see and feel everything in that context.

jtabeb
07-30-10, 08:35 AM
"inflation in everything you need, deflation in everything you want"


I think you hit the nail on the head with that one.

chr5648
07-30-10, 09:13 AM
The regime in Washington is more concerned about how they will pay for all the new spending and revolving debt. I highly doubt they are concerned about the citizens and inflation. Since the crisis in europe/greece, the euro has fallen and dollar risen. But the key is treasury yields, near the 1.5 level of the EURUSD treasury yields started to inch ever so slowly higher, then out of no where panic in regards to greece, with yields hitting record lows lately. If yields start going higher, I don't doubt another 'manufactured' crisis created by the US regime.

GRG55
07-30-10, 09:13 AM
Very interesting, and well thought out, as usual. I do have a question - are you using the "official" CPI figures? If so, are you really comparing apples to apples, considering CPI is calculated so much differently today than it was in the 1930's. I'm thinking, in particular, of the infamous owner's equivalent rent and hedonic adjustments. I believe I have read other places on the net that, if you calculate CPI the same way it used to be, pre-Clinton, we did see a brief period of deflation during the last few years.

- Pete

I believe that it's actually the opposite...the argument is that the revisions to CPI calculations have understated the inflation rate in recent years compared to what it would have been if calculated using the prior methods...

Link to Shadow Government Statistics site... (http://www.shadowstats.com/alternate_data/inflation-charts)

jpatter666
07-30-10, 09:36 AM
I enjoyed reading this piece very much. Still it feels and tastes alot like deflation now. Ok maybe disinflation. The first chart is good at showing what deflation looks like. So until a currency event in the U.S. shows itself, will the answer will be smaller packages at the same price?

I agree with much of what has been said, although I would have liked to have seen more inflation/deflation discussion around *other* than consumer staples. Yes, they've been going up in price (or down in size) -- no argument there. But I've also been seeing masses of coupons, specials and deals. *If* you take the time, you can often get many things for less (per ounce) than the 2007 period. They are IMO trying to have it both ways -- more expensive for the person who has the cash (but for whom this isn't a big deal) and reducing the prices (in effect) for those for whom it is.

I think the line we heard awhile back "inflation in everything you need, deflation in everything you want" is still in play here to some extent.

Overall, I believe (and hope for) the inflationary outcome. Why? Because it honestly is the *only* way out of this morass now. Deflation would slam the country into depths (IMO) worse than the Great Depression. Most people have *no* idea how to fend for themselves.

c1ue
07-30-10, 10:06 AM
But I've also been seeing masses of coupons, specials and deals. *If* you take the time, you can often get many things for less (per ounce) than the 2007 period. They are IMO trying to have it both ways -- more expensive for the person who has the cash (but for whom this isn't a big deal) and reducing the prices (in effect) for those for whom it is.

That is a very cogent observation.

I don't know if this is a major factor, but I suspect some of the phenomena you see above is due to campaigns by the multinationals to condition people into the new 'products'.

For example: Breyers clearly did a poor job, but I know for other products there were massive sales before the sizedowns to exactly ensure that there would not be the types of side by side comparisons at consumerist.com

Another possibly related issue is cash flow and expiration dates. In the past, with a fairly consistent sales flow, the amount of discounting in order to clear out items nearing expiration dates was likely lower. This isn't about products that have expired, but most retailers don't want to keep trying to sell products nearing 6 months or 1 year of expiration.

With a lower sales volume, there is likely quite some learning curve going on as to what volume of any given product should be ordered given the new economy. In the meantime, mistakes mostly manifest as radical price discounts in order not to get stuck with expired/unsellable product. This is because most purchasing agreements are volume related; too low volume and the price point jumps significantly.

Again, not sure if these are 1st order factors, but they are definitely out there.

MarkL
07-30-10, 11:13 AM
Great Article as always EJ.

1: Does anybody know (I mean really know and can show) if the CPI calculations are so dumb as to calculate things like Toilet Paper and Ice Cream by the "carton" or roll instead of by a fixed measurement such as oz or sq feet x thickness? Perhaps it is! But I know that RDRees (my favorite nemesis on this debate) will call the above anecdotal. For me Safeway Ice Cream has done exactly the same thing as Bryers, and gosh knows that Gas seem higher (except for the previous momentary peak), but I also see Tomato soup getting put in 33% larger cans these days and LOTS of good sales as a previous person has posted.

2: EJ, your motivations, as I've understood them, for the government to execute on inflation, are due to them wanting to deflate away government debt. However a great article Why (Hyper) Inflation Is Not In the Cards (http://www.oftwominds.com/blogjuly10/deflation-hyperinflation-07-10.html) (first posted by aaron) indicates the government (along with the Fed!) is largely controlled by financial interests who do NOT want to see their debt value decrease and that THEY will hold sway over the Fed and Gov's policies. It's a great counter-argument to the motivations you've supplied behind Poom! and I'd love to see your response regarding political-inflation-motivations to this article.

raja
07-30-10, 12:26 PM
Although I currently agree with iTulip's position that inflation is the likely outcome, I think it's far from a done deal . . . .


"Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager..."

And . . .

"We hope readers took advantage of our late 2008 recommendation and bought the good stuff in 2009 at the prices that junk is being sold at today, and good luck finding high quality products at any price."
Yes, but the examples of inflation given are not durables, but toilet paper, ice cream and soap.
I'm not saying that high-ticket durables are not also experiencing inflation, but the examples presented don't justify the advice previously given.

Furthermore . . . just because we are experiencing some inflation now, that doesn't prove anything. What's to say that we won't experience periods of mild inflation punctuated by periods of mild deflation . . . or other combinations?


The outcome and lessons of the first debate are either unknown to newcomers or has been largely been forgotten. Too bad because that experience (in 1998) taught us that in the absence of the 1930s circumstance of fixed exchange rates and a philosophy of allowing debt deflation to run its natural course, central banks can and will create sufficient liquidity to prevent a disinflation from turning into deflation.Past performance does not guarantee future results.
Many factors exist now that did not exist in 1998:
1. $52 trillion unfunded liabilities
2. persistent almost-10% unemployment
3. sovereign debt crisis
4. some unknown but stratospheric $ number of derivatives
5. Tea Party
6. widespread internet usage (email, blogs, etc.)
7. the beginning pinch of Peak Oil
There are too many variables to predict with any reasonable degree of certainty . . . although it's certainly instructive to try.

All that being said, I appreciate the valuable information from EJs posts . . . but I take the conclusions with less enthusiasm than that with which they are presented . . . . .

jk
07-30-10, 01:16 PM
1: Does anybody know (I mean really know and can show) if the CPI calculations are so dumb as to calculate things like Toilet Paper and Ice Cream by the "carton" or roll instead of by a fixed measurement such as oz or sq feet x thickness? Perhaps it is! But I know that RDRees (my favorite nemesis on this debate) will call the above anecdotal. For me Safeway Ice Cream has done exactly the same thing as Bryers, and gosh knows that Gas seem higher (except for the previous momentary peak), but I also see Tomato soup getting put in 33% larger cans these days and LOTS of good sales as a previous person has posted.



i doubt - but don't know - that they're that stupid. however, i do know that they adjust the basket of goods for a phenomenon they call "substitution." i.e. if steak gets too expensive, they assume you buy less steak and more chicken. [and, eventually, i suppose, cat food.] anyway, they will assume that if breyer's gets too expensive, you'll switch to a cheaper brand.

Diarmuid
07-30-10, 01:37 PM
Here our inflation forecast from the end of 2008:[INDENT][LEFT] Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager...


Thanks EJ

From the canary in the mine, across the pond - here comes the consolidation.



Widespread retail closures feared

By Joe Dermody
Friday, July 30, 2010
WIDESPREAD retail closures now seem inevitable following successive sales declines in April, May and June, according to Retail Excellence Ireland’s (REI) latest quarterly review.
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REI analysts described the sales declines of 2.02% in April, 4.94% in May and 5.47% in June as deeply worrying, and accepted that predictions issued earlier this year of a possible early return to sales growth were optimistic and premature.

Nonetheless, REI’s member stores are at least thankful that the rate of sales decline has eased to 5% for the second quarter of 2010 versus last year. Jewellery enjoyed a 0.07% overall growth, but menswear, footwear and the grocery trade were all down.

REI chief executive, David Fitzsimons, said: "Predictions made earlier this year about the imminent return of growth were overly optimistic. Even in grocery, where sales volumes have held up, price reductions and price wars led to a 7% decline in value for the quarter.

"Retailers are telling us it’s not looking good for July either. The back-to-school rush will create opportunities for some, but disadvantages for others. The price of school books etc hasn’t reduced, so that will undermine the consumer’s ability to spend on other items.

"As for business closures, we really haven’t even started yet. The Revenue is talking about retailers having difficulty to pay their VAT and taxes. The liquidation rates have doubled since last year, but that only takes into account the PLCs. Most retailers are sole traders. Footwear and jewellery did okay last quarter, but that is only versus awful comparables for last year."

Jewellery recorded overall growth of 0.07% during the past three months. Footwear’s gains of 3.48% in April and 0.34% in May were wiped out by a sales decline of -12.57% in June.

On a positive note, wage costs as a percentage of sales improved to 15.79%, versus 18.43% in Q2 2009. Rent cost as a percentage of sales began to modify in Q2 at 12.47% as opposed to 13.16% this time last year.

However, David Fitzsimons notes: "The smaller landlords have been willing to negotiate rent reductions, but many big landlords and property management institutions are not helping. Even the deals with the smaller landlords are a year old. They will now want to negotiate those rates back up."

This story appeared in the printed version of the Irish Examiner Friday, July 30, 2010


Read more: http://www.examiner.ie/business/widespread-retail-closures-feared-126540.html#ixzz0vBi9WrbE

ASH
07-30-10, 03:50 PM
1: Does anybody know (I mean really know and can show) if the CPI calculations are so dumb as to calculate things like Toilet Paper and Ice Cream by the "carton" or roll instead of by a fixed measurement such as oz or sq feet x thickness?

No, it is not (http://www.bls.gov/cpi/cpifaq.htm#Question_8) calculated in such a dumb way:


During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of ten when they previously were sold by the dozen) of the good or service since the last time prices were collected, the economic assistant selects a new item or records the quality change in the current item.

The question, I suppose, is the methodology for transforming the change in quality/quantity into a numerical component of the CPI.

See Appendix 3 (http://www.bls.gov/opub/hom/pdf/homch17.pdf) of this document for evidence that food prices are tracked by content rather than package.

fishdog
07-30-10, 03:54 PM
I have worked for a massive consumer packaged goods company for the last five years. Since 2007 I have seen rising prices and shrinking packaging, a trend which really took off after $4/gallon fuel seemed to stick around. We raised prices from 3.49-3.79-3.99, full revenue, core items. But, hardly anyone pays those prices because the products are on promo every week, if not every other week. The kicker is: consumers pay $2.99 for a product "on sale" whereas one or two years ago that product, at that price/size, was regular price.

Sales began their slide end of last summer, and hit a floor beginning of this year. Holding steady now, but off 5-8% from prior.

MarkL
07-30-10, 04:15 PM
No, it is not (http://www.bls.gov/cpi/cpifaq.htm#Question_8) calculated in such a dumb way:
During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of ten when they previously were sold by the dozen) of the good or service since the last time prices were collected, the economic assistant selects a new item or records the quality change in the current item. The question, I suppose, is the methodology for transforming the change in quality/quantity into a numerical component of the CPI.

See Appendix 3 (http://www.bls.gov/opub/hom/pdf/homch17.pdf) of this document for evidence that food prices are tracked by content rather than package.

Yea, the methodology, and how they select the new item, is of course, key.

Excellent Info Ash. Thank you. So I know health care and energy inflation is sucked out of the CPI artificially lowering it but these omissions are known. We should (hopefully) see some indication of EJ's anecdotal TP and Ice Cream examples in the CPI, unless the methodology has been recently revamped to hide things.

ASH
07-30-10, 04:31 PM
We should (hopefully) see some indication of EJ's anecdotal TP and Ice Cream examples in the CPI, unless the methodology has been recently revamped to hide things.

Their June 2010 report (http://www.bls.gov/cpi/cpid1006.pdf) said this:


The food index was unchanged in June for the second straight month. The index for food away from home rose 0.1 percent, the third straight such increase, while the food at home index declined 0.1 percent. Within the latter group, four of the six major grocery store food groups declined. The fruits and vegetables index fell 1.3 percent, mostly due to a 3.0 percent decline in the index for fresh vegetables. The index for cereals and bakery products fell 0.6 percent and the indexes for other food at home and for nonalcoholic beverages fell 0.3 percent and 0.2 percent, respectively. In contrast to these declines, the index for meats, poultry, fish, and eggs rose 1.0 percent in June, the sixth consecutive monthly increase, and the dairy and related products index rose slightly. The food at home index has risen 0.2 percent over the last 12 months with none of the major groups rising or falling more than 2.0 percent.

That report shows an unadjusted 0.7% change for food items from June 2009 to June 2010.

It also claims "personal care products" dropped in price by 1.4% on an unadjusted basis from June 2009 to June 2010.

I would guess that toilet paper falls into the category "Hair, dental, shaving, and miscellaneous personal care products", in which case the seasonally-adjusted change in the six months up to June 2010, expressed as an annualized rate, was -3.8%.

jk
07-30-10, 05:46 PM
Their June 2010 report (http://www.bls.gov/cpi/cpid1006.pdf) said this:


The food index was unchanged in June for the second straight month. The index for food away from home rose 0.1 percent, the third straight such increase, while the food at home index declined 0.1 percent. Within the latter group, four of the six major grocery store food groups declined. The fruits and vegetables index fell 1.3 percent, mostly due to a 3.0 percent decline in the index for fresh vegetables. The index for cereals and bakery products fell 0.6 percent and the indexes for other food at home and for nonalcoholic beverages fell 0.3 percent and 0.2 percent, respectively. In contrast to these declines, the index for meats, poultry, fish, and eggs rose 1.0 percent in June, the sixth consecutive monthly increase, and the dairy and related products index rose slightly. The food at home index has risen 0.2 percent over the last 12 months with none of the major groups rising or falling more than 2.0 percent.

That report shows an unadjusted 0.7% change for food items from June 2009 to June 2010.

It also claims "personal care products" dropped in price by 1.4% on an unadjusted basis from June 2009 to June 2010.

I would guess that toilet paper falls into the category "Hair, dental, shaving, and miscellaneous personal care products", in which case the seasonally-adjusted change in the six months up to June 2010, expressed as an annualized rate, was -3.8%.
is it clear whether these indices are before or after the effects of substitution and hedonic adjustment? looking at the pdf, i would assume the answer is "after."

Jay
07-30-10, 06:13 PM
is it clear whether these indices are before or after the effects of substitution and hedonic adjustment? looking at the pdf, i would assume the answer is "after."
Does a tent count as a house substitution?

vinoveri
07-30-10, 06:23 PM
The bad news, while the Fed put a floor on commodity prices and prevented disinflation from developing into deflation, the Fed can’t print purchasing power; unemployment will remain high and demand weak even as producer price inflation returns to its pre-crisis inflation rate. ]

I'm confused by this in that it seems that the Fed in conjunction with the other parts of government and via the banking system have increasingly been able to create purchasing power through debt creation, and they can certainly do it now if they had the will to, e.g., by charging interest on bank reserves at the Fed, incentivizing the banks to lend (with the implicit backstop). Or is it the case that all the credit availability in the world won't stimulate animal spirits in a balance sheet recession ... So my question is: is lending and credit down b/c no one wants to borrow or b/c no banks want to lend (and this cautios lending stance is sanctioned by the Fed)? I would suppose the latter, although it may be some of both, I have a hard time believing that a population addicted to debt will turn their nose up at low interest rate credit.

Do they not want inflation? and why not, it would benefit the debtors, the biggest one being the US treasury, but it would penalize the creditors (banks and investor class) and of course make it much more difficult to role over the existing US debt. But if fear of higher bond yields is the driver keeping lending in check (which would mean there are indeed bond vigilantes and the markets are bigger than govs), I don't see how this fear will ever be resolved; after all the debt isn't getting any smaller. At some point rates must rise and the treasury debt roled over with high servicing costs.

So what is it that the Fed fears and what does the Fed know that we don't (or is it not so much knowledge as a caution)? As we've seen a la Volcker, if inflation gets out of hand, the Fed can bring it under control by raising rates dramatically.
This is what I'm trying to understand: the dynamic and interelationships, economically and politically (i.e., currency and bond yield wise) that prevents the Fed from generating some inflation via compelling the banks to start fractionally lending on all those reserves.

Perhaps then the plan is simply to keep fed funds at 0 indefinitely in an effort to keep the long bond down while at the same time restraining lending enough to keep inflation in check and prevent the long bond from rising. Benefits banks, benefits the treasury, and is ot negative on the stock market (you want 0.5%. yield on 2 year money, 3% on ten year money, or take your chances with the stock market sporting a 2%+ yield but with "growth potential" .... yuk, what a selection of choices .... gold does look pretty good still.

doom&gloom
07-30-10, 06:34 PM
"inflation in everything you need, deflation in everything you want"


I think you hit the nail on the head with that one.

I don;t know if it was said before I put it up on this board, but I phrase it as "inflation in what you need, deflation in what you own". Used houses, cars, boats etc go down, food, energy, and similar go up.

Chris Coles
07-30-10, 06:49 PM
Thanks EJ, very nice to see you continuing with such well thought out threads.

My take on this is that there are a lot of smaller operations manufacturing parts for the Brown and White goods sectors that will now start to drop out of business as their strategy of trying to keep going until the upturn has now proven impossible. Instead of stability, all we have is a continuing instability. This next winter is going to be very interesting indeed.

dummass
07-30-10, 06:51 PM
The Fed is waiting for a trigger; politically, they can't begin QE2 until the stock market crashes. Yet, stock market participants know that QE2 is coming and that stocks will be the greatest beneficiary of the new liquidity, so they stay in stocks.

Someone has to flinch first in this high-stakes game of chicken. I've put my money on Bernanke. Stock market participants have the most to lose, there are too many weak hands. Bernanke won't flinch; he's a rock.

Jay
07-31-10, 12:37 AM
So what is it that the Fed fears and what does the Fed know that we don't (or is it not so much knowledge as a caution)? As we've seen a la Volcker, if inflation gets out of hand, the Fed can bring it under control by raising rates dramatically.
The Fed can not raise rates. It would destroy what is left of the economy and send unemployment to the moon. You would see pitchforks.

jtabeb
07-31-10, 01:30 AM
Yes, and with a quality improvement to boot! (So it is cheaper, and of higher quality, hedonically speaking, of course)

doom&gloom
07-31-10, 03:33 AM
The Fed can not raise rates. It would destroy what is left of the economy and send unemployment to the moon. You would see pitchforks.


the Fed may not, but someday the world may choose to do it for them.

Slimprofits
07-31-10, 09:21 AM
The kicker is: consumers pay $2.99 for a product "on sale" whereas one or two years ago that product, at that price/size, was regular price.

of course, that is one of the secrets of retail.

My favorite though is advertising a sale that includes a comparison to the old, higher price, even though that price never actually existed.

we_are_toast
07-31-10, 11:08 AM
The Fed can not raise rates. It would destroy what is left of the economy and send unemployment to the moon. You would see pitchforks.

Not much to fear from the public.

http://artsnap.org/wp-content/uploads/2010/05/American-Gothic.jpg

flow5
07-31-10, 02:15 PM
<TABLE class=MsoNormalTable style="WIDTH: 275pt; BORDER-COLLAPSE: collapse; mso-yfti-tbllook: 1184; mso-padding-alt: 0in 0in 0in 0in" cellSpacing=0 cellPadding=0 width=367 border=0><TBODY><TR style="HEIGHT: 15pt; mso-yfti-irow: 0; mso-yfti-firstrow: yes"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; WIDTH: 27pt; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8" width=36>
2010


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; WIDTH: 21pt; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8" width=28>jan<FONT color=#2a2a2a><FONT face=Tahoma><?xml:namespace prefix = o ns = "urn:schemas-microsoft-comhttp://www.itulip.com/forums/ /><o:p></o:p></FONT></FONT><P></P><P align=right></P></TD><TD style=</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; WIDTH: 100pt; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8" width=133>
0.54<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; WIDTH: 52pt; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8" width=69>
0.22<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; WIDTH: 38pt; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8" width=51>top<o:p></o:p>

</TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 1"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">feb<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.50<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.09<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 2"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">mar<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.56<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.07<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 3"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">apr<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.55<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.13<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">top<o:p></o:p>

</TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 4"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">may<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.48<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.09<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">bottom<o:p></o:p>

</TD></TR><TR style="HEIGHT: 15.75pt; mso-yfti-irow: 5"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15.75pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15.75pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">jun<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15.75pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15.75pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.47<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15.75pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.04<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15.75pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 6"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">jul<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.50<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.08<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 7"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">aug<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.51<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.09<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">Top<o:p></o:p>

</TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 8"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">sep<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.53<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.05<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"><o:p></o:p>

</TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 9"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">oct<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.39<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">
0.04<o:p></o:p>


</TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD></TR><TR style="HEIGHT: 15pt; mso-yfti-irow: 10"><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8"></TD><TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; BORDER-LEFT-COLOR: #88c0b8; BORDER-BOTTOM-COLOR: #88c0b8; PADDING-BOTTOM: 0in; BORDER-TOP-COLOR: #88c0b8; PADDING-TOP: 0in; HEIGHT: 15pt; BACKGROUND-COLOR: transparent; BORDER-RIGHT-COLOR: #88c0b8">nov<o:p></o:p>


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(first column) The proxy for inflation (as it now stands without QE), drops from 53 to 5 (-48)
(second column) The proxy for real-output drops from 9 to -1 (-10) Ho-hum-- same as April>May --- where FED (capitulated, added federal reserve bank credit), cut the decline in monetary flows (MVt) in half

The drop in inflation is unprecedented. QE will be unable to offset
there's no real demarkation between inflation & deflation. it just seesaws.

ThePythonicCow
07-31-10, 02:40 PM
(first column) The proxy for inflation (as it now stands without QE), drops from 53 to 5 (-48)
(second column) The proxy for real-output drops from 9 to -1 (-10) Ho-hum-- same as April>May --- where FED (capitulated, added federal reserve bank credit), cut the decline in monetary flows (MVt) in half

The drop in inflation is unprecedented. QE will be unable to offset
there's no real demarkation between inflation & deflation. it just seesaws.
I don't know what these inflation and "real-output" proxies are, and I really don't know how or under what model or conditions you predicted the value of these proxies into the future.

Hence ... it seems I'm not quite understanding your post. Sorry.

runlikehe11
07-31-10, 10:06 PM
Great Article.. Thanks
Personally I like to see disinflation. Inflation is stealth robbery IMHO.

jckb98
07-31-10, 11:55 PM
Japan has recently taken a turn for the worse. Stuck between dependence on fiscal stimulus for growth and a shrinking tax base due demographics, matters will come to a head there within a few years. A friend who runs a hedge fund in NYC is worried “Japan lights up like a roman candle” within three years when I spoke to him last week. In a global economy as tightly coupled through trade and financial markets, the potential impact of a crisis

Hi EJ, can you finish this sentence if there is more substance in the missing parts? Thanks!

FRED
08-02-10, 12:50 PM
Great Article as always EJ.

1: Does anybody know (I mean really know and can show) if the CPI calculations are so dumb as to calculate things like Toilet Paper and Ice Cream by the "carton" or roll instead of by a fixed measurement such as oz or sq feet x thickness? Perhaps it is! But I know that RDRees (my favorite nemesis on this debate) will call the above anecdotal. For me Safeway Ice Cream has done exactly the same thing as Bryers, and gosh knows that Gas seem higher (except for the previous momentary peak), but I also see Tomato soup getting put in 33% larger cans these days and LOTS of good sales as a previous person has posted.


http://www.itulip.com/images2/importspriceinflation.gif
Any way you look at it, there is no evidence of deflation. The prices of imports have been rising sharply and steadily since early 2009.


2: EJ, your motivations, as I've understood them, for the government to execute on inflation, are due to them wanting to deflate away government debt. However a great article Why (Hyper) Inflation Is Not In the Cards (http://www.oftwominds.com/blogjuly10/deflation-hyperinflation-07-10.html) (first posted by aaron) indicates the government (along with the Fed!) is largely controlled by financial interests who do NOT want to see their debt value decrease and that THEY will hold sway over the Fed and Gov's policies. It's a great counter-argument to the motivations you've supplied behind Poom! and I'd love to see your response regarding political-inflation-motivations to this article.We don't expect hyperinflation but high inflation such as is occurring today in places like India and Venezuela.

Establishment economists may want to review the theory that inflation and unemployment cannot rise together: Inflation in India increased from 8% to 11% between 2009 and 2010 as unemployment increased from 7% to 11%.


http://www.itulip.com/images2/infidainflation2003to2010.gif

Inflation in Venezuela increased from 19% to 30% between 2008 and 2009 as unemployment fell from 9% to 7%. In 2010 unemployment increased to 11% and inflation fell to 27%.

Contrary to the assertions of central bankers, inflation is not dead, and yes these are political not operational issues.

MarkL
08-03-10, 12:49 AM
http://www.itulip.com/images2/importspriceinflation.gif
Any way you look at it, there is no evidence of deflation. The prices of imports have been rising sharply and steadily since early 2009.

Fred: How does our Balance of Payments reflect prices/inflation? I mean... I'd expect there to be some correlation, but aren't there significant other factors besides price-changes that could affect the BOPGIMP/BOPSIMP? Certainly just American's buying more from America, or a spike in oil prices that affects shipping prices, or a general increase in DSO on the part of American companies, could affect Balance of Payments more than product price inflation.

And of course imports are only one part of determining inflation vs deflation. So is this graph really a great overall inflation data point? Teach me!

The India/Venezuela inflation/unemployment graphs are interesting... and I think reasonably possible here.

rdrees
08-03-10, 07:17 PM
Let me say that I applaud EJ for taking this issue head on. I think it has been the elephant in the room to a certain extent and addressing it on all fours is the hallmark of a true intellectual, which I believe EJ to be. I am convinced by some of what EJ has to say in this post and it's hard to argue with smaller cartons for the same price for certain products.

But I do have a couple reactions. First, as another poster pointed out (we_are_toast), I think this post amounts to sub-silentio revision of Ka-Poom. To say that we will have stealth inflation (which basically by definition has to be small enough not to notice it much) punctuated by disinflation is a different call than saying we'd have a brief period of disinflation ("Ka") followed by significant inflation ("Poom"). That's not a criticism (though I think the point could have been more clearly made). Models were made to be adjusted and improved in the face of new information. My personal opinion is that this new model hews much closer to my personal experience of this downturn and what it seems will happen in the short to medium term.

I'm basically an optimist at heart, and don't think the necessary end result is a currency event or default. Or if it is, I think it's a long way off. We should see it happen to other, large countries first with worse balance sheets than ours. I'm thinking Britain. For a large variety of reasons, including debt levels, geopolitical forces, and the fact that the dollar is the world reserve currency, I would be stunned if the US experienced a currency event before the UK did. When/if the UK suffers a currency event, well, financial armageddon may be right around the corner for us here across the pond. But it is very hard for me to imagine a scenario in which we would suffer such a calamity before they did.

As for the stealth inflation examples, as MarkL pointed out, this is anecdotal evidence and I find that kind of evidence to be next to useless. A person can always find anecdotal evidence to support their position. A deflationista could easily show you two goods next to each other that had "stealth price decreases" since 2007. Take cell phones. For the same price, you get more features today than in 2007. Stealth deflation! I bought a TV with LED backlighting in 2008 and it was one of the very first on the market and commanded a significant premium. Now, every other TV at Costco has LED backlighting. Stealth deflation! This anecdotal evidence is no less powerful, in my opinion, than boxes of ice cream standing next to each other. That's why I prefer cold hard numbers, like CPI or PPI. I recognize that there are imperfections and biases at work in those figures, like anything else, but it can't come close to the kind of manipulation you get both intentionally and unintentionally when relying on anecdotes.

I continue to be surprised at how much tussling there is on this site about how precisely to define deflation and disinflation. I like to keep things simple, so I say deflation is falling prices and disinflation is a slowing in the rate of rising prices. But whatever. What happened to the PPI and the CPI these last two years is a major outlier in US history -- and really the history of any country with an unlimited printing press. OK, so you compare it to the great depression and say "THAT'S deflation; this surely isn't." Well, I'm not sure I buy that. If you look at the H1N1 pandemic from last year compared to the great influenza of 1912, last year's outbreak pales in comparison. But it's still pandemic flu; to say otherwise is crazy. So just because we're not seeing deflation on the scale of the Great Depression doesn't mean it's not deflation. And if you don't like that word, fine. Just because we're not seeing a price event on the scale of the Great Depression doesn't mean we're not seeing a very significant price event. I mean, take a look at the disinflation from the 2001 recession: prices ALWAYS rose and ALWAYS rose at least 1%. Today, both CPI and PPI are lower than they were two years ago. WOW! We shouldn't pooh pooh that because it's not the greatest deflation history has ever seen. I mean, if I were to score this phenomenon, it looks like this is the second or third biggest deflationary event in modern economic history, with Japan in the '90s depending on how this plays out.

And finally, a few words about stagflation. Stagflation can result in the loss of purchasing power, but it is not, itself, loss in purchasing power. In other words, things other than stagflation can result in a loss in purchasing power. Like losing your job, even if prices are falling. Or when prices rise faster than growth in wages, even if the economy is growing. Or prices are flat while wages shrink. In fact, loss in purchasing power can occur (and often does occur) completely independently from any monetary factors. If the price of oil rises because there's less of it, the supply and demand curve tell us that prices will increase, even if monetary policy is "perfect" and there's been no increase in money supply or velocity. So I think we have to be wary of calling this stagflation too early. Maybe it is; maybe we'll see a wage-price spiral like we saw in the '70s. But I tend to doubt it. The more our numbers play out, the more it looks like Japan to me.

I will say this however: if stagflation like in India or Venezuela is what we really do see here, I promise I won't compare the figures to the '70s USA stagflation and argue that if it's not stagflation to the degree we saw then, then it's not stagflation at all.

rdrees
08-03-10, 07:36 PM
Very well stated. I just read the book, "The Black Swan" by Nassim Nicholas Taleb, and you've put your finger on one of his biggest messages: you can pretty much always find evidence to justify a theory. So evidence in favor of a theory is not particularly meaningful. But just one piece of evidence can disprove a theory, so we should trust things that are disproven far more than theories that appear to have evidentiary support.

I look at CPI and PPI today and find that they are lower than they were two years ago. That, to me, disproves the theory that you can never have deflation in a modern economy. Now, maybe you can't have a major fall in prices, or maybe you can't have many consecutive months of falling prices, but it's pretty objectively clear that you CAN have a fall in prices. We've learned that it's just not accurate to say otherwise.

I also think it probably should have been more clearly acknowledged that EJ has subtly but significantly moved the debate. It used to be about inflationistas vs. deflationistas. Now it's about deflation vs. disinflation with disinflation defined to include bouts of falling prices. That's a pretty significant concession right there, and no longer is it "classic" Ka-Poom theory.

But I have to cut EJ a little slack. Should he have come right out and said "I must revise Ka-Poom in light of the evidence?" Yeah. But he's a businessperson selling his services on this site and straight up admitting a mistake might be bad for business/PR. At least he's adjusting his model, even if not necessarily explicitly. My hat's off to the guy for providing quite a lot of very sophisticated commentary and analysis for free and facilitating a vibrant and engaged community of thinkers.

But yeah, I agree with you.

cindykimlisa
08-04-10, 11:14 PM
I too have some issues with the Bryers issue. I do all the shopping and when Breyers was one half gallon a few years ago it was almost always $3.99 per half gallon and very few sales per year. At the 1.5 quart size I find it is often priced at $3.99 per gallon but far more often it is on sale for 2.99 or 2.50. Also the regular price for the small size now at target and walmart is always 2.29, a major reduction which has coincided with the reduction in quanity.

In fairness to this analysis, snak food has been evolving lower in quantity while the price has remained the same but with more sales at the grocer.

Cindy

metalman
08-11-10, 11:25 AM
read 'em & weep, deflationistas...


Wal-Mart prices on the rise: JP Morgan study (http://finance.yahoo.com/news/WalMart-prices-on-the-rise-JP-rb-3284643011.html?x=0&sec=topStories&pos=5&asset=&ccode=)
Tuesday August 10, 2010, 6:48 am EDT

(Reuters) - Wal-Mart Stores Inc has raised average prices at its stores by about 6 percent in a month, according to a recent study in Virginia.A check by J.P. Morgan Securities said average prices at the Wal-Mart Supercenter in Virginia were upped by 5.8 percent, the most significant sequential increase since it started the study in January 2009.

The world's largest retailer is still the cheapest bet among supermarkets, but traditional rivals like Kroger Co and Safeway Inc are gaining ground -- in July Wal-Mart had a 10.4 percent lead relative to a 16 percent lead in June, JP Morgan said.
Rising costs of raw materials and oil are pressuring companies across the board. Companies are passing on some of the input costs to consumers by rising prices as they try and guard margins.

Safeway also raised prices by a modest 1.1 percent. Competitor Kroger, on the other hand, has cut prices 1.3 percent from June to July, as it tries to remain competitive.

magicvent
08-16-10, 07:16 PM
My husband just brought home what he thought was a half gallon of orange juice. Surprise -- the 64 oz just became 59 oz.