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EJ
01-11-11, 04:42 PM
http://www.itulip.com/images2/Riley_dirtywhite300.png

Crisis 2011 – Part I: The Other Shoe

• Peak Cheap Oil Cycle Two
• Stagflation, ho! The new NAIRU
• China credit bubble countdown
• Gold over $1300… and still no bubble

“The easiest period in a crisis situation is actually the battle itself. The most difficult is the period of indecision--whether to fight or run away. And the most dangerous period is the aftermath. It is then, with all his resources spent and his guard down that an individual must watch out for dulled reactions and faulty judgment.”
- Richard Milhous Nixon

Remember 1999, the good old days, when the darkest cloud on the horizon was Y2K? Before the tech bubble bust and recession, 911, the Iraq and Afghanistan wars and Katrina, when prophesies of post housing bubble economic catastrophe were abstract arguments between establishment economists and cranks, a curious form of doomertainment driving eyeballs to websites and cable “news” shows, and the global financial crisis and Great Recession were figments of pessimistic economists’ imaginations?

Since the first decade of the 2000 opened, it’s been one mess after another with hardly a year off between calamities.

Time for a fresh start. A new beginning. Enough of the wars and recessions. The somnambulist regulators. The crooked bankers. The short-sighted financial oligarchs.

We all deserve at least one blessed year of peace and quiet, of steady progress, growth, a booming stock market, without interruption by disasters man made and by the hand of Mother Nature, don’t we?

Yes we do, and we got one, in 2010.

2010 was the year deflation was banished, reflated economies grew, housing prices turned positive, albeit briefly, and commodity prices surged. The economy expanded all year, tamping out the dubious double dip scenario that discounted the power of the press – the printing press, that is.

The stock market bloomed, in fact did so for far longer, but no more, than I expected. A close over 11,500 on the DOW is a far cry from the 7,500 to 8,000 I forecast at the start of the year. Mea culpa.

Bond yields remained low, as I expected. Gold prices soared 25%, far above my 3% forecast. These reflation markets are tough to call.

The labor markets, while not improving dramatically, stopped getting worse.

Except for a hiccup or two in Europe, a few noisy students complaining about bailouts for bankers and austerity for everyone else, 2010 was a fine year. A breather. A respite. A year off in wine country away from the hurlyburly, addled headed riot of the big city.

The Other Shoe

2011 is back to the reality. Call it “the other shoe,” not a Manolo Blahnik but a Chinese knockoff Nike, stinky socks dangling out. The global financial crisis and recession left behind unpayable private and public debt and an unreformed political system. It will bite in 2011. Also the Greenspan Credit Bubble with Chinese Characteristics. Also the broken global monetary system. Also a finite global oil supply that strains under the demands imposed on it by politicians buying and selling it with a credit-based money supply constrained only by the collective skill of the Oligarch’s economists to invent new arguments to justify it more quickly than events demolish them.

The deconstructed fugly era starting in 2006 looks like this:


http://www.itulip.com/images2/FlowChart2006-2012SMwtmk.png
The decade we just survived since 2006


Flowcharts? Yes, flowcharts, starting with the past and cast into the future.

Why? The series of the events that are about to unfold are so complex and intertwined that it’s now necessary to break it all down into processes, into inputs and outputs, into decisions and decision criteria, just to get your heads around it, if one is to hope to distinguish the future course events from randomness.

To the ill-informed, the events of the past decade appeared to be random. Who could have known that a technology bubble can pop? That a housing bubble is a threat to the macro-economy? That a deflation spiral was impossible? The drivers of change for the next decade will be no less deterministic and non-random than they were during the asset bubble cycle that dominated the previous ten years. That we forecast here with sufficient accuracy to make a bundle of money.

You can’t tell the players without a program

This video lays out the three main processes that are driving change over the next ten years.


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In addition to the complication of multiple drivers of change, the next decade will also be far more politically unpredictable than the last. Why? Because we blew it when we crashed the world economy in 2008. Uncool. The final straw. America’s trade partners want protection.

When the head of the World Bank starts talking about gold as part of a new global reserve currency, the era of the Treasury dollar standard is nearing an end. When the high priests say aloud what heretics like us said only in whispers in 2001, that the US is no longer the center of the universe, that the sun does not revolve around the earth, and that no quantity of creative math will make it so.

Nietzsche explained, “There is no truth, only power.” When power shifts, new power speaks a new truth, but don’t expect that truth to have much to do with yours or mine in daily life.

We all needed a solid year off from crisis, and 2010 was it. but sum the positive and negative inputs and the net directs the realist the conclusion that the next ten years will be even more crisis-ridden than the last, starting in 2011.

Crisis 2011

Housing prices are sinking again, even after billions in government subsidies were spent to prop it up. Fifteen months after the official end of the recession, the median duration of unemployment, a measure of how long the majority of the jobless have been out of work, remains at nearly twice the level it was at 15 months after the 1983 recession.

GDP growth under a 3% annual rate, while better than zero, is simply too slow to close the output gap created by the Housing Bust Recession before a new recession arrives to widen it yet again.

The US has suffered a credit cycle recession every ten years on average since WWII. The beginning of the Peak Cheap Oil Cycle around 2005 will make recessions more frequent, and I believe we’re due for another before the end of 2012.

We need more growth but no one seems to know how the economy can grow any faster, without a new bubble to boost growth the way the housing bubble and war spending rescued the economy in the early 2000s. With interest rates at zero the economy lacks a tail wind of falling interest rates as it had in the early 1980s.

A replay of the 1960s tax cut boom is out of the question, given the nation’s finances, as are more New Deal style programs, or an good export and housing boom like the one that pulled the economy out of a tailspin after WWII.

In fact, every trick that generated the 4% plus annual GDP growth that the US needs to reach output gap escape velocity is out of the question, save the unmentionable: an inflationary boom ala 1975 to 1980 that generated an average 5.6% annual real growth -- much to my surprise when I researched it -- while wiping out a generation’s debt.

Stagflation, ho! The new NAIRU

The most worrisome, but least unexpected, development is fast rising cost-push inflation. No surprise to iTulip readers, inflation that began as fast rising oil prices in late 2009 worked its way into commodity prices in early 2010 and started to make headlines as out-of-control food costs in China and India by the end of the year. As we’ll see, inflation in excess of 5% is already showing up in the official US producer price indexes.

In 2007 I guaranteed that a deflation spiral is impossible under the structure of our monetary system, that the Fed will put a floor on price deflation with a raft of orthodox and unorthodox policy measures, including bank bailouts and quantitative easing officially and dollar depreciation unofficially. The perverse result I expected was a combination of weak demand and rising costs, forcing producers to cut the quality and quantity of goods while maintaining prices. Several members started threads to rack the trend (See Inflation Snapshots (http://www.itulip.com/forums/showthread.php/13326-Inflation-snapshots-December-2009)).

That phase is ending. As the labor market in select industries improves, producers and wage earners regain pricing power. One class of society will be able to afford the higher prices and those left behind in dead or dying industries put under by the recession will continue to their now 30 year long ride down the living standards curve.

If interest rates rise, albeit more slowly than inflation, figure higher money costs into prices as well, and wage inflation, too, as competition for trained labor within growing industries, especially energy and technology related businesses, drives up wage rates.

Non-Accelerating Inflation Rate of Unemployment (NAIRU) is a monetarist concept that continues to guide Fed policy. My theory is that when the time comes, once the bogus deflation risk dust settled, after the rate cuts and QE and dollar depreciation – inflationary policy, by any other name – that persistently high energy prices will shift NAIRU such that inflation will rise off a 9% unemployment rate in 2011 as it did off 4.5% unemployment in 2007.

The costs of the Fed’s pro-inflation policies are largely born by the middle class. High food and gasoline prices, often dismissed by statisticians as too volatile to include in the CPI, are included in the producer price indexes, and the trend is clearly up.


http://www.itulip.com/images2/foodinflation2000-2010wtmk.png
Crude, intermediate, and finished food price change rate: 21.2%, 7.5%, and 4.1% respectively.


Food may only represent 16% of personal consumption expenditures (PCE) for US consumers as a whole, but 4.1% food price inflation, with 7.5% intermediate food price inflation in the pipeline, is a big deal for a family making $50,000 a year. That’s down 4% from $52,000 ten years ago.


http://www.itulip.com/images2/2000-2009incomewtmk.png
Mean income for five quintiles plus top 5%.


If it feels to you like you’re making less money now than 10 years ago, that’s because you probably are. Regardless of income group, the year 2000 was the high water mark for incomes in America. According to the 2010 US Census data, the income ride has been downhill ever since.

One of our members asked for an update of our now famous income inequality chart from 2006, the one that shows how income gains were distributed before and after the FIRE Economy era of the early 1980s, and we have not forgotten. The old chart used data up to 2005. Here’s the chart updated with the latest Census data.


http://www.itulip.com/images2/incomeinequality1967-2009wtmk.png
Distribution of income gains got even more skewed in the latter half of the last decade.


For those in the lower quintiles, as incomes decline and food and energy prices rise, food and energy as a portion of personal consumption expenditures will grow. Will they reach the 44% level they are at today in China? We may already be there for the bottom 20% income group, as the growing food stamps program rolls attest. High energy prices mean rising costs and falling incomes for the majority of Americans. This will be the major campaign issue in the next Presidential election.

This bears upon the Fed’s policy stance on cost-push inflation.


http://www.itulip.com/images2/stagflation2011wtmk.png
Unlike any previous recovery since the 1970s, inflation is near expansion peak levels


while unemployment remains higher than recession peak levels.


The Fed will be able to ignore inflation as long as it remains a wage earner’s and not a bondholder’s issue. As long as the bond market buys the weak demand-pull inflation story and bond yields do not rise too quickly, the Fed can turn the other cheek. Besides, the US can continue to export its inflation problem to China, Brazil, and elsewhere, and what are they going to do about it? They can’t fight capital inflow bonanza induced inflation produced by raising interest rates. That just makes the problem worse. So they poke away at the margins, imposing half-hearted capital controls, and complain. Or maybe 2011 is the year they do more?


http://www.itulip.com/images2/dominoes300.png

Crisis 2011 – Part II: Conundrum Economics (http://www.itulip.com/forums/showthread.php/18137-The-Other-Shoe-%C2%96-Part-II-Conundrum-Economics-Eric-Janszen?p=186412#post186412)

The 2011 economic crisis hinges on oil and the dollar, on the contradictory need for the US to continue to manage post credit bubble debt deflation with dollar depreciation on the one hand and on the other the rising price of oil globally due to US weak dollar policy, rising global oil demand, and a fast-approaching oil supply threshold.

Will the Fed raise interest rates before the labor and housing markets regain their footing?

Global economic growth is again pushing oil demand up to the supply threshold it first reached in 2005 when the first Peak Cheap Oil Cycle drove prices over $100 two years later. In 2008, hedge funds and investment banks rode oil up to $147 before the financial crisis and global recession drove it back down briefly to under $40 in 2009.

The second Peak Cheap Oil Cycle started as soon as the recession ended in 2009. The Cycle will push oil back over $100 in 2011 and produce a price spike to perhaps $120 before one of two secondary crises occurs, the China Bubble Crash or the Fed raises rates or Congress reduces spending. For an economy in a balance sheet recession facing cost-push inflation from a weak currency and rising global demand for finite oil, the options aren’t pretty. (more... $ubscription) (http://www.itulip.com/forums/showthread.php/18137-The-Other-Shoe-%C2%96-Part-II-Conundrum-Economics-Eric-Janszen?p=186412#post186412)

iTulip Select (http://www.itulip.com/forums/showthread.php/1032-iTulip-Select-Subscription-Description?p=7837#poststop$session[sessionurl_q]): The Investment Thesis for the Next Cycle™
__________________________________________________

For a concise, readable summary of iTulip concepts read Eric Janszen's 2010 book The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble (http://www.amazon.com/gp/product/1591842638?ie=UTF8&tag=wwwitulipcom-20&link_code=as3&camp=211189&creative=373489&creativeASIN=1591842638)http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=1591842638.

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ggirod
01-11-11, 10:10 PM
The deconstructed fugly era starting in 2006 looks like this:

http://www.itulip.com/images2/FlowChart2006-2012SMwtmk.pngI really like this flowchart except for one disturbing interpretation I discovered in your presentation. "Global Reflation" - "Dollar Depreciation" - "Oil Price Recovery" seems to operate backwards in time, i.e. future events influence the past. The same problem exists with the previous ... "Global Recession" - "Oil Demand Crash" - "Oil Price Crash". I suspect this is an artifact of your presentation method but it is unsettling once noticed.

Don't give up. This rats nest of process interactions is challenging to convey to others but maybe if you succeed, people will figure out how to fix the mess.

jk
01-11-11, 10:26 PM
there are several steps in the monetary reform cycle that could use [a lot of] explication.


Foreign capital inflows reverse [this appears to be the opposite of poom. is that what you mean?]

Pco recession [do you mean to imply that the hypothesized reverse capital flows CAUSE OR CONTRIBUTE to the pco recession? how? or do you just mean that the pco recession happens to occur at that time and contributes to the next steps?]

Dollar declines ~50% in 3 mos [wow. needs a little fleshing out. like declines against what? gold? the trade weighted dollar? dxy?]

Global commodity price inflation>20% [well, i guess you don't mean the dollar declines against commodities by 50% in the prior step. so then global commodity prices measured in what standard of value?]

Global delink of commodities trade from the dollar [this could just happen, i suppose, as commodity producers either decline payment in dollars or just encourage payment in other currencies.]

Institution of fractional reserve intl gold standard [this, otoh, requires a certain amount of political coordination among nations, unless it too just happens as nations, one by one, get into gold based bilateral and then multilateral agreements]

vinoveri
01-12-11, 12:04 AM
Thank you. Now I understand why the bond vigilantes are dormant.

The bondholders represent the capitalists/owners, and they care not if the cost of things, commodities, go up, but only if their real costs go up and this would happen in wage inflation. Brilliant, and sort of depressing, but less so b/c it's logical. The injustice is not rooted in the class owners-workers distinction per se but in the partiality shown to the owners by Fed/gov in this case.
This view calls to mind a Dicken-ish sentiment. Perhaps the majority of the "owner class" does not really want this advantage and is happy to have gotten where they are via own efforts. Maybe a way in and rallying point.

Prazak
01-12-11, 08:48 AM
Always happy when I see "somnambulist" used in a sentence. Thanks for exercising our wonderful English language so well.

Chris Coles
01-12-11, 11:27 AM
Presentation forces us all to think.... wonderful. Especially, now, I do understand the video, it did not previously run as smoothly as here today.

But the underlying problem remains unemployment; the driver of all prosperity.

Sharky
01-13-11, 02:56 AM
But the underlying problem remains unemployment; the driver of all prosperity.

But what drives unemployment? Not spending, not consumption, and certainly not borrowing. It's production.

Taking the 30,000 foot view, part of what's happening here is a global economic restructuring, driven by the relocation of industrial production from parts of the world with a high cost of doing business to more business-friendly climes. The part of the equation that people didn't seem to expect is that in addition to the plants themselves, the basic source of wealth for those countries was also being exported. A (painful) period of adjustment in the aftermath is predictable.

No one in government seems to know how to regain the lost jobs and the wealth that went with them, when in light of the above, the answer is obvious.

Chris Coles
01-13-11, 03:20 AM
No one in government seems to know how to regain the lost jobs and the wealth that went with them, when in light of the above, the answer is obvious.

Having been prominent in this part of the debate; I will be pleased if you would also share with us all your own answer as to how you see, from your own viewpoint, what they should do. (I should explain, I am trying to widen this debate, not in any way demeaning your own response).

LargoWinch
01-13-11, 07:43 AM
But what drives unemployment? Not spending, not consumption, and certainly not borrowing. It's production.

Taking the 30,000 foot view, part of what's happening here is a global economic restructuring, driven by the relocation of industrial production from parts of the world with a high cost of doing business to more business-friendly climes. The part of the equation that people didn't seem to expect is that in addition to the plants themselves, the basic source of wealth for those countries was also being exported. A (painful) period of adjustment in the aftermath is predictable.

No one in government seems to know how to regain the lost jobs and the wealth that went with them, when in light of the above, the answer is obvious.

See also: James Goldsmith discusses globalization on Charlie Rose - 1994 (55min.)

if you haven't read the book that is.

flintlock
01-13-11, 07:49 PM
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Raz
01-13-11, 08:49 PM
EJ wrote:

"The second Peak Cheap Oil Cycle started as soon as the recession ended in 2009. The Cycle will push oil back over $100 in 2011 and produce a price spike to perhaps $120 before one of two secondary crises occurs, the China Bubble Crash or the Fed cuts rates or Congress reduces spending. For an economy in a balance sheet recession facing cost-push inflation from a weak currency and rising global demand for finite oil, the options aren’t pretty." (more... $ubscription) (http://www.itulip.com/forums/showthread.php/18137-The-Other-Shoe-%C2%96-Part-II-Conundrum-Economics-Eric-Janszen?p=186412#post186412)

:o EJ: did you mean raises rates? How can they cut rates any further?
And how would lowering rates, even from here, facillitate another crisis? :o

Munger
01-14-11, 12:45 PM
[deleted]

Munger
01-14-11, 12:51 PM
EJ,

You seem to acknowledge the run up in oil prices is at least partially due to the finite oil supply. You don't explicitly attribute it to the rising demand for oil in China and India, but I assume you understand this. You seem to go on to attribute it's price-rise solely to an increase in the money supply. You may be exaggerating for effect, but if not I fail to see the support for this hypothesis. If you have the data correlating as much, I would like to see it.

From my reading, the assertion that the price fluctuation are due to the money supply does not seem well supported, particularly as the rise in commodities seems to be easily explained by supply and demand. See, e.g., Causes and Consequences of the Oil Shock (http://www.brookings.edu/economics/bpea/~/media/Files/Programs/ES/BPEA/2009_spring_bpea_papers/2009_spring_bpea_hamilton.pdf).

Do you attribute the 2007 run-up to an increase in the money supply? The subsequent 60% drop due to a decrease in the money supply? Or are you making the argument that the fluctuations in the money supply affect/reflect supply and demand?

LargoWinch
01-14-11, 03:09 PM
Charles Hugh Smith is using iTulip's chart depicted in the above article for his latest post, while acknowledging the source: See here. (http://www.oftwominds.com/blogjan11/middle-class-assets01-11.html)





As we can see in this chart from iTulip.com (http://www.itulip.com/forums/showthread.php/18138-Crisis-2011-%C2%96-Part-I-The-Other-Shoe-Eric-Janszen?p=186413), the increases in income have also been concentrated in the top 5% and the 15% just beneath that together make up the top 20%:
http://www.oftwominds.com/photos2011/incomeinequality1967-2009.png

Mega
01-14-11, 05:56 PM
Good Eveing Eric & co
No.........i don't agree you, for the 1st time since i posted on Itulip......i disagree with you. I totally agree with the logic of your thoughts & am sure you have soucres of "intel" from well placed players (unlike Max Keiser who only has Saurces).....but it won't go down like this.

Stagflation worked in the 70's because the UK/US were "Closed loop" econermys.....it worked because:-

A. Wages could chase inflation (very high levels of emplyment)
B. Badly informed public.

Neither are now the case, as they try to inflate & REAL in your face inflation rises the squeezed middleclass will BLOW. Unlike the 70's now we have MEGA personal debts, true keeping rates low stop them from blowing.....but the everyday food & fuel costs will rocket....which will have the same effect as high rates.

Savers are getting raped & they KNOW it, with internet they are very well informed.......they are finding ways to hit back (Gold/silver). The "Fiat" kings are scared shitless of the loss of their kingdoms, they have so devalued "money" that its control might very well be snatched from their hands.

Eric they painted themselves into a conner, by mistake or plan there is NO WAY OUT NOW......you can't un-hit the iceberg mate.

So, what does "Mega" (who sussed into in 2005) think will happen?

Well, their cowards, they seen that poor woman shot & are just a "tad" worried they next in line.....they will have noticed the riots & neo-revoulutions going on around the World. They decied to do....EVERYTHING.......They "QE" & LIFT Rates....after targeting a low bulsh*t fake inflation fig.............they do it all.....to give them time to decied what to do &/or give them time to retire/escape & hand off the job to someone else.

That won't work either, Eric i read your work for years & it helped my understanding, but your like a Russian phyicis standing in the control room at Chernobyl..........its too late mate.

Mike

Sharky
01-14-11, 09:18 PM
Having been prominent in this part of the debate; I will be pleased if you would also share with us all your own answer as to how you see, from your own viewpoint, what they should do. (I should explain, I am trying to widen this debate, not in any way demeaning your own response).

The obvious part is to take actions that result in increasing production within the US. Since production = wealth, that's the only long-term solution.

Exactly what those steps should be is less obvious, but still reasonably straightforward; the US needs to become more competitive. Why did companies move to China in the first place? It wasn't just GATT and cheap labor.

Specific suggestions:

1. Radically reduce regulation
2. Remove legislative support for unions (no forced bargaining, etc)
3. Abolish the minimum wage
4. Drastically reduce government spending
5. Cut and simplify income taxes (personal & corporate), on the road to eliminating them entirely
6. Decrease the true cost of capital by encouraging saving (first step: have interest & dividend income be tax-free)
7. Eliminate taxes on capital: capital gains tax, inheritance tax, gift tax, property tax, etc.
8. Sell as many government assets to private parties as possible (privatization)
9. Eliminate all subsidies and other forms of tax or financial support that have encouraged companies to move offshore
10. Strictly enforce laws against fraud of all kinds
11. Privatize the education system

I realize this sounds like a third-world "austerity" program of some kind -- and perhaps that's partly what it is.

Government alone is not going to solve the problem. The best thing they can do is to get out of the way, to allow innovators, entrepreneurs and risk-takers to do their thing.

BTW, note that I'm suggesting what I think should be done, not what I think will be done; they are two very different things. In fact, what probably will be done is close to the opposite of what I'm suggesting, at least in the near term.

herbkarajan
01-14-11, 09:41 PM
Stagflation worked in the 70's because the UK/US were "Closed loop" econermys.....it worked because:-

A. Wages could chase inflation (very high levels of emplyment)
B. Badly informed public.


Open your eyes and look beyond U.K, the West's been underwriting global expansion (on the backs of the bottom half of its own population) for the better part of two decades. 70's style inflation will work "very well" for the 4 billion people in China, India etc.

Raising prices for necessities in the West may seem cruel, and it is, but several years down the line, when the remaining companies realize their input prices are coming down while the margins stay 'fat' because all the competitors are gone, they may actually hire a few people.

herbkarajan
01-14-11, 10:14 PM
important interview, here's the working link
http://www.youtube.com/watch?v=4PQrz8F0dBI

of course, we're almost a generation later after 'globalization' and events Goldsmith describes. The paradox which Goldsmith doesn't explore is that the only way to quickly 'industrialize' China (et al) was to engage 'animal spirits' of businesses which took advantage of the labor arbitrage and brought in capital and know-how. Whether 'they' will finally start to consume what 'we' make is at the heart of the 'rebalancing' debate happening right now

Sharky
01-15-11, 08:14 AM
An big issue regarding China is that ownership rights there are not as strong as American corporations have been lead to believe. When large corporations in the US moved their factories to China, they retained either total or at least partial ownership. However, they have forgotten, or chosen to ignore the fact that in spite of the recent success and progress, China is still communist at its core. If (when) their economy goes into the tank, it seems very likely to me that there will be lots of "nationalization" -- the confiscation of foreign-owned industries by the Chinese government. If you don't think it's possible, just look at what happened in Russia, Cuba, Iran and Venezuela. The scale would be larger here, but the underlying politics / philosophy in China isn't really much different than those other countries, and it's the philosophy that makes such things possible.

ViC78
01-15-11, 11:33 AM
EJ,

You seem to acknowledge the run up in oil prices is at least partially due to the finite oil supply. You don't explicitly attribute it to the rising demand for oil in China and India, but I assume you understand this. You seem to go on to attribute it's price-rise solely to an increase in the money supply. You may be exaggerating for effect, but if not I fail to see the support for this hypothesis. If you have the data correlating as much, I would like to see it.

From my reading, the assertion that the price fluctuation are due to the money supply does not seem well supported, particularly as the rise in commodities seems to be easily explained by supply and demand. See, e.g., Causes and Consequences of the Oil Shock (http://www.brookings.edu/economics/bpea/%7E/media/Files/Programs/ES/BPEA/2009_spring_bpea_papers/2009_spring_bpea_hamilton.pdf).

Do you attribute the 2007 run-up to an increase in the money supply? The subsequent 60% drop due to a decrease in the money supply? Or are you making the argument that the fluctuations in the money supply affect/reflect supply and demand?

I was going to pose the exact same question. The flow chart describes 3 inputs to the oil price increase, but then, in the explanation, EJ accuses the Fed of exporting inflation to the emerging market economies. I have been reading up on the Indian food inflation spike and lot of it is attributed to the poor and unseasonal weather conditions which depleted grain stocks.

I would be very curious to know if someone has attempted to separate these different causality factors in terms of impact on food/oil inflation.

Chris Coles
01-16-11, 08:15 AM
May I also add the point about what seems to be occurring; a systematic, revolving series of natural disasters, one following the other around the planet. last year it was Russia and Grain, has anyone noted that the Queensland rains have damaged the grain harvest expectation for next year as there is much land that will not be accessible for some indeterminate period. The world economy may not be sufficiently robust to ride a continuing series of such events.

ThePythonicCow
01-16-11, 09:30 AM
See also: James Goldsmith discusses globalization on Charlie Rose - 1994 (55min.)Link kaput -- try Charlie Rose November 15 1994 (http://video.google.com/videoplay?docid=5064665078176641728&hl=en)

ThePythonicCow
01-16-11, 10:52 AM
No.........i don't agree you, for the 1st time since i posted on Itulip......i disagree with you. Holy smackers. I take a few days off from iTulip and miss reading this in real time? Who'da thunk? That'll teach me.

Eric they painted themselves into a conner, by mistake or plan there is NO WAY OUT NOW......you can't un-hit the iceberg mate.Oh ... there's a way out, ol' chap. The same way out as after they sunk the Lusitania (to incite America's entry into World War I) or sunk America's aging battleship fleet at Pearl Harbor (to incite her entry into World War II). WAR !!

Not this year, I don't think. First we get the world economic body slam that EJ is describing to us. Keep your pantry well stocked. If you have a garden, tend it well; if not, consider planting one. The biggest event of 2011-2012 that EJ left out, in my view, will be world wide food shortages. EJ will still eat well; I'm sure he need not worry for himself or his family. But many humans will not. I anticipate the WAR will follow sometime thereafter; not just regional colonizations (aka War on Terror) but something more riveting for the global human population. I will not state here who I think will be the enemy. It would bring too much ridicule to this good forum to go into that here and now.

There is always a way out. It might just be a tad brutal. Hang in there however. If civilization survives in anything resembling its present form, the technology brought forth during the coming war will solve our energy problem.

shiny!
01-17-11, 12:19 AM
Oh ... there's a way out, ol' chap. The same way out as after they sunk the Lusitania (to incite America's entry into World War I) or sunk America's aging battleship fleet at Pearl Harbor (to incite her entry into World War II). WAR !!

I don't see how War will benefit our economy this time around, since we don't even manufacture most of our own equipment anymore. Things might be assembled here, but AFAIK most of the components are made in other countries. It's not like WWII when we ramped up factory production in a huge way. Now, war might mean more jobs in other countries but not here.

We've been at war for the last decade, and during that time our national debt has exploded while factories have shut down and manufacturing jobs have been lost. What will more War, bigger War accomplish? All War is good for now is draining what precious oil remains at an accelerated rate.

But since it's you I'm arguing with and you're generally the smartest kid in the class, all I can assume is that I'm misinformed or overlooking something.


Hang in there however. If civilization survives in anything resembling its present form, the technology brought forth during the coming war will solve our energy problem.I sure hope you're right.

Chris Coles
01-17-11, 02:57 AM
Holy smackers. I take a few days off from iTulip and miss reading this in real time? Who'da thunk? That'll teach me.
Oh ... there's a way out, ol' chap. The same way out as after they sunk the Lusitania (to incite America's entry into World War I) or sunk America's aging battleship fleet at Pearl Harbor (to incite her entry into World War II). WAR !!

Not this year, I don't think. First we get the world economic body slam that EJ is describing to us. Keep your pantry well stocked. If you have a garden, tend it well; if not, consider planting one. The biggest event of 2011-2012 that EJ left out, in my view, will be world wide food shortages. EJ will still eat well; I'm sure he need not worry for himself or his family. But many humans will not. I anticipate the WAR will follow sometime thereafter; not just regional colonizations (aka War on Terror) but something more riveting for the global human population. I will not state here who I think will be the enemy. It would bring too much ridicule to this good forum to go into that here and now.

There is always a way out. It might just be a tad brutal. Hang in there however. If civilization survives in anything resembling its present form, the technology brought forth during the coming war will solve our energy problem.

The trigger will be sea levels rising much faster than anyone has predicted.

ThePythonicCow
01-17-11, 05:11 AM
I don't see how War will benefit our economy this time around, since we don't even manufacture most of our own equipment anymore.
I too doubt it will help the economy much, except perhaps for those working in the military, intelligence and aerospace industries.


I sure hope you're right [about finally solving our energy problem.]
I should caution you and any lurkers that I've been off reading some weird sites lately. So take my predictions above with a dump truck full of salt:

http://www.pacelink.com/SnowExWeb/Images/SP%202400%20dumping.gif

shiny!
01-17-11, 08:56 AM
I too doubt it will help the economy much, except perhaps for those working in the military, intelligence and aerospace industries.

Financially speaking, an all-out major war now would be the equivalent of "suicide by cop" on a sovereign scale. I seriously think we're already in WWIII but it's a currency war and only the Oligarchs will win.

Sharky
01-17-11, 09:06 PM
I don't see how War will benefit our economy this time around, since we don't even manufacture most of our own equipment anymore. Things might be assembled here, but AFAIK most of the components are made in other countries. It's not like WWII when we ramped up factory production in a huge way. Now, war might mean more jobs in other countries but not here.

Nuclear war could change the game quickly. Imagine a nuclear strike that destroys the production capacity of some "competing" countries -- followed by lots of jobs in the US to build replacement factories.... All paid for by raiding the resources of countries like Iraq and Afghanistan. It is, of course, an insane game, but that's how some people think.

Jay
01-18-11, 12:43 AM
. I will not state here who I think will be the enemy. It would bring too much ridicule to this good forum to go into that here and now.

Aliens. It's the only enemy that makes sense in an exponential world. Get ready for the show.

lakedaemonian
01-18-11, 01:57 AM
Nuclear war could change the game quickly. Imagine a nuclear strike that destroys the production capacity of some "competing" countries -- followed by lots of jobs in the US to build replacement factories.... All paid for by raiding the resources of countries like Iraq and Afghanistan. It is, of course, an insane game, but that's how some people think.

I'm in the "less than likely" camp, for now, as far as believing a MAJOR regional or inter-regional war will break out in the next few years.

Lots of counter insurgency, brush fire social disruption/insurrection, increasingly desperate efforts to maintain regime survival, etc...hell yeah....LOTS of that.

But if I was to game a scenario where I think the US MAY be able to maintain it's relative military/economic/political dominance for another generation it would be a scenario involving Pakistan/India/China.

If Pakistan finds it necessary to divert attention away from it's domestic terminal cancers by attacking India by proxy AGAIN...eventually India will HAVE to respond(it's patience thus far since it's Parliament was attacked by Pakistani ISI backed terrorists and numerous other major incidents is notable, but not unlimited), and MAYBE the next time the US fails(intentionally or unintentially) to de-escalate a future crisis and allows a future crisis to "cook off" into a real war....as in 1965 or 1971 or the tit for tat nuclear testing or Kargil 99.

India has also been developing a "cold start" war doctrine.....an ability to launch combined arms warfare, on very short notice, against either Pakistan or China.

It's a bit like a 3 way Cold War, with a long and consistant history of going hot both directly and via proxy.

It probably wouldn't take much to push them over the edge(action), or to prevent them from falling off the edge(inaction).

If Pakistan/India cooked off with the use of nuclear weapons(probably the greatest risk of use anywhere in the world), it would surely drag China into it.

I could also imagine an effort to drag the United States into it.

The US simply dragging it's feat(allowing the conflict to fester and spark) and aggressively declaring a cordon sanitaire around Pakistan/India/China and letting the combatants burn themselves out with the threat of total destruction from the US if the combatants attempted to expand the conflict beyond the cordon, represents a Machiavellian wet dream for the continuation of US global military/economic/political dominance for another generation.

Pakistan/India/China have limited capability to directly attack the United States using conventional/nuclear means. Attempting to do so would cause casualties, and result in the attacking nation being turned into a self-lit parking lot.....so again from a Machiavellian perspective, it could be easily argued that the risk is acceptable.

It would also allow an outstanding and easy opportunity to effect considerable and necessary reform in the US, wipe out a lot of excess global industrial capacity, eliminate a lot of competition for Peak Cheap Oil, provide an opportunity for the US to reindustrialize, and leave the US solely in charge of a Bretton Woods Redux.

The US currently possesses the greatest military "overmatch" against all of it's likely opponents in both conventional and nuclear capability.

It is at it's multi trillion dollar apex/apogee, it cannot maintain this relative overmatch capability indefinitely.......so would it not make sense in some folks minds to leverage this capability if/when the opportunity presented itself randomly or coincidentally?

Pakistan is a toilet...who knows how it's going to end(probably quite badly), but if Pakistan's leadership continues to use blackmail, brinksmanship, and the threat of geopolitical "suicide by cop" who's to say their bluff doesn't get called?

While I think this "capability + opportunity scenario" is just a razor sharp sliver of a possibility......I do wonder if it could swiftly change from possibility to probability.

I'm going to step back from the dark doom stuff now, and go back to just the grey and uncomfortable stuff...like when/how to change from cash to more energy/gold/silver/? to try and maintain my family's PPP.

Just my 0.02c

lakedaemonian
01-18-11, 02:02 AM
Aliens. It's the only enemy that makes sense in an exponential world. Get ready for the show.

I remember folks getting up in arms about the movie 300 a few years back...based on the Frank Miller comic book series on the Spartans at Thermopyle...and how it was prepping us for a war against Iran.

I just saw a preview for a moving coming out soon called Battle: Los Angeles:


http://www.youtube.com/watch?v=CWPkJD0YHeM

Maybe it isn't a war with Iran......maybe it IS aliens......I'm looking forward to this one....


Ash, were you a "Hollywood Marine" in Southern California? And did you catch the 0311 reference?

ThePythonicCow
01-18-11, 03:20 AM
I just saw a preview for a moving coming out soon called Battle: Los Angeles:
Crap - that's one of the ways that they (the b*st*rds running the show here on Earth) prepare us for these things (the false flag events justifying a new major war), with movies like this.


And did you catch the 0311 reference?
Dang - that's bold of them. Though I suppose that is just the movie release date, not the actual event date.

Thanks for the link to this trailer, lakedaemonian.

ThePythonicCow
01-18-11, 03:22 AM
I'm in the "less than likely" camp,I agree -- a major international World War III nuclear war is less than likely.

Chris Coles
01-18-11, 03:30 AM
Much less bother is to use a biological....

lakedaemonian
01-18-11, 03:55 AM
Crap - that's one of the ways that they (the b*st*rds running the show here on Earth) prepare us for these things (the false flag events justifying a new major war), with movies like this.


Dang - that's bold of them. Though I suppose that is just the movie release date, not the actual event date.

Thanks for the link to this trailer, lakedaemonian.

0311 is the designator for Marine Infantryman, coinciding with Southern California based "Hollywood Marine" infantry depicted in the movie.

I think our member Ash is a Marine.

I watch very little TV anymore, nor "news". But enjoy quite a few movies. I'm looking forward to this one for some pure military/action/scifi escapism.

I didn't think 300 was an attempt to get us to support an invasion of Iran, nor do I think this movie is to prepare us to accept our new alien overlords.

But I do think with each passing day that our multiple overlapping crisis are not decisively dealt with the risk of leadership having delayed the pain SO long a massive convenient excuse for action may not only become a more appealing option, maybe it might actually be sought.

lakedaemonian
01-18-11, 04:03 AM
I agree -- a major international World War III nuclear war is less than likely.

Do not discount entirely the possibility of a limited nuclear exchange.

People need to adjust their US/Soviet Union Cold War MAD preconceptions.

Any conflict outside the aforementioned but updated US/Russia conflict scenario could see, and quite possibly would see, a far more limited exchange that would not be The Day After or Threads.

shiny!
01-18-11, 09:29 AM
Countries of whichever the losing side is in a war lose because their generals are fighting the last war rather than the current one. Wars are fought for food and natural resources*. In a world of dwindling resources, conventional warfare is expensive and wasteful. It wastes food and resources. Nuclear war contaminates land and resources.

Vast armies like we used in past wars are simply too expensive to maintain and deploy. There are "cleaner" and more efficient ways to fight now. A targeted computer virus can shut down a nuclear program. In this electronic age, an EMP can disable a country without contaminating the land or draining natural resources.

WWIII is being fought right now as a Currency War; the last currency standing wins. It's also a Cyber War: Russia vs. US, China vs. US, Israel/US vs. Iran... It will most likely involve EMPs before it's over. The countries that adapt, adopt, and expand their use of these strategies will run circles around countries that are fighting the last war.

* With the exception of Muslim wars. Muslims fight for religious conversion, or because they're over-caffeinated, hate their neighbors, their mothers, or are just bored.

c1ue
01-18-11, 11:32 AM
The trigger will be sea levels rising much faster than anyone has predicted.

You might want to look into 'Climate Change' - sea levels are not only rising well below IPCC projections, they are in fact decelerating.

Munger
01-18-11, 04:07 PM
Nothing? Is that it, oil price-rise = money printing?

Dreadfully shallow analysis, this.

Alvaro Spain
01-18-11, 05:38 PM
EJ,

You seem to acknowledge the run up in oil prices is at least partially due to the finite oil supply. You don't explicitly attribute it to the rising demand for oil in China and India, but I assume you understand this. You seem to go on to attribute it's price-rise solely to an increase in the money supply. You may be exaggerating for effect, but if not I fail to see the support for this hypothesis. If you have the data correlating as much, I would like to see it.

From my reading, the assertion that the price fluctuation are due to the money supply does not seem well supported, particularly as the rise in commodities seems to be easily explained by supply and demand. See, e.g., Causes and Consequences of the Oil Shock (http://www.brookings.edu/economics/bpea/~/media/Files/Programs/ES/BPEA/2009_spring_bpea_papers/2009_spring_bpea_hamilton.pdf).

Do you attribute the 2007 run-up to an increase in the money supply? The subsequent 60% drop due to a decrease in the money supply? Or are you making the argument that the fluctuations in the money supply affect/reflect supply and demand?

If I recall correctly (I am no metalman, alas), EJ told us somewhere in 2009 that he believed that the first Peak Oil shock drove oil prices to 100 US$/barrel and speculation did the rest of the rise.

Chris Coles
01-18-11, 06:14 PM
Nothing? Is that it, oil price-rise = money printing?

Dreadfully shallow analysis, this.

For my own part, I have to own up to sometimes dropping in the odd comment of poor consequence, just to stir the pot where in total honesty, I am unable to provide a better analysis. But, here, with the very greatest of respects Munger; you leave yourself wide open to a request, a serious request I might add, for a better analysis from you.........

Munger
01-19-11, 12:39 PM
For my own part, I have to own up to sometimes dropping in the odd comment of poor consequence, just to stir the pot where in total honesty, I am unable to provide a better analysis. But, here, with the very greatest of respects Munger; you leave yourself wide open to a request, a serious request I might add, for a better analysis from you.........

My analysis is rather easy to explain.

Oil prices do not seem to have risen and fallen in sync with M1, M2, or M3 at all over the past 30 years. For example, witness the dramatic rise in the late 70s, the subsequent fall, the dramatic rise in the mid 2000s, the dramatic fall in 2008-09, etc.

To claim that the latest rise is due to solely (or mainly) to money printing would seem to require a little proof. Stating that the rise of the last year is due to money-printing seems to be a case of fitting a very recent observation to a hypothesis and ignoring adverse data. That is all.