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View Full Version : A Stroll With Mish - "Through da-flation looking glass"



Contemptuous
04-19-08, 02:46 AM
WHY DO OIL PRICES KEEP RISING?

Inflationistas are crowing over the price of crude hitting $113 a barrel and the March Producer Price Index (http://www.bls.gov/news.release/pdf/ppi.pdf) as well. Indeed the PPI soared last month, primarily on account of energy and food. ... fourth-quarter consumption fell by 0.4 percent. The drop in gasoline consumption, the first since the recession of 2000, should come as no surprise with the slowing economy and soaring gasoline prices. ... Inquiring minds might be asking: If U.S. consumption is down why are prices rising? Here are the answers. ...

The dollar is falling
Global demand is still rising
Peak Oil
Speculation... In addition oil is food. The obvious part, of course, is the transportation of the food to your local store, but it doesn't stop there. Natural gas is the primary component in fertilizer (ammonia) and of course tractors need diesel fuel to operate. ... There are some who claim that this is a matter of "inflation." ... If you define "inflation" as "price change", yes. But that's not the true definition of inflation - inflation is first and always a monetary phenomenon.

COMMENT : [ Now wait just a cotton picking minnit here - if a falling dollar is part of what's making the price of oil go up, why isn't the falling dollar making any other prices go up Mish? Huh? "Inflation is first and always a monetary phenomenon". Golly, I could swear I've heard that expression somewhere before". Don't it drive you nuts when a elegant sounding aphorism like that remains stuck just outside of your recollection? Frustrating. I swear, that sounds just like some kinda AXIOM. Mebbe it's a "humpty dumpty" AXIOM? ]

... Peak Oil is not a monetary phenomenon so all this ranting we hear about bubbles in treasuries based on oil and food prices is misplaced. The Fed is not printing so that inflationary claim can be tossed out the window. ... Swapping is not printing, although it could cause printing down the road. ... There will bank failures. The Fed is even gearing up for them. Commercial real estate is poised to plunge. ... And there is an entire wave of foreclosures coming because Lenders Swamped By Foreclosures Let Homeowners Stay (http://www.bloomberg.com/apps/news?pid=20601109&sid=aOluOO8Vy0gc&refer=home). ... There is not a thing ... that is remotely inflationary. ... It's time to stop pretending. Deflation is here and it is now. ... Anyone who sees stagflation or inflation out of what's happening now is missing the boat. ...

COMMENT: [ How about we start a pool of goodwill money to sponsor a televised sit down between Mish and John Williams? We could bill it "The Clash of The Titans" or something like that? Is John Williams a good listener? ]

People point to rising M3 or MZM. But they fail to note that the biggest rise in M3 is institutional money market funds. Why are those rising? Because businesses are tapping credit lines while they still can and parking it in money markets. Is this inflationary? Hardly. ...

Is Peak Oil Causing Inflation? ... The answer is clearly no. Peak oil can never cause inflation in and of itself. Inflation is an increase in money supply and credit. Peak oil cannot cause that to happen. Rising oil prices in general, for any reason cannot cause inflation either. However, rising oil prices could be a result of inflation. But given that the U.S. is in deflation right here right now, the recent rise in oil prices cannot be attributed to inflation, at least in the U.S. ... Rising oil prices can be attributed to rising inflation in China, rising worldwide demand, and peak oil. That is a nasty brew and there is no way for the Fed or the ECB to control it.

COMMENT : [ uh ... lemme see ... We got rising inflation in China, but this translates into deflation in America? Lessee ... 18%-20%+ money supply growth in China (by: Bloomberg - China’s M2 rose 18.9 percent to 41.78 trillion Yuan = $5.8 trillion YOY) is matched by presumed tight money in the US, but the two currencies appear to be joined at the hip in price action? Huh? How does that work? Why isn't the USD straining on the upside against the peg vs. Chinese Yuan? And there must sure be a humongous bid on US treasuries from abroad, right? Jeez, I don't get this. Somebody kick me I must be fogging up here. I'm just so confused ... ]

Suppose oil production in a large Saudi Arabia oil field halted tomorrow. Oil just ran out unexpectedly and oil surged to $300. Would the correct response be to hike interest rates to combat inflation? The idea of course is preposterous. Every central bank in the world would be rapidly cutting rates because economic activity would drop off a cliff.

COMMENT : [ uh ... wait just a minnit ... didn't he just tell me in the previous paragraph that surging oil prices can never spark an inflationary reaction because we are in a deflation? Heh ... now I'm all dazed and confused. My head hurts. ]

... However, central bankers are certainly guilty of spawning bubble blowing policies that have led to the mess we are in.

COMMENT : [ uh ... wait up, wait up ... ya just told me in a previous paragraph that "The Fed is not printing, so that inflationary claim can be tossed out the window." Whaddaya mean they were "guilty of spawning the bubble"! Now that just don't sound right! See now I'm all confused all over again. If the Fed wasn't printing who's the bubble blower?? Argh! My head hurts! Where's the Tylenol? ]

... Perhaps there is a bubble of some sort in bonds, but if so, the price of oil sure does not prove it. ... Why Is Gold Rising? ... People keep asking me why gold is going up. The answer is that it should be going up. Money (and gold is money), tends to increase in value in deflationary times. It doesn't have to but it tends to. So why, isn't the dollar going up? Because it is not backed by gold. Credit is being repudiated and there is a flight to real money (gold), and other hard assets.

COMMENT : [ Wow... Lessee - China's money supply is soaring, US is running an austere policy of reining in monetary aggregates, the two currencies are running in lockstep, gold is shooting up - (Yeah ... why is gold shooting up? Well, if you must know, because Gold "acts well in deflations" - it doesn't have to, but it "tends" to). Aaggh! These classes are too advanced for me. I wanna go back to home economics. I feel seasick. My head hurts. Why am I so confused? :confused: ]

Can there be another leg down in gold? Of course. Deflation is likely to remove leverage everywhere, and that includes hedge funds and other speculators hiding out in commodities and gold. The only unknown is from what level that happens. It could happen now, or it could happen from a higher level. I am open to either possibility.

COMMENT : [ Huh!? Why are speculators "hiding out in commodities" during the current deflation? Maybe he meant we haven't been in a deflation yet, but we're gonna be real soon? Anyway those commodities speculators buying commodities while we're deflating must be nuts! Now he's telling me Gold could be going down - "It could happen now or it could happen later" - it's neat how connected all these disciplines are isn't it? I mean, it's a bit like the weather guy sometimes - "On the one hand it could rain, but then on the other hand it might not. We'll just have to wait and see". I just dunno. My head is spinning. I think I need to go lie down for a little while. Can I have a recess please? But wait - should I sell my gold? How about Zero Coupon USD bonds - should'nt I buy some of those? No? Why not? What's wrong with Zero Coupons for deflation? I dunno - this stuff is just too complicated. I need my financial advisor. My head hurts. I want my blanky. Can somebody please tell me what to do? :confused: ]

A Weak Dollar Is Masking Deflation! ... Right now what we have is deflation with a weak dollar. That weak dollar, in conjunction with peak oil, has caught nearly everyone off guard to the point they are screaming about oil prices and bond bubbles, while missing the far more important deflationary forces of foreclosures, bankruptcies, and massive writedowns in credit. ... The combination of a weak dollar, peak oil, job losses, falling home prices, walk-aways, and global wage arbitrage is the checkmate scenario for the Fed. Bernanke will find it impossible to inflate out of this mess.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com (http://globaleconomicanalysis.blogspot.com/)

vcif
04-19-08, 10:41 AM
Does he do this on purpose?

This post by Mish, more than most, is littered with logical fallacies so transparent as to render a point by point analysis tedious and almost silly.

I have just one question for Mish:

How on earth do you think the dollar has been weakened? The Chinese? Oil companies? Real Estate Agents? Buyers of Gold? Space aliens?

Nevermind. I get it. Through DEFLATION!

metalman
04-19-08, 10:56 AM
Does he do this on purpose?

This post by Mish, more than most, is littered with logical fallacies so transparent as to render a point by point analysis tedious and almost silly.

I have just one question for Mish:

How on earth do you think the dollar has been weakened? The Chinese? Oil companies? Real Estate Agents? Buyers of Gold? Space aliens?

Nevermind. I get it. Through DEFLATION!

he has utterly, hopelessly boxed himself in with his deflation theory. he never knew what he was talking about in the first place... now it's becoming obvious... painful to watch him try to spin his way out of it. or amusing... depending on your sense of humor.

we're all ka-poomers now. my only question is when do the poom floodgates open and treasuries fly up to 8%, 9%, 10% to catch up to the true rate of inflation? santefe2 is already averaging into that trade. i don't have the balls, yet... maybe i should get a pair.

Contemptuous
04-19-08, 02:35 PM
Mish's new articles (intercontinental ballistic missives) buttressing the deflation case are getting more disjointed and esoteric by the month, as inflation gets unchained not just in the US, but worldwide. Having chosen to require reality to modify itself to conform to his theorems, rather than to gracefully let the theorems modify themselves over time to the reality, Mish cannot be enjoying peaceful night's rest these days.

The anxiety level requiring that he "prove the deflation theorem once and for all" is rising, as the massive groundswell of inflation rising worldwide paints him ever further into a tight corner.

Soon it will be time to haul out the really big guns - the explanations reminiscent of advanced physics: "dark matter" and "attractive vs. repulsive force" and "weak vs.strong force" and "quarks and muons" and "string theory" are invoked, to explain the strange repulsion and opposite behavior ocurring between "dollar money" and "gold money". The dollar inflating oil prices but not inflating anything else will require an entire chapter devoted to it, to nail this illusory phenomenon soundly to the floor.

Lots more pioneering theoretical work to do! :rolleyes:

Spartacus
04-19-08, 02:39 PM
Does he do this on purpose?

This post by Mish, more than most, is littered with logical fallacies so transparent as to render a point by point analysis tedious and almost silly.

I have just one question for Mish:

How on earth do you think the dollar has been weakened? The Chinese? Oil companies? Real Estate Agents? Buyers of Gold? Space aliens?

Nevermind. I get it. Through DEFLATION!

He believes himself. So of course he'll present data supporting his view, or spin data that doesn't support his view such that it looks supporting.

Plenty of people agree with him & support his views. Apparently many on Minianville and couple of months back Gary North & Mish started quoting each other and trading numbers back and forth.

He staked out a position and needs to defend it.

In 2005 he wrote about the prices of manicures and sandwiches at Arby's and Outback Steakhouse dropping and declared that deflationary psychology had arrived, and with it, actual deflation.

Spartacus
04-19-08, 02:46 PM
The fat lady has not sung yet, Metalman.

We all think Bernanke will achieve his inflationary goals

but Seriously, we're in the first innings, there are trillions worth of resets and foreclosures and CDSs and MBSs to devalue
and there is NO GUARANTEE that Bernanke's actions will work.

There's even a small chance that someone convinces Bernanke tomorrow that inflation is the wrong course and the chairman gives up the ghost.




he has utterly, hopelessly boxed himself in with his deflation theory. he never knew what he was talking about in the first place... now it's becoming obvious... painful to watch him try to spin his way out of it. or amusing... depending on your sense of humor.

we're all ka-poomers now. my only question is when do the poom floodgates open and treasuries fly up to 8%, 9%, 10% to catch up to the true rate of inflation? santefe2 is already averaging into that trade. i don't have the balls, yet... maybe i should get a pair.

EJ
04-19-08, 04:15 PM
The fat lady has not sung yet, Metalman.

We all think Bernanke will achieve his inflationary goals

but Seriously, we're in the first innings, there are trillions worth of resets and foreclosures and CDSs and MBSs to devalue
and there is NO GUARANTEE that Bernanke's actions will work.

There's even a small chance that someone convinces Bernanke tomorrow that inflation is the wrong course and the chairman gives up the ghost.

Depends on what you mean by "work." Bernanke is NOT creating inflation, not directly, anyway. The inflation as we forecast and as anyone can see is resulting from a deflating dollar. The Fed can only prevent a continuation of dollar depreciation as a source of inflation marginally, not structurally.

I have given up debating Mish. It's like arguing with a creationist, which goes like this.

Creationist: The earth is 10,000 years old.
Scientist: How much do you weigh?

Creationist: 180 lbs. Why?
Scientist: How do you know you weight 180 lbs?

Creationist: That’s what the scale says.
Scientist: But the scale is measuring the force of gravity on your body in units of pounds. You’ve never seen gravity yet you believe in it. Same with the age of the earth. No one can observe the passage of 10 million years but you can prove that an organic material is 10 million years old by measuring the rate of decay of radioisotope carbon-14 which is a continuous process just as gravity is a continuous force. Using carbon dating we know that the world is at least 4.5 billion years old. Why do you believe in gravity, which can be shown empirically as your weight of 180 lbs on a scale but not in the age of the earth which can be shown empirically to be 4.5 billion years old?

Creationist: I don't have time for this. I've already explained how the world is 10,000 years old. I don't need to explain it again.

With Mishites the argument is similar.

EJ: Inflation is rising.
Mishite: Inflation is always a monetary phenomenon.

EJ: Fair enough, but what is the result of inflation, how can you prove that it is occurring? Empirically, in rising prices of goods or assets denominated in units of a currency such as the dollar.
Mishite: Rising prices are not inflation.

EJ: That is correct. Rising prices are the result of inflation. If inflation did not result in rising prices, who’d care about it? It’s everywhere around us – oil, commodities, food – just as I told you it would and you told me it would not. Do you claim that prices are not rising?
Mishite: Some prices are rising and others are falling.

EJ: You'll have to show me falling prices in anything but inflated assets like housing, but for the sake of argument for those items that are rising in price what if not inflation is causing prices to rise?
Mishite: Current price inflation is the result of past credit and money creation. Recent declines in credit and the money supply will cause price deflation to begin any day now.

EJ: But you asserted previously that rising prices "are not" or “do not result from” inflation.
Mishite: I’ve been over this 100 times and don’t have time to explain it again.

Conclusion: Rising prices are the empirical evidence of inflation. Mishites don't accept basic price inflation measures, such as rising goods prices, as evidence of inflation so they invent their own measures to get a result that agrees with the ideology.

Mishites are monetary creationists.

Why do I persist in pointing out these flaws in Mish's arguments? We live in an era of unreason and I feel compelled to fight instances of unreason wherever and whenever they crop up.

grapejelly
04-19-08, 04:33 PM
Mish argues for his "M Prime" money supply number.

What is happening with MZM and why is that so off? It seems that MZM has been zooming up, which makes sense given the economic news.

Fundamentally, people like Mish do not understand that defaults are not deflationary. They may cause a shortage or credit which may result in falling asset prices. But defaults are not deflationary of themselves.

Money is lent. The money is spent. The borrower gets bent. A default notice is sent.

The money that was already spent...does not go away. It is filtering through the economy.

Only paying back debts is deflationary. That's not the only thing that could cause deflation, of course, but by definition, paying back debts shrinks the money supply while debt default DOES NOT.

FRED
04-19-08, 06:30 PM
Mish argues for his "M Prime" money supply number.

What is happening with MZM and why is that so off? It seems that MZM has been zooming up, which makes sense given the economic news.

Fundamentally, people like Mish do not understand that defaults are not deflationary. They may cause a shortage or credit which may result in falling asset prices. But defaults are not deflationary of themselves.

Money is lent. The money is spent. The borrower gets bent. A default notice is sent.

The money that was already spent...does not go away. It is filtering through the economy.

Only paying back debts is deflationary. That's not the only thing that could cause deflation, of course, but by definition, paying back debts shrinks the money supply while debt default DOES NOT.

EJ writes in:

The force of gravity remains poorly understood but, at least for large objects, is easily measurable.

Inflation is a man-made phenomenon. Its complexity makes it poorly understood and yet it is also easily measured as inflation results in rising prices. Anyone who refuses to acknowledge that oil's increase from $20 to $115 in a few years as anything but evidence of inflation is not being truthful, and anyone who will not acknowledge that high energy prices are feeding an inflation cycle in the economy cannot be trusted to tell you anything about the economy.

That which cancels debt is debt deflationary. Debt defaults are debt deflationary. Monetary inflation is also debt deflationary. Can debt deflation feed into the economy to produce a price deflation spiral as in the 1930s? Yes. But it has been demonstrated over and over, and we have provided many examples, that preventing this is trivial for a country that is willing to devalue its currency. US leadership in the early 1930s was not until FDR, and the leadership in Japan is not willing to do so to this day.

What is more difficult to demonstrate is how the inflation cycle that currency devaluation policies produce can be stopped without the government taking extreme measures to convince market participants that politicians are willing to accept the political consequences of an extended period of negative GDP and money growth that eliminates inflation growth expectations. The political consequences of disinflation were internalized within US borders in the early 1980s, after Volcker spent 10 years getting his ducks in a row, and quite a lot of damage occurred outside US borders but US policy makers did not concern themselves with that.

The essence of Ka-Poom Theory is that the political consequences of inflation are to be externalized rather than the political consequences of disinflation internalized in the cycle. My thinking in 1999 was that US policy makers were going to blame oil producers for the inflation needed to cancel debt, again; the Fed has to print the money to pay for the oil but can't control where the money printed for that purpose goes. Now it appears that the political planets are aligning to make domestic energy consumption itself the political target, using global warming, energy security and perhaps soon peak oil as a policy backdrop. This was hard to foresee in 1999 when oil was so cheap and the memory of crashing oil prices so fresh. But here we are with OPEC promising to maintain high oil prices, even as demand declines within the OECD, in order to maintain prices above $70, the level at which most alternative energy projects remain viable.

Contemptuous
04-19-08, 08:44 PM
SOME EXTRACTS FROM A DOUG NOLAND ARTICLE AT SAFEHAVEN

Shows how much "explaining" Mish needs to do. It's either that, or abandon his leaky theses entirely.

Either Mish never reads Noland, or he systematically discounts everything Noland is pointing out of our current environment. I have underlined a number of observations of Noland's ( inflationary effects ), which match E.J.'s observations - and they also highlight Mish's deflation inspired arguments as increasingly "closed", self referent, or hermetic. "Hermetic" in that there are more and more areas of the global economy which Mish's arguments "just can't tread into" without treading on facts which summarily trip his theories up. He'd have to do some acrobatics here to convincingly refute that inflationary events are not occurring as Noland describes, i.e. inflation being created and issued, and playing out beyond the direct credit or money issuance of the FED.

___________

April 18, 2008

Setting the Backdrop for Stage Two - by Doug Noland - (Extracts from a current post of his at SAFEHAVEN's website).

Martin Feldstein, Harvard professor and former chairman of the President's Council of Economic Advisors, wrote an op-ed piece in Wednesday's Wall Street Journal - "Enough with Interest Rate Cuts" - worthy of commentary.

QUOTE: "Many factors have contributed to the recent rise in the prices of oil and food, especially the increased demand from China, India and other rapidly growing countries. Lower interest rates also add to the upward pressure on these commodity prices - by making it less costly for commodity investors and commodity speculators to hold larger inventories of oil and food grains. Lower interest rates induce investors to add commodities to their portfolios. When rates are low, portfolio investors will bid up the prices of oil and other commodities to levels at which the expected future returns are in line with the lower rates. An interest rate-induced rise in the price of oil also contributes indirectly to higher prices of food grains. It does so by making it profitable for farmers to devote more farm land to growing corn for ethanol."

While I concur with the basic premise of the article (stop the cuts!), the substance of Mr. Feldstein's analysis leaves much to be desired. First of all, I find it strange than he would address the issues of overly accommodative Federal Reserve policy, commodity prices, and inflationary pressures without so much as a cursory mention of our weak currency. The word "dollar" is nowhere to be found - not a mention of our Current Account Deficits. The focus is only on interest rates - and such one-dimensional analysis just doesn't pass muster in our complex world.

Most remain comfortably oblivious to today's inflation dynamics. Mr. Feldstein mentions increased demand from China and India. He seems to imply, however, that portfolio buying (financed by low interest rates) by "commodity investors and speculators" is providing the major impetus to rising inflationary pressures generally. Perhaps it could have something to do with the $2.5 TN increase in global official reserve positions over the past two years (85% growth)? I would also counter that destabilizing speculative activity is an inevitable consequence - rather than a cause - of an alarmingly inflationary global backdrop.

I'll remind readers that we live in a unique world of unregulated Credit. Excess has evolved to the point of being endemic to an apparatus that operates without any mechanism for adjustment or self-correction. There is, of course, no gold reserve system to restrain domestic monetary expansions. Some years back the dollar-based Bretton Woods global monetary regime lost its relevance. And, importantly, the market-based disciplining mechanism ("king dollar") that emerged at times to ruthlessly punish financial profligacy around the globe throughout the nineties has morphed into a dysfunctional dynamic that these days nurtures self-reinforcing excesses. The "recycling" of our "Bubble dollars" (in the process inflating local Credit systems, asset markets, commodities and economies across the globe) directly back into our securities markets rests at the epicenter of Global Monetary Dysfunction.

A historic inflation in dollar financial claims was the undoing of anything resembling a global monetary system, and now this anchorless "system" of wildcat finance is the bane of financial and economic stability. To be sure, massive and unrelenting U.S. Current Account Deficits and resulting dollar impairment have unleashed domestic Credit systems around the globe to expand uncontrollably. Today, virtually any major Credit system can and does inflate domestic Credit to create the purchasing power to procure inflating global food, energy, and commodities prices.

The long-overdue U.S. Credit contraction and economic adjustment could change this dynamic. But for now there are reasons to expect this uninhibited Global Credit Bubble to instead run to precarious extremes - and for resulting Monetary Disorder to become increasingly problematic. Destabilizing price movements and myriad inflationary effects are poised to worsen. The specter of yet another year of near-$800bn Current Account Deficits coupled with huge speculative flows out of the dollars is just too much for an acutely overheated and unstable global "system" to cope with.

I hear pundits still referring to a "deflationary Credit collapse." Well, the U.S. Credit system implosion was largely stopped in its tracks last month. The Fed bailed out Bear Stearns; opened wide its discount window to Wall Street; and implemented unprecedented liquidity facilities for the benefit of the marketplace overall. Central banks around the globe executed unparalleled concerted market liquidity operations. The Federal Home Loan Bank system was given the ok to continue aggressive liquidity injections and balloon its balance sheet in the process. And now (see "GSE Watch" above) we see that the Federal Housing Administration (with its new mandate and $729,550 loan limit) is likely to increase federal government mortgage insurance by as much as $200bn this year, while Washington's Ginnie Mae is in the midst of a securitization boom.

Together, the Fed and Washington have effectively nationalized a large portion of both mortgage and market liquidity risk. ... Sure, the Credit system remains under significant stress, with additional mortgage and corporate Credit deterioration in the offing. But, at least for now, policymakers have successfully stemmed systemic deleveraging. The Credit system is simply not in deflationary collapse mode. ... Fed funds are today ridiculously priced in comparison both to the inflationary backdrop and to global rates. ... I would today argue that the risk of a precipitous economic downturn has been reduced in the near-term. As a consequence, U.S. Credit growth could surprise on the upside with risk to global Price Instability increasing markedly.

With crude hitting a record $117 today, there is every reason to expect that newly created global liquidity will further inflate energy, food, and commodity prices generally. The Goldman Sachs Commodities index has gained 21% already this year. But when it comes to Monetary Instability, our financial markets might just prove the unappreciated wildcard. When the Fed and Washington radically altered the rules of U.S. finance last month, they placed in jeopardy huge positions that had been put in place to hedge against and profit from systemic crisis. With the end of "Stage one" arises a major short squeeze in the Credit, equities, and derivatives markets. ... It is not beyond reason that a disorderly unwind of "bearish" Credit market positions could incite a mini bout of liquidity, speculation, and Credit excess that exacerbates Global Monetary Instability

Mega
04-20-08, 11:34 AM
Depends on what you mean by "work." Bernanke is NOT creating inflation, not directly, anyway. The inflation as we forecast and as anyone can see is resulting from a deflating dollar. The Fed can only prevent a continuation of dollar depreciation as a source of inflation marginally, not structurally.

I have given up debating Mish. It's like arguing with a creationist, which goes like this.

Creationist: The earth is 10,000 years old.
Scientist: How much do you weigh?

Creationist: 180 lbs. Why?
Scientist: How do you know you weight 180 lbs?

Creationist: Thatís what the scale says.
Scientist: But the scale is measuring the force of gravity on your body in units of pounds. Youíve never seen gravity yet you believe in it. Same with the age of the earth. No one can observe the passage of 10 million years but you can prove that an organic material is 10 million years old by measuring the rate of decay of radioisotope carbon-14 which is a continuous process just as gravity is a continuous force. Using carbon dating we know that the world is at least 4.5 billion years old. Why do you believe in gravity, which can be shown empirically as your weight of 180 lbs on a scale but not in the age of the earth which can be shown empirically to be 4.5 billion years old?

Creationist: I don't have time for this. I've already explained how the world is 10,000 years old. I don't need to explain it again.

With Mishites the argument is similar.

EJ: Inflation is rising.
Mishite: Inflation is always a monetary phenomenon.

EJ: Fair enough, but what is the result of inflation, how can you prove that it is occurring? Empirically, in rising prices of goods or assets denominated in units of a currency such as the dollar.
Mishite: Rising prices are not inflation.

EJ: That is correct. Rising prices are the result of inflation. If inflation did not result in rising prices, whoíd care about it? Itís everywhere around us Ė oil, commodities, food Ė just as I told you it would and you told me it would not. Do you claim that prices are not rising?
Mishite: Some prices are rising and others are falling.

EJ: You'll have to show me falling prices in anything but inflated assets like housing, but for the sake of argument for those items that are rising in price what if not inflation is causing prices to rise?
Mishite: Current price inflation is the result of past credit and money creation. Recent declines in credit and the money supply will cause price deflation to begin any day now.

EJ: But you asserted previously that rising prices "are not" or ďdo not result fromĒ inflation.
Mishite: Iíve been over this 100 times and donít have time to explain it again.

Conclusion: Rising prices are the empirical evidence of inflation. Mishites don't accept basic price inflation measures, such as rising goods prices, as evidence of inflation so they invent their own measures to get a result that agrees with the ideology.

Mishites are monetary creationists.

Why do I persist in pointing out these flaws in Mish's arguments? We live in an era of unreason and I feel compelled to fight instances of unreason wherever and whenever they crop up.

Thanks EJ
I quite enjoyed that and for once i think i follow you...........Might i trouble you for your thoughts on this (also Mish)
http://globaleconomicanalysis.blogspot.com/2008/04/boe-foolishly-follows-fed-footsteps.html

Mike

Spartacus
04-20-08, 09:34 PM
Only paying back debts is deflationary. That's not the only thing that could cause deflation, of course, but by definition, paying back debts shrinks the money supply while debt default DOES NOT.

I think we've discussed this before, and just went around and around, so we'll have to agree to disagree.

If the bank closes immediately after you pay the loan, you paying the loan is deflationary.

But the bank doesn't close. It takes the profit from your payment & uses that as the basis to write new loans.

In the normal course of business paying off loans is not deflationary - it removes no monetary units from the total supply.

It's only deflationary if the bank doesn't turn around and lend that money out immediately, but that's a separate issue from the actual loan payoff.


Only paying back debts is deflationary. That's not the only thing that could cause deflation, of course, but by definition, paying back debts shrinks the money supply while debt default DOES NOT.

If there's a bunch of defaults at once, banks are forced to increase Loan loss provisions - this is not immediately deflationary, but as it prevents the bank from writing the usual amount of loans, it reduces inflation capacity in the near future - in severe cases, it's deflationary.

jtabeb
04-21-08, 11:45 PM
Quoting MISH:

"Prices of things we absolutely need are rising (food and energy). Prices of things consumers are stuck with (houses and stocks, the latter via 401Ks and company options) are falling. This can go on longer than anyone thinks."

I think that is SPOT-ON actually. Re-attacks?

(He can see, he just can't see why?)

metalman
04-22-08, 11:54 AM
Quoting MISH:

"Prices of things we absolutely need are rising (food and energy). Prices of things consumers are stuck with (houses and stocks, the latter via 401Ks and company options) are falling. This can go on longer than anyone thinks."

I think that is SPOT-ON actually. Re-attacks?

(He can see, he just can't see why?)

nothing wrong with his observation but it's 100% the opposite of what he predicted (http://www.safehaven.com/article-3010.htm).

he predicted incorrectly because he doesn't know what the hell he's talking about. his whole angle is to use the right words but without understanding what they mean, and it works because his readers understand even less than he does. that's cramer's and kudlow's game, too. they're all in the same bucket.

this is the only site i'm aware of that forecast debt deflation and falling asset prices WITH monetary inflation from a weak dollar and rising goods inflation at the same time. all this while exporters are still supporting the dollar.

ok, so what happens when they can't support the dollar anymore because of the inflation they're importing? :eek:

then the REAL inflation starts. spiking interest rates... hasn't happened yet. then the fire economy goes kablooey. then the dollar tanks for real. poom, baby!

jtabeb
04-23-08, 09:16 AM
nothing wrong with his observation but it's 100% the opposite of what he predicted (http://www.safehaven.com/article-3010.htm).

he predicted incorrectly because he doesn't know what the hell he's talking about. his whole angle is to use the right words but without understanding what they mean, and it works because his readers understand even less than he does. that's cramer's and kudlow's game, too. they're all in the same bucket.

this is the only site i'm aware of that forecast debt deflation and falling asset prices WITH monetary inflation from a weak dollar and rising goods inflation at the same time. all this while exporters are still supporting the dollar.

ok, so what happens when they can't support the dollar anymore because of the inflation they're importing? :eek:

then the REAL inflation starts. spiking interest rates... hasn't happened yet. then the fire economy goes kablooey. then the dollar tanks for real. poom, baby!

I agree with all the above. Problem I have is what is the precipitating factor and when is it going to occur?

We all have to hold SOME assets in dollars for daily transactions. At what time will every thing else be secondary to getting everything out of the dollar. When that time comes, I expect the stock market action will confirm the inflation by making steep rises in response to the loss of purchasing power of the monetary unit.

metalman
04-23-08, 10:25 PM
I agree with all the above. Problem I have is what is the precipitating factor and when is it going to occur?

We all have to hold SOME assets in dollars for daily transactions. At what time will every thing else be secondary to getting everything out of the dollar. When that time comes, I expect the stock market action will confirm the inflation by making steep rises in response to the loss of purchasing power of the monetary unit.

at this point i think we can say that anyone who at this point does not admit inflation is like the government... lying.

raja
04-24-08, 09:57 AM
When the Fed and Washington radically altered the rules of U.S. finance last month, they placed in jeopardy huge positions that had been put in place to hedge against and profit from systemic crisis. With the end of "Stage one" arises a major short squeeze in the Credit, equities, and derivatives markets. ... It is not beyond reason that a disorderly unwind of "bearish" Credit market positions could incite a mini bout of liquidity, speculation, and Credit excess that exacerbates Global Monetary Instability
In other words, this may NOT be the time to short the market . . . at least in the near-term.

Contemptuous
04-24-08, 01:58 PM
Raja - I'm reading that we are shortly to break 1440 on the SPX, and now have a good shot at seeing a catapult up to 1880 by the middle of first QTR of 2009. The move was called when the SPX was floundering badly and would have represented a near 40% up-move from there. More conservative investors may wish to only nibble at this sizeable upmove correction in the larger bear market and use it as an opportunity instead to load up on bullion, which is swiftly moving down to quite attractive levels now.

Silver at $15 for instance is arguably a greatly discounted buy. That is now it's 200 day moving average, and it should easily have 100% upside from there in the next surge thereafter. That's a potential doubler in the space of a scant six months whenever the next surge up in silver should occur. Even if you were a precious metals bear it has very little downside from there, with tremendous upsde.

Gold is breaking supports suggesting it may even reach down to "kiss" $750 or $775, in which case it probably should be pounced on. That is by far the most conservative way to play this very strong correction upwards in the stock (bear) market. And anyone buying gold bulion at that price should then refuse to get shaken out of it in future corrections a few years from now, as that cost basis in the future should represent a great deal of safety and "staying power". If you see gold go down to $775 you are likely being presented with a wonderful low risk opportunity to really load up substantially. Don't buy paper gold, and most definitely don't buy paper silver, which is a true "landmine" investment.

Another way to put it might be to say that the dollar's devaluation has not much "bounce-back". In other words, the price of gold moves up gradually on it's 200 day moving average and that represents a quite hard "floor" under it for future years, as we all understand that the USD is not going to miraculously recover all the ground it is progressively losing. Once a chunk of value ground is lost in the USD, that is broadly speaking the new "floor" under the future gold price, so $775 basis in gold cost will soon become really dirt cheap.

Finster
04-25-08, 12:48 PM
[B]... COMMENT : [I][ Now wait just a cotton picking minnit here - if a falling dollar is part of what's making the price of oil go up, why isn't the falling dollar making any other prices go up Mish? ...

Actually other prices have been going up.

I don’t know the whole of what "Mish" has said in this context, so don’t presume to defend his views. But inflation is always and everywhere a monetary phenomenon. Rising aggregate prices, including those of oil, are inflation. All inflation. Nothing else. 100%.

I’ve addressed the argument that money supply isn’t correlating well with oil prices before (http://www.itulip.com/forums/showthread.php?p=32698#post32698), and my reasoning went unrebutted. Now here the same mythology re-emerges as if its error had never been pointed out. To recap, there is a large temporal shift between the creation of money over the course of an economic cycle (decades in extent) and consequent rising commodity prices. Early in the inflationary cycle, excess money supply goes into inflating the prices of credit. Bond prices rise. Stock prices rise. Put simply, rather than drive up the prices of things for immediate consumption, the price effects are felt in those things that represent claims on future production. This is precisely what we saw during the eighties and nineties. There was lots of money creation going on, but commodity prices didn’t rise. Rather, stock and bond prices rose.

These markets, however, in effect function as a reservoir for the excess money. Over time momentum builds, and with credit expansion being official policy as well, ultimately you get a bubble. As in a game of musical chairs, there is ultimately more claims on stuff than there is stuff. Over a period of perhaps years, credit collapses. And with it, so would money supply and prices but for the vigorous attempts of governments and banks to fight the collapse. But at this point, further money creation can no longer further inflate the credit markets. Instead it effectively adds to that inflation which was being stored away in the financial reservoir, and rather than having commodity prices rise far less than the pace at which money is created, they rise at a pace far higher than money is being created. The markets have shifted the consumer and commodity price effects of that earlier era of money creation - when it was assumed that some miracle had been wrought that permitted money supply to be expanded willy-nilly without inflationary effect - so that as far as commodity prices are concerned, all the money creation over the entire cycle comes home to roost in just that latter portion of it.

sadsack
04-25-08, 02:44 PM
I would like to nominate Finster's post above as one of the most lucid and insightful explanations I have discovered on iTulip.

Beautiful, simply beautiful.

jtabeb
04-25-08, 04:49 PM
Pure genius!

I just want to know as a CONSEQUENCE how will this manifest itself in the equities markets?

Do you agree with Dr. Hudson that the only safe place is in Short duration T-billis? If not, where do you put your assets? What's the best bet to protect yourself as this pent-up inflation comes home to roost?

Any idea's

P.S. I LOVE SHADOW STATS!!!!! B.T.W. Your annual subscription is WELL worth it!

Thanks

Contemptuous
04-25-08, 06:03 PM
Actually other prices have been going up. ... I donít know the whole of what "Mish" has said in this context, so donít presume to defend his views. ... money supply isnít correlating well with oil prices before (http://www.itulip.com/forums/showthread.php?p=32698#post32698), and my reasoning went unrebutted. ... Now here the same mythology re-emerges as if its error had never been pointed out. ... all the money creation over the entire cycle comes home to roost in just that latter portion of it.

Finster - you seem to have mis-attributed who was taking which position in the above "lampoon" post. Mish's article, which was the subject of comment, listed 'depreciating dollar' as "one of the causes" of a rising oil price. He then went on to describe or claim rather, that most other goods values were 'falling', or in those cases where some are observabily rising (many) he attributed it to "previous overissuance of fiat money". His entire article was intended to evidence that A) no significant inflationary money (or aggregate monetary growth) really exists today, and B) no price action is observable in any commodities today which has any bearing on current growth in global monetary aggregates, and C) denies that any 'abnormal price action' even exists in most markets at this time (at least in a peculiarly hermetic way, he refers to this as applicable within in the US internal markets).

I in fact did not make any reference in the post above you've discussed here, about various asset prices rising due to past issuance of fiat money. What I lampooned in my question "why aren't other prices rising too Mish?" was precisely what you point out. That it's illogical to claim eroding fiat dollar purchasing power is driving up the nominal price of oil, but then claim in the next breath that that same eroding purchasing power cannot be driving up the nominal prices of all other goods. Obviously the same observation holds with regard to the effect of any past issued overissuance of fiat money, acting like a 'dam' of potential inflation which is now ripping loose in all assets. It remains illogical to claim such past dammed up fiat money inflation could today be goosing the price of petroleum, yet not equally goosing other assets.

Further you note:


Iíve addressed the argument that money supply isnít correlating well with oil prices before (http://www.itulip.com/forums/showthread.php?p=32698#post32698), and my reasoning went unrebutted. Now here the same mythology re-emerges as if its error had never been pointed out.

Not sure whether you are addressing this to Mish, or to the content of my own post. I don't recall having missed the opportunity to rebut anything in this regard in recent months, although I do recall you and I hashed this out at length a full year ago. Lots of viewpoints expressed since that time Finster. If it was addressed to me, please note that nowhere do I suggest that values of all goods cannot be inflating due to past monetary over-issuance. And Finster I long ago abandoned the idea that oil price rises were in greatest part today a factor of genuine scarcity. As Bart notes, that part is likely still very much to come in the future. But I do clearly suggest that to attribute all of the price action in petroleum and the commodities to fiat currency would be an error.

To take a glance at the massive demand emanating from the industrialising 3 billion people in the BRIC markets and insist that all commodities are levitating solely due to currency dysfunction begs the question "what if any effect upon commodities demand do you then percieve coming from the bid on these goods which is clearly today emanating from 3 billion industrialising people". Obviously that industrial event is a 'one off' in history, therefore to claim it has 'zero influence on the commodities bid' would be a strained claim.The answer to that would appear rationally to suggest that at least some bid upon commodities emanating from 3 billion industialising should be factored into the equation.

Therefore for many months now my sole suggestion has been that the bid on commodities should plausibly include 'at least some factors on the ground' as well as fiat money, past and present, because the current industrialisation is clearly one without precedent in history. It may be a humdrum observation, but that does not render it any less true, as we look at the scale of what's occurring in 1/3rd of the world. Therfore in summary I should note perhaps, that your positions here actually appear have much less in common with Mish's entire article, and a good deal more in common with my own views? Maybe if you re-read his article and my lampoon in their entirety you'd take stock that the sum of what I lampoon about Mish's views is in fact almost entirely congruent with your own assessments?

Your positions have greatly informed the ongoing fomation of my own views Finster, so I would hope you don't feel you are still arguing to clarify the same misconceptions as from a year ago, as those misconceptions are long gone. The point worthy of comment here rather should come from a straight read of Mish's original article referenced, as it is a veritable swiss cheese full of contradictory claims explaining the large currents that are swelling all around us. He's definitely wandered off into a box in his thinking here. Maybe this will be most apparent by putting aside my humorous lampoon and just reading the original article for clues as to where he is going most far astray.

REF:

http://www.itulip.com/forums/showthread.php?p=34443#poststop (http://www.itulip.com/forums/showthread.php?p=34443#poststop)


USD CURRENCY'S COLLAPSE RIPPLES AROUND WORLD ... More dollars are chasing the same bags of the stuff. Same relationship between the prices of rice and oil, demonstrating the rise in oil process against the depreciating dollar. Same thing with coal, iron ore and many other goods that trade on world markets. People from China to Chile are exchanging their depreciating dollars for things of value. Whether it is rice, oil, industrial metals, gold or silver, the prices are on a long upward trend. ... This news contains echoes of Weimar Germany going global.

jtabeb
04-25-08, 07:40 PM
Finster - you seem to have mis-attributed who was taking which position in the above "lampoon" post. Mish's article, which was the subject of comment, listed 'depreciating dollar' as "one of the causes" of a rising oil price. He then went on to describe or claim rather, that most other goods values were 'falling', or in those cases where some are observabily rising (many) he attributed it to "previous overissuance of fiat money". His entire article was intended to evidence that A) no significant inflationary money (or aggregate monetary growth) really exists today, and B) no price action is observable in any commodities today which has any bearing on current growth in global monetary aggregates, and C) denies that any 'abnormal price action' even exists in most markets at this time (at least in a peculiarly hermetic way, he refers to this as applicable within in the US internal markets).

I in fact did not make any reference in the post above you've discussed here, about various asset prices rising due to past issuance of fiat money. What I lampooned in my question "why aren't other prices rising too Mish?" was precisely what you point out. That it's illogical to claim eroding fiat dollar purchasing power is driving up the nominal price of oil, but then claim in the next breath that that same eroding purchasing power cannot be driving up the nominal prices of all other goods. Obviously the same observation holds with regard to the effect of any past issued overissuance of fiat money, acting like a 'dam' of potential inflation which is now ripping loose in all assets. It remains illogical to claim such past dammed up fiat money inflation could today be goosing the price of petroleum, yet not equally goosing other assets.

Further you note:



Not sure whether you are addressing this to Mish, or to the content of my own post. I don't recall having missed the opportunity to rebut anything in this regard in recent months, although I do recall you and I hashed this out at length a full year ago. Lots of viewpoints expressed since that time Finster. If it was addressed to me, please note that nowhere do I suggest that values of all goods cannot be inflating due to past monetary over-issuance. And Finster I long ago abandoned the idea that oil price rises were in greatest part today a factor of genuine scarcity. As Bart notes, that part is likely still very much to come in the future. But I do clearly suggest that to attribute all of the price action in petroleum and the commodities to fiat currency would be an error.

To take a glance at the massive demand emanating from the industrialising 3 billion people in the BRIC markets and insist that all commodities are levitating solely due to currency dysfunction begs the question "what if any effect upon commodities demand do you then percieve coming from the bid on these goods which is clearly today emanating from 3 billion industrialising people". Obviously that industrial event is a 'one off' in history, therefore to claim it has 'zero influence on the commodities bid' would be a strained claim.The answer to that would appear rationally to suggest that at least some bid upon commodities emanating from 3 billion industialising should be factored into the equation.

Therefore for many months now my sole suggestion has been that the bid on commodities should plausibly include 'at least some factors on the ground' as well as fiat money, past and present, because the current industrialisation is clearly one without precedent in history. It may be a humdrum observation, but that does not render it any less true, as we look at the scale of what's occurring in 1/3rd of the world. Therfore in summary I should note perhaps, that your positions here actually appear have much less in common with Mish's entire article, and a good deal more in common with my own views? Maybe if you re-read his article and my lampoon in their entirety you'd take stock that the sum of what I lampoon about Mish's views is in fact almost entirely congruent with your own assessments?

Your positions have greatly informed the ongoing fomation of my own views Finster, so I would hope you don't feel you are still arguing to clarify the same misconceptions as from a year ago, as those misconceptions are long gone. The point worthy of comment here rather should come from a straight read of Mish's original article referenced, as it is a veritable swiss cheese full of contradictory claims explaining the large currents that are swelling all around us. He's definitely wandered off into a box in his thinking here. Maybe this will be most apparent by putting aside my humorous lampoon and just reading the original article for clues as to where he is going most far astray.

REF:

http://www.itulip.com/forums/showthread.php?p=34443#poststop (http://www.itulip.com/forums/showthread.php?p=34443#poststop)


There is something wrong and right about MISH, he observes correctly but attributes incorrectly ( I think). I will say he is informative though, his stories from ground level are quite the learning experience.

What I don't understand, and what I think no one can AT THIS point, is: will dollar depreciation trump asset/dept deflation. I mean really this is the $64,000,000,000,000 question. Can the fed inflate faster than things deflate?

Another question is is the fed really attempting the above?

Another question is are they just trying to wrong foot the market?

Final question: is the present political situation a forcing function on the fed, or is the fed the forcing function on the current political situation?

In all seriousness, it's chicken and the egg time, and I'm not sure how you resolve this paradox.

I say this because one way you can read this chart
(see attached from FRED)



is that the fed is forcing inflation in a deflationary enviorment. THE other way to read this chart is that the fed is forcing hyper-inflation. The only problem is that unless you are the fed, you don't know which objective they are trying to achieve;

e.g. Hyperinflate problems away OR trying to make it look like inflation is running away when the forcing dynamic is credit deflation.

I would like all of you to give it your best, because I'm at the upper computational limits of my IQ and can't resolve this one way or the other.

I allways told myself that the only no-brainer in this was gold. The rest of my funds are captive as either stocks or T-bills, that part (which my 401K won't let me put in gold) is the part I struggle with every day BECAUSE each outcome requires a different allocation and I honestly can't tell which is the right choice.

I allways thought diversification was for assholes (per Warren Buffet "diversification overexposes you to underperforming assets and underexposes you to overperforming assets", but here I really just don't know.

Some one who does, please clue me in.

Thanks

Contemptuous
04-25-08, 08:10 PM
Jtabeb -

Well in my view at least one thing is a patent absurdity - the idea that commodities are deflating. I'm not sure I understand the extent of Finster's objections to the correct description of latent inflation unfolding today, but at any rate Mish seems to claim that if it were not for "latent" inflation the commodities would be deflating. All one has to do is gaze eastwards to see a hundred reasons why latent inflation in commodities is only a part of the story.

I am perplexed as to why Finster has not weighed in further here, as he's the one who has posted some reservations as to the extent of Mish's errors, or whether I am misapprehending something overall. Mish is calling for "deflation of commodities" along with everything else, once the true (presumed) "monetary sobriety" of the Federal Government has had a chance to kick in and overcome the "latent inflation" of yesterday - then all the commodities will deflat he says. He's indicating that the monetary factors are now "restrictive". Presumably he means "US monetary factors", as he seems hesitant to delve much into what's occurring monetarily elsewhere at the broadest level (Doug Noland Territory which Mish does not seem to read).

jtabeb
04-26-08, 02:20 AM
Jtabeb -

Well in my view at least one thing is a patent absurdity - the idea that commodities are deflating. I'm not sure I understand the extent of Finster's objections to the correct description of latent inflation unfolding today, but at any rate Mish seems to claim that if it were not for "latent" inflation the commodities would be deflating. All one has to do is gaze eastwards to see a hundred reasons why latent inflation in commodities is only a part of the story.

I am perplexed as to why Finster has not weighed in further here, as he's the one who has posted some reservations as to the extent of Mish's errors, or whether I am misapprehending something overall. Mish is calling for "deflation of commodities" along with everything else, once the true (presumed) "monetary sobriety" of the Federal Government has had a chance to kick in and overcome the "latent inflation" of yesterday - then all the commodities will deflat he says. He's indicating that the monetary factors are now "restrictive". Presumably he means "US monetary factors", as he seems hesitant to delve much into what's occurring monetarily elsewhere at the broadest level (Doug Noland Territory which Mish does not seem to read).

Here are the most vexing thoughts I've had on this:

1. Finster directly contradicts Dr. Hudson (Hudson says Milton Friedman was wrong, Finster says MF was correct)

2. It is plausible that demand increases in a static supply environment can cause PRICE increases w/o inflation being present.

3. The dual demand/asset destruction spiral talked about on this sight perfectly fits my own mental model of how this would lay out.

http://www.itulip.com/forums/showthread.php?t=3782

4. Cash and/or credit is required to service debt or debt defaults (unless it is forgiven).

5. Price increases are running rampant in NEEDED things.

6. The price of UN-Needed things are getting cheaper.

7. If you have any free and clear income or savings every month it is loosing purchasing power AND gaining purchasing power at the same time (see 5 and 6 above)

8. Stocks do very well in a hyperinflationary environment, but only after it is recognized that a hyperinflation is taking place.

9. Is the stock market acting stupid by not seeing #3 or is it acting smart because it sees #8 is about to occur?

10. Asset price inflations are mean reverting but can currency devaluation TRUMP credit/asset price deflation? Case in point the DJIA is in a BEAR market when priced in gold but in a BULL market when priced in bonars.

11. If you have debts, inflation is good, deflation is bad, assuming you can service the debt.

I want to see a wrestling match (debate/interview) with Finster VS Hudson!

Finster
04-26-08, 09:31 AM
Finster - you seem to have mis-attributed who was taking which position in the above "lampoon" post. Mish's article, which was the subject of comment, listed 'depreciating dollar' as "one of the causes" of a rising oil price. He then went on to describe or claim rather, that most other goods values were 'falling', or in those cases where some are observabily rising (many) he attributed it to "previous overissuance of fiat money". His entire article was intended to evidence that A) no significant inflationary money (or aggregate monetary growth) really exists today, and B) no price action is observable in any commodities today which has any bearing on current growth in global monetary aggregates, and C) denies that any 'abnormal price action' even exists in most markets at this time (at least in a peculiarly hermetic way, he refers to this as applicable within in the US internal markets).

I won’t belabor the question of who took what position; my focus is on the position itself. Will try to clarify that further below. Meanwhile, it looks like we completely agree that it would be "illogical to claim eroding fiat dollar purchasing power is driving up the nominal price of oil, but then claim in the next breath that that same eroding purchasing power cannot be driving up the nominal prices of all other goods", at least insofar as commodities are concerned. FWIW, from what I have read Mish does have some good insights but mixes in a liberal dose of confusion, too. It's not clear to me what his overarching thesis here is.


Not sure whether you are addressing this to Mish, or to the content of my own post. I don't recall having missed the opportunity to rebut anything in this regard in recent months…

Did you follow the link? It was intended to refresh your memory … (…before (http://www.itulip.com/forums/showthread.php?p=32698#post32698)…)


But I do clearly suggest that to attribute all of the price action in petroleum and the commodities to fiat currency would be an error.


This is the core contention, Lukester. It is indeed all of the price action. Not some, not most … but all of it.

This was the point of the "thought experiment" I posed earlier in the thread containing the linked post, and in my subsequent statement that we could have $5 oil if we wanted it. If over time (e.g. over the course of a full credit cycle) the supply of money grew no faster than the supply of physical commodities, the net price action would be identically zero. Whatever degree of scarcity or abundance may occur in the physical commodities, the same would be reflected in money. Consequently, the prices of commodities are fully dependent on the value of money and fully within the control of monetary authorities.


And Finster I long ago abandoned the idea that oil price rises were in greatest part today a factor of genuine scarcity.

You have made great progress. Now for the final step … repeat after me: Fiat currency inflation is responsible for all of the price action. Not some, not most … but all of it.

...

Finster
04-26-08, 09:43 AM
Here are the most vexing thoughts I've had on this:

1. Finster directly contradicts Dr. Hudson (Hudson says Milton Friedman was wrong, Finster says MF was correct)...

I want to see a wrestling match (debate/interview) with Finster VS Hudson!

I don't know what all Hudson has claimed, but it sounds like fun. :D Far as Friedman goes, I definitely agree with his "... always and everywhere a monetary phenomenon" statement. The central point as far as commodity prices go is that a price - any price - is simply the ratio of the market value of the commodity whose price you are quoting to that of another commodity, the monetary unit in which you are quoting it.

We need to keep in mind that we never quote the value of a barrel of oil. We only quote its price ... that ratio. We do so however as if we were talking about the value of the oil itself, hence the confusion and the need to make a conscious effort to remind ourselves that we are not, but rather expressing the relative value of two commodities, the oil and the monetary unit.

Contemptuous
04-26-08, 03:25 PM
This is the core contention, Lukester. It is indeed all of the price action. Not some, not most … but all of it.

This was the point of the "thought experiment" I posed earlier in the thread containing the linked post, and in my subsequent statement that we could have $5 oil if we wanted it. If over time (e.g. over the course of a full credit cycle) the supply of money grew no faster than the supply of physical commodities, the net price action would be identically zero. Whatever degree of scarcity or abundance may occur in the physical commodities, the same would be reflected in money. Consequently, the prices of commodities are fully dependent on the value of money and fully within the control of monetary authorities. ...

Finster - What you describe, a static quantity of currency causing commodities to regress back to their 'equilibrium value', seems to be difficult to find in any fiat currency world.

If a critical commodity is reacting to fiat money, particularly if you add in any scarcity factor (oil as strategic commodity with tightening availability) this can represent a "shock" to the equation which requires a response from the currency issuer. And that 'requiring' is also occurring in a world where governments are constantly re-jiggering money supply anyway.

No one has ever seen a world with a static money supply. You still have a statement of principle which is true - money supply is the only factor which can permit the oil price to rise, but that principle can get obscured in application by a constant flux of money supply in all economies. If this were only a single instance (just one economy with currency volumes in flux), it would remain an immediately applicable principle, but money supply in constant flux exists in all economies.

Also there is the fact that new issuance of currency can be almost an imperative for governments, (governments have to balloon the money supply during wars, which have occurred throughout history, for just one example) merely due to the shocks or urgencies occurring in economic events? Maybe it's worth noting with regard to oil, that it is a strategic commodity, so it's the first in line (with water, or food) to create 'imperatives' for government issuance of fresh currency.

Given all that, couldn't you also argue that 'commodities prices are exclusively a factor of money in circulation' is an idea which encounters difficulty translating in direct fashion into the real world of commodity prices? The argument here is that critical or strategic commodities at least, are a 'two-way street' - between for example, petroleum's stranglehold on the economy, vs. Government's 'option' to deny it any extra liquidity? Government cannot deny it that liquidity, as it would 'blow out the tires' of the economy they have to keep running.

Not trying to be argumentative here Finster. I'm seriously suggesting that in this case 'pure monetary principles' may indeed be at risk of stumbling on their way to applicability - particularly in a world approaching peak cheap oil. And you can extend these qualifiers out to the 'imperative' which countries like China and India have to industrialize, as their populations need to move forward into a higher standard of living or risk economic implosion?

That is arguably one very large 'imperative' for commodities prices to push upwards, and in direct consequence to that, for governments to 'give way' to that imperative by issuing more liquidity.

I'm not an iTulip premium member. What is the gist of EJ's post - "Why I don't believe in Peak Oil, in one chart"? If the thesis behind that thread is in any way interlinked with your argument that all commodities must be determined primarily by the monetary aggregates, the above observations may be a valid set of qualifiers?

I reiterate despite disagreeing with you on this 'crucial monetary question' which you are patiently trying to feed into my wooden head ( :) ) that I've broadened my views considerably reading your posts. I also generally see eye to eye with your world view around here. Consider me one of your more 'pain in the ass' students perhaps, but one who regards you with considerable loyalty.

[ POSTSCRIPT - Finster, I modified my post on this to better express what I intended. Maybe this modification can express the objection more clearly. ]

FRED
04-26-08, 05:20 PM
I don't what Hudson has claimed, but it sounds like fun. :D Far as Friedman goes, I definitely agree with his "always and everywhere a monetary phenomenon" point. The central point as far as commodity prices go is that a price - any price - is simply the ratio of the market value of the commodity whose price you are quoting to that of another commodity, the monetary unit in which you are quoting it.

We need to keep in mind that we never quote the value of a barrel of oil. We only quote its price ... that ratio. We do so however as if we were talking about the value of the oil itself, hence the confusion and the need to make a conscious effort to remind ourselves that we are not, but rather expressing the relative value of two commodities, the oil and the monetary unit.

EJ writes in:

Very well put. We remind readers to review:
Energy and Money Part I: Too Little Oil or Too Much Money? (http://www.itulip.com/energyandmoney.htm)

Inflation is not only determined by the supply of goods available relative to the supply of money to buy them, but also the demand for the currency in which goods are priced relative to the supply of that currency. It can be hard to tell which factor is primarily driving prices.
While it's our view that charts tell us little about what will happen in the near term future, they are very helpful in showing relationships among factors influencing prices especially over long periods of time. These relationships can give indications of long future direction, or at least help us ask the right questions. To wit:



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


Key:
Gold, percent change from previous year
Fed Funds, effective rate
3 month Treasury bill, rate
CPI-U, rate

What is extraordinary about our current environment is: 1) the spread between the Fed Funds rate and the 3 month tbill, and 2) rising CPI while the Fed is cutting. Usually the Fed starts cutting just before recession starts and is fighting disflation during the rate cutting period. Not this time. CPI increased before, during, and after the cuts.

What is different this time? The dollar had declined versus strengthened.


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


Is the US economy slowing because of the inflation caused by a prolonged weak dollar or is the dollar weakening because of the slowing US economy? They feed into each other. Cutting rates is a gamble that this will revive the economy and that in response the dollar will appreciate. That has since the early 1980s been the cycle. What if it doesn't work this time? What if the FIRE Economy is down for the count?

Finster
04-26-08, 06:18 PM
Finster - First of all please be assured I fully take your point, and acknowledge it is "true". However there is a problem. What you describe, a static quantity of currency, not only does not exist in the fiat currency era, but it in fact likely never existed in any "pure state" in the past several hundred years. Even in gold backed monetary regimes in the 17th, 18th and 19th centuries, the supply of paper monetary certificates remained always somewhat elastic, relative to the gold in the government's possession. In the 20th century of course we can clearly see that that formerly "elastic" link between the paper in circulation and the bullion backing it became first "fractional" and finally an ethereal bungee cord of truly cosmic length. Not only in Western nations, but the world over. Clearly "static money" is a concept without a home in the world where money circulates.

My point is this - your thesis is "true" but it has never existed in the real world where money is issued and used. It is always responding dynamically in quantity and credit stringency or looseness to economic conditions. Therefore if a critical commodity goes into scarcity, for whatever reason, this "shock" to the system requires a response from the currency issuer. To state that in the absence of government accomodation the oil price could go nowhere is "true" but it's a purist theory with no place to park in the real world, where money is frequently almost literally "commanded" to come forth in response to economic events, particularly acute systemic shortages in industrial society's most critical commodity - oil.

I say this with the utmost trepidation as you naturally do run circles around me at light speed on these analyses, but is this not a valid objection? I appreciate your input Finster.

I appreciate your patience with my penchant for getting into dust-ups with very smart people, Lukester ... some of the most illuminating discussions seem to come out of them.

:cool:

The answer to your question depends on the context. Keep in mind that my comments were painting in broad strokes. Of course acute systemic shortages and any number of other transient issues can and do affect the prices of commodities in general and oil in particular. Hence caveats such as "over time".

But my argument isn't based on an assumption of static money, viz. "If over time (e.g. over the course of a full credit cycle) the supply of money grew no faster than the supply of physical commodities, the net price action would be identically zero. Whatever degree of scarcity or abundance may occur in the physical commodities, the same would be reflected in money." In other words, between the end points of this "cycle" there could be significant fluctuations in both the supply of money and that of commodities, provided the net changes were similar. If the supply of physical commodities grew by 50%, for example, and the supply of money grew by 50%, all else being equal we'd expect the price to go nowhere. Oil prices in gold have been stable over time not because the supply of gold is never-changing, but because of broadly similar changes in abundance.

What actually has happened to dollar prices, however, is not even close. Without delving into the detailed data, the price of a barrel of oil has gone from something like $3.35 in 1970 to $119.35 in 2008. Oil supply has actually increased quite a bit, but money supply by orders of magnitude more. Hence the remarkable "price increase". Notice that we casually toss out those figures as the "price of oil", but crucially, they relate two variables, oil and dollars. As in "dollars per barrel".

The point is to counter the endless stream of media propaganda about how oil prices went up because of hurricanes, strikes in Nigeria, greedy speculators, economic growth overseas, etceteras, as if our own government had nothing to do with it. Hurricanes were not invented yesterday, nor was labor unrest, nor global economic growth. I guess speculators - one of the latest whipping boys - didn't exist in the 1990s when oil prices were falling! And as pointed out elsewhere, oil is not the only commodity whose price has risen - not even an exceptional example - it just gets the most press.

Crucially, whether the price has risen at all is simply a function of what you price it in. We cited gold as a monetary unit above, but others work, too. For example, if you happened to be a Brazilian doing your accounting in reals the price of oil hasnít done much of anything over the past year or two.

How can we conclude that "price of oil" even exists as an independent element of objective reality? It doesnít! It only exists in relation to some monetary unit. And if different monetary units can tell such wildly diverging stories, we are forced to conclude that we learn from the "price of oil" much more about the monetary unit weíre using to express it in than we do about the oil.

There is another part to this story that we havenít gotten into yet, though. If the "price of oil" doesnít exist apart from a monetary unit, then what about the value of oil? How can we measure that? If it rose, how would we know? How could we isolate whatís happening to the value of oil? Apart from the vagaries of seemingly ephemeral, changing, monetary units? Is there some standard of market value that we could use?

I think there is an answer, or at least some credible candidates for one, but want to pose the question as food for thought. Careful consideration of that question alone may enlighten more than any number of words spilled in this post.

Then maybe we can take on Mish ... ;)

bart
04-26-08, 09:40 PM
I guess speculators - one of the latest whipping boys - didn't exist in the 1990s when oil prices were falling!


That's one of my favorites these days - asking the folk bitching about speculators if they thanked a speculator when oil went down to about $10 in the last '90s... or dropped about 50% from 2000 to 2002. :eek: ;)

Contemptuous
04-27-08, 04:17 AM
... want to pose the question as food for thought. Then maybe we can take on Mish ... ;)

Finster, I fully take your point that Mish is a very capable analyst. He covers a lot of ground, and as you note the greater part of his observations is spot on.
You hint that before one "takes Mish on" on needs to get one's ducks in a row? Well of course I could never hold a patch to Mish's capability, and indeed I am not even anyone's excuse for an economic analyst. Even the notion would be an embarassment to me. But what may "exhonerate my impertinence" here is that those few holes in his theses that do exist are so broad and logically exasperated that anyone who has read even a few scraps of iTulip could spot them from a hundred yards away. Does this guy ever even read people like Doug Noland, or John Williams for instance?

You really don't have to read very far in the cited article - for example statements "explaining" why gold is going up but the dollar is going down - which according to some more rationally ironed out version of "Mishology" should both be going up or down together, because they are "both money".

As they evidently are not moving in concert with each other, "Mishology" has to develop a construct as to why they have in fact traced almost perfect, inversly related trajectories for years, and his construct on that particular rationailizaton is so strained that it is almost painful to read. For rationalisations this fanciful, one does not need a particularly exalted proficiency in economics, right? So it's due to spectacular departures (into the realm of the irrational!) regarding observable price action such as this example that I posted a spoof of "Mishology". It may appear to be "unseemly" at first glance that an absolute analytic nobody like me is posting impertinent comments about this guy, but the fact is that spotting these "logical lacunae" in fact requires no particularly special knowledge whatsoever.

I'm not sure if the Netiquette Squads will have me summarily clapped in irons for this audacious foray into condemnation, but the conclusions he draws seem at times strained to the point of appearing comical (aka "Just Plain Nuts"!).

Finster
04-27-08, 12:19 PM
That's one of my favorites these days - asking the folk bitching about speculators if they thanked a speculator when oil went down to about $10 in the last '90s... or dropped about 50% from 2000 to 2002. :eek: ;)

Speculators were invented by Bush and Cheney in 2001 not long after they blew up the WTC, sent anthrax all over the place, and started a plot to heat the planet up ...

FRED
04-27-08, 12:41 PM
I appreciate your patience with my penchant for getting into dust-ups with very smart people, Lukester ... some of the most illuminating discussions seem to come out of them.

:cool:

The answer to your question depends on the context. Keep in mind that my comments were painting in broad strokes. Of course acute systemic shortages and any number of other transient issues can and do affect the prices of commodities in general and oil in particular. Hence caveats such as "over time".

But my argument isn't based on an assumption of static money, viz. "If over time (e.g. over the course of a full credit cycle) the supply of money grew no faster than the supply of physical commodities, the net price action would be identically zero. Whatever degree of scarcity or abundance may occur in the physical commodities, the same would be reflected in money." In other words, between the end points of this "cycle" there could be significant fluctuations in both the supply of money and that of commodities, provided the net changes were similar. If the supply of physical commodities grew by 50%, for example, and the supply of money grew by 50%, all else being equal we'd expect the price to go nowhere. Oil prices in gold have been stable over time not because the supply of gold is never-changing, but because of broadly similar changes in abundance.

What actually has happened to dollar prices, however, is not even close. Without delving into the detailed data, the price of a barrel of oil has gone from something like $3.35 in 1970 to $119.35 in 2008. Oil supply has actually increased quite a bit, but money supply by orders of magnitude more. Hence the remarkable "price increase". Notice that we casually toss out those figures as the "price of oil", but crucially, they relate two variables, oil and dollars. As in "dollars per barrel".

The point is to counter the endless stream of media propaganda about how oil prices went up because of hurricanes, strikes in Nigeria, greedy speculators, economic growth overseas, etceteras, as if our own government had nothing to do with it. Hurricanes were not invented yesterday, nor was labor unrest, nor global economic growth. I guess speculators - one of the latest whipping boys - didn't exist in the 1990s when oil prices were falling! And as pointed out elsewhere, oil is not the only commodity whose price has risen - not even an exceptional example - it just gets the most press.

Crucially, whether the price has risen at all is simply a function of what you price it in. We cited gold as a monetary unit above, but others work, too. For example, if you happened to be a Brazilian doing your accounting in reals the price of oil hasnít done much of anything over the past year or two.

How can we conclude that "price of oil" even exists as an independent element of objective reality? It doesnít! It only exists in relation to some monetary unit. And if different monetary units can tell such wildly diverging stories, we are forced to conclude that we learn from the "price of oil" much more about the monetary unit weíre using to express it in than we do about the oil.

There is another part to this story that we havenít gotten into yet, though. If the "price of oil" doesnít exist apart from a monetary unit, then what about the value of oil? How can we measure that? If it rose, how would we know? How could we isolate whatís happening to the value of oil? Apart from the vagaries of seemingly ephemeral, changing, monetary units? Is there some standard of market value that we could use?

I think there is an answer, or at least some credible candidates for one, but want to pose the question as food for thought. Careful consideration of that question alone may enlighten more than any number of words spilled in this post.

Then maybe we can take on Mish ... ;)

Blaming "speculators" for bad government policy is a tried and true tradition.


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As for Mish, we've covered that exhaustively already here (http://www.itulip.com/forums/showthread.php?p=34048#post34048).

Anyone who will not admit that inflation is occurring is at best confused and at worst is not being truthful. Further, any analyst says one thing, that delfation is "in the cards," but recommends an asset that only makes sense own under inflationary conditions Ė gold Ė is at best misguided but is more likely playing games with his audience.

The reason for these inconsistencies is that these analyses are based on ideology versus intellectually independent theory. Mish openly admits that his analysis is based on the Austrian school, which assertion itself is an appeal to an audience of gold-bugs. We recommended gold in 2001 and will recommend when it is likely that those reasons for buying it then are no longer true. Mish will, we presume, continue to insist that "gold is money" much as similarly ideology-based analysis insisted from 1980 forward that "gold is money" even as gold plunged into a 20 year bear market.

This is antithetical to our approach. We are more aligned with Jim Sinclaire's thinking on that subject. Our philosophy is that there are times to bet with government and times to bet against it. Our analysis is informed by the Austrian school, but also Keynesianism, Hayek, Minskey, Galbraith, and many others. We hope are taking the best of the best to inform our analysis, and we are always broadening our base.

We have little use for analysis that is confused and avoids facts because it is narrowly based on a single ideology. If we wanted that we can read Ben Stein or listen to FOX news. It brings in to question all of the other "analysis" and makes it singularly unreliable for making investment decisions.

Finster
04-27-08, 01:02 PM
Finster, I fully take your point that Mish is a very capable analyst. He covers a lot of ground, and as you note the greater part of his observations is spot on.
You hint that before one "takes Mish on" on needs to get one's ducks in a row? Well of course I could never hold a patch to Mish's capability, and indeed I am not even anyone's excuse for an economic analyst. Even the notion would be an embarassment to me. But what may "exhonerate my impertinence" here is that those few holes in his theses that do exist are so broad and logically exasperated that anyone who has read even a few scraps of iTulip could spot them from a hundred yards away. Does this guy ever even read people like Doug Noland, or John Williams for instance?

You really don't have to read very far in the cited article - for example statements "explaining" why gold is going up but the dollar is going down - which according to some more rationally ironed out version of "Mishology" should both be going up or down together, because they are "both money".

As they evidently are not moving in concert with each other, "Mishology" has to develop a construct as to why they have in fact traced almost perfect, inversly related trajectories for years, and his construct on that particular rationailizaton is so strained that it is almost painful to read. For rationalisations this fanciful, one does not need a particularly exalted proficiency in economics, right? So it's due to spectacular departures (into the realm of the irrational!) regarding observable price action such as this example that I posted a spoof of "Mishology". It may appear to be "unseemly" at first glance that an absolute analytic nobody like me is posting impertinent comments about this guy, but the fact is that spotting these "logical lacunae" in fact requires no particularly special knowledge whatsoever.

I'm not sure if the Netiquette Squads will have me summarily clapped in irons for this audacious foray into condemnation, but the conclusions he draws seem at times strained to the point of appearing comical (aka "Just Plain Nuts"!).

I haven’t spent much time reading Mish (can’t think of a reason to…;)), so risk unfairly distorting his views. But with that caveat, it looks to me like the object of your criticisms is rooted in his confusing himself with imprecise terminology. Word like "inflation" and "deflation" have multiple meanings, but many analysts use them as if they were unambiguous elements of symbolic logic.

For example, the word "deflation" has one meaning that refers to a contraction of credit. It has another meaning that refers to a general decrease in the price level. Mish correctly asserts that we are having "deflation" in the first sense. Then he transmogrifies that into the second sense, concluding that we therefore ought to be experiencing falling prices. This comes about from using the term "deflation" as if it described a single, well-defined, phenomenon. Ambiguous terms, sloppy reasoning. As a result, because we have rising prices instead of the falling prices that he erroneously assumes "ought" to be there, he has to invent an external explanation for that. This leads him down a chain of strained reasoning and traps him in an unnecessarily complex set of rationalizations.

Contrast this with EJ’s references to "debt deflation". Rather than just say "deflation" and risk getting lost in fuzzyisms and ambiguity, he is careful to be clear that he is talking about a contraction of credit.

We can put a still finer point on credit contraction. Real or nominal? That is, exactly what contracted, the real outstanding value of credit, or the nominal outstanding value of credit? Well, if the value of the currency unit were constant, they would be identical. But there’s no reason why that has to be the case. Right now we’re on the far side of a credit bubble, and real credit is contracting. The government and the banking system, however, are attempting to paper it over by keeping the nominal outstanding value of credit from contracting as well. And if nominal credit is to remain static to expanding while real credit contracts, that means the value of the currency unit must decline. Ergo, rising prices.

So what Mish paints as an anomaly doomed to transience is nothing particularly unusual at all. Sure, you can get deflation in the outstanding real value of credit and inflation in prices.

The only thing standing in the way of that would be something that prevented currency inflation (e.g. a gold standard), and that last time that was the case was in the early thirties. Since then, debt deflation has normally been accompanied by price inflation.

bart
04-27-08, 01:11 PM
Speculators were invented by Bush and Cheney in 2001 not long after they blew up the WTC, sent anthrax all over the place, and started a plot to heat the planet up ...

I see you're working on your next merit badge for your tinfoil hat too... ;)


And on a more serious note, that Youtube Nixon video just posted by Fred is priceless. All hail the internet... and I wonder how long it will be until someone does a MasterCard (aka MasterBlaster ) "priceless" take off ad on inflation & wage and price controls, etc. :cool:

bart
04-27-08, 01:25 PM
Contrast this with EJís references to "debt deflation". Rather than just say "deflation" and risk getting lost in fuzzyisms and ambiguity, he is careful to be clear that he is talking about a contraction of credit.



A winnah!... give that EJ d0000d a kewpie doll, and take one for yourself too. :D


Herewith one of my few speculative charts to try and illustrate what's actually going on with "money". There are a number of relatively wild assumptions behind it and its full of holes and is even a bit extreme... but it also provides one view of "debt deflation".

All I did is add up M3 and all forms of credit that I track, and also added in quarterly US derivatives data notional totals from the Treasury report. Then I adjusted the derivatives total downward since June 2007 by the percentage drop in the BKX (the Philadelphia Bank Index), the BKX being used as a proxy for actual losses in derivatives values. The actual dollar totals are on the left hand scale, and the annual rate of change is on the right hand scale.

Quite a picture...



http://www.nowandfutures.com/images/m3_credit_derivatives_bkx_adjusted.png









Here's the same chart, but since 2000 and without any derivatives, for comparison.

http://www.nowandfutures.com/images/m3_plus_credit.png

Contemptuous
04-27-08, 06:07 PM
A winnah!... give that EJ d0000d a kewpie doll, and take one for yourself too.

Bart - Finster is too old for a kewpie doll. It would not look good for the Shadowfed Chairman to be seen accepting a kewpie doll award.

bart
04-27-08, 08:24 PM
Bart - Finster is too old for a kewpie doll. It would not look good for the Shadowfed Chairman to be seen accepting a kewpie doll award.


ssshhhh... "Kewpie doll" is triple secret iTulip Shadowfed code for things that mere mortals may not know until they are worthy... :eek: :cool: ;)

And besides, I'm way older than Finster... I was here way before dirt was even thought of...

Finster
04-28-08, 04:05 PM
Blaming "speculators" for bad government policy is a tried and true tradition...

A timely headline from Bloomberg underscores that perfectly:


Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin

By Jeff Wilson

April 28 (Bloomberg) -- As farmers confront mounting costs and riots erupt from Haiti to Egypt over food, Garry Niemeyer is paying the price for Wall Street's speculation in grain markets...

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDZej7GJjpjM

c1ue
04-28-08, 08:04 PM
We all have to hold SOME assets in dollars for daily transactions. At what time will every thing else be secondary to getting everything out of the dollar. When that time comes, I expect the stock market action will confirm the inflation by making steep rises in response to the loss of purchasing power of the monetary unit.<!-- / message -->

Actually you don't even have to do that.

One thing I never see happening: any country preventing money from coming IN.

For example: A bank account in New Zealand paying 10% interest. An ATM card.

Each time you run out of dollars in your wallet, you go to an ATM and extract $200 out - instantly converted from NZ plus a bit of ATM fee.

This is a microcosm of what rentiers have historically been able to do.

Ain't modern technology grand?