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EJ
10-15-08, 07:40 PM
http://www.itulip.com/images/americanaggiJuly1938SM.jpgNot a crisis, an epiphany: the FIRE Economy is not coming back

Stocks crash up, crash down, crash up, crash down. Are we having fun yet?

And how did we get here?

After the 1990 technology stock market bubble–that the Greenspan Fed claimed never existed–crashed in 2000, the Fed and Congress hit the economic policy panic button to stimulate the economy before the next elections: low interest rates, tax cuts, deficit spending, and dollar depreciation. The dollar was at a 20 year high, oil near all time inflation-adjusted lows, the Fed Funds rates at a 10 year 6.5% peak, and the fiscal budget–as Bill Clinton will not let us forget–in surplus.

The post-bubble economy faced a steep downhill run but at least it started from fiscal and monetary high ground.

The economy weakened. So did the dollar; from 2002 to 2008 the trade-weighted exchange value of the dollar fell by 37%. The weak dollar let US manufacturers increase revenue from exports, one leg of the two legged stool of economic recovery.

Here's how the dollar depreciation stimulus was reported from the perspective of one of the beneficiaries.
Weaker Dollar Strengthens U.S. Agriculture (http://www.ers.usda.gov/AmberWaves/February07/Features/WeakerDollar.htm)
February 2007 (USDA.gov)

The depreciation of the dollar lifted U.S. agricultural exports to record-high levels, despite the gains falling short of their full potential.

The depreciating U.S. dollar combined with strong economic growth in developing countries has increased the competitive advantage of U.S. agriculture and stimulated export demand for U.S. agricultural products.

Despite depreciating against currencies of some U.S. trading partners, the dollar has been largely fixed against currencies of others, such as China, reducing potential gains in competitiveness.

Trade policies and imperfect markets can also reduce the effects of depreciation, further diminishing the gains.
In other words, a weak dollar has help US farmers' export sales, but "we" can do more. "We" can pressure the Chinese to let their currency float. Then "we" can depreciate the dollar more broadly and send even more exports overseas.

The article above includes two charts to make its point.


http://www.itulip.com/images/aggiexports1.gif

http://www.itulip.com/images/aggiexports2.gif


This was not the first time the US used monetary inflation and currency depreciation to re-inflate the economy. The 2003 to 2007 experiment bears striking parallels to the post Great Depression 1933 to 1937 period, but executed with modern monetary tools.

Dollar Depreciation Re-inflation Echo

Anchored to gold the dollar inflated 170% against a basket of commodities between 1929 and 1933. This dollar appreciation is popularly recalled as "deflation." Asset and commodities prices fell in turn. After reaching an exchange rate peak in 1933, the dollar plunged to pre-1929 levels after the US government called in gold, re-priced it, and deflated the dollar against gold by 41% from $20.67 to $35 per ounce.

A return trip of 170% cumulative inflation in commodity prices over the next four years was even larger than the 112% inflation in commodities produced by the 37% dollar deflation that occurred during the 2002 to 2008 period.

Between 1934 and 1937 dollar depreciation based re-inflation benefited farmers, commodity producers, and manufacturers much as today. Exports boomed and the incomes of farmers nearly doubled. iTuliper Jeff (http://itulip.com/forums/member.php?u=288) sent us an issue of American Agriculture, July 30, 1938. The 1938 cover article was similar to the USDA article from 2007, excerpted above. It was dramatically titled "Save Agriculture to Save America" and it makes its case with a decidedly low tech chart (scan below) that conveys parallel data from 60 years ago.


http://www.itulip.com/images/americanaggiJuly1938MED.jpg (http://www.itulip.com/images/americanaggiJuly1938.jpg)


The post 1929 bubble crash Keynesian cure of monetary inflation and currency depreciation ended the sharp contraction in the money supply that was, much like the impact of the credit default swap market today, feeding on itself, driving lenders and borrowers out of the market and choking off credit.

Infrastructure programs employed millions, cutting the unemployment rate by more than 50%, from 25% to 10%. Yet by 1938, a mere four years after the re-inflation program began, the US economy was again running out of steam and slowing rapidly. It was again in recession in 1938, but when the US entered WWII in 1941 the economy was growing again. Whether the Keynesian re-inflation had finally taken hold or not will never be known–and will be forever debated–as demand created by the war economy took over.

In 2008, the US policy makers find themselves trying to re-inflate an economy after the failure of efforts to re-inflate the post 2000 bubble economy but without the demand stimulus of a foreign war. Unlike 2001, the dollar is starting from near all time lows, oil from multi-decade highs, and the budget in deficit versus surplus.

After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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marvenger
10-15-08, 07:52 PM
What will they do next?

__________


Dammit EJ you're supposed to tell me:)

Pascal
10-15-08, 08:18 PM
EJ,

Thanks for the post and happy # 1,111 ! :)

sadsack
10-15-08, 09:01 PM
I guess this means that the alt-E bubble option is off the table?

EJ - does this mean you're adding to your PM position?

Contemptuous
10-15-08, 09:36 PM
My best guess. Ka and then Poom are still on the table, but the full measure of Ka has yet to be obtained. Sometimes the events have to unfold a little further before clear triangulation datapoints can be obtained. Predictions are derived from probabilities which have to firm up. Kudos to Janszen for the intelligence he offers to subscribers (for a pittance). We'll hope to obtain another "signpost" at the earliest possible date. I spent the better part of a year putting a lot of Janszen's theses down, yet his integrity has won me over. Don't forget us EJ. Many of us are out on the high seas here as to where we can remain positioned to survive the unfolding event.

ASH
10-15-08, 11:09 PM
In 2008, the US policy makers find themselves re-inflating a deflating re-inflated economy but without the demand stimulus of a foreign war.

My information is that there are in fact two foreign wars, but perhaps my sourcing is faulty. I'll ask my command on Friday. :D

Maybe if the wars were bigger, or required more industrial production to support...

Although equipment spending must be up, I wonder if most of the war spending is going to military pay and non-manufactured/non-value-added consumables (e.g. fuel). Anyone know where a breakdown of war expenses might be tallied?

icm63
10-15-08, 11:27 PM
Whats do they do next ?
667

Oops done that, or is it half way ???

FRED
10-15-08, 11:30 PM
My information is that there are in fact two foreign wars, but perhaps my sourcing is faulty. I'll ask my command on Friday. :D

Maybe if the wars were bigger, or required more industrial production to support...

Although equipment spending must be up, I wonder if most of the war spending is going to labor and non-manufactured/non-value-added consumables (e.g. fuel). Anyone know where a breakdown of war expenses might be tallied?

Ever looked at the impact of WWII on the US economy?

bill
10-15-08, 11:37 PM
Ever looked at the impact of WWII on the US economy?
yes
http://www.entomology.umn.edu/chironomidae/MNmining.htm

The depression of the 1930s dramatically slowed production, and by 1932 fewer than 2000 miners were working. Huge demand for steel for WWII again caused a boom in ore production on the Mesabi Range.

ASH
10-15-08, 11:47 PM
Ever looked at the impact of WWII on the US economy?

Yes. I often use the big grin smiley when I'm intentionally being an ass. At least I think I'm funny.

Still, the question about how efficient our present war expenditures are at stimulating economic activity stands. I know the scale of the war effort compared to the size of the economy doesn't compare, but I also wonder if present war spending is less efficient than WWII at keeping people employed. Seems to me we make fewer weapons at much higher unit cost, and the labor used in the manufacture tends to be tilted toward a small number of highly-paid engineers and technicians as opposed to a large number of lower-paid manual laborers. I work at the periphery of the defense industry, but in R&D, so all I see is small-volume/high-wage.

sadsack
10-16-08, 12:31 AM
I work at the periphery of the defense industry, but in R&D, so all I see is small-volume/high-wage.

Ultimately, under the exigencies of extended war, quantity (e.g. "Liberty ships," AKA production) trumps quality . . . just ask the WWII germans (superior technology, inferior quantities) . . .

kartius919
10-16-08, 02:15 AM
I fear we are in for a bust. What becomes of the US dollar?

xela
10-16-08, 06:03 AM
I'm rather new here and maybe misread what you try to say... so are you saying that the measures to re-inflate will continue to fail?

In that case of course your friendly government will bomb iran and maybe pakistan for good measure :eek:

Master Shake
10-16-08, 07:07 AM
After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?


If attempts to re-inflate fail, then don't you get true deflation, assuming the existing currency system persists?

labasta
10-16-08, 07:29 AM
What's next?

Damn, I was hoping you'd tell me too as I haven't got a clue.

Probably like other people here, I'm an EJ junkie needing my reassurance fix.

As long as it doesn't revert back to the Middle Ages (in most respects), I don't mind. I mean, walled towns, duty on traders entering and exiting, wars between tiny counties, hard physical labour on the land, a diet of wheat and potatoes etc. At least we have countries and the US is virtually a whole continent. We've come a long way in breaking down barriers and building trust. Now this little set back in trust has me peeved. Who let the thieves in? And how bad will the damage be? How can the damage be repaired?

I think the answer to the last question fundamentally has to be in Primary school education. Morality must now be taught in amongst English and other subjects at the primary level. When I was a kid the only morality from school I can remember was Aesop's Fables. Children's books and TV programmes contained messages as well though. Anyone remember the "Mr. Men" series - "Mr. Greedy" and others. Also the He-man cartoons were so in your face they sounded like a government infomercial. Don't do drugs etc.

On that note I think I need to start a new thread.

jdv
10-16-08, 08:33 AM
Ever looked at the impact of WWII on the US economy?

I'm speaking well outside my area of knowledge, but as I recall reading here that one outcome of WWII was that the United States held 80% of the world gold reserves after WWII. That coupled with the fact our infrastructure had not been destroyed put the US at an advantage following WWII.

I'm not sure that's the outcome I'd expect from Iraq and Afghanistan.

labasta
10-16-08, 09:20 AM
Just for reminiscing ;)


Little Miss Naughty (aka little miss asbo)

<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/asb2apgceSU&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/asb2apgceSU&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>



Mr. Nosey(aka meddlesome ratbag)

<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/T_AcIscdBaU&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/T_AcIscdBaU&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>

Mr. Greedy (me at times)

<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/gJEQjWJRS44&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/gJEQjWJRS44&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>



Little Miss Bossy (half the female population)

<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/Wc3SGTeo_RU&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/Wc3SGTeo_RU&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>



Mr. Mean (is a gold bug scrooge - my fav character "no" lol)

<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/TAWI3wIoX4Y&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/TAWI3wIoX4Y&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>



He-man (at around 35 secs this message is for the speculators and robber barons among us (includes myself at times). If only they had watched He-man, we wouldn't be in the difficulty we are today lol.)

<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/SvAOQdDWvro&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/SvAOQdDWvro&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>


ENJOY!

labasta
10-16-08, 09:30 AM
Also, in the the He-man cartoon check out 4:15.

If only our bankers had watched this He-man episode, they could start to clean up their act. It's ok, really, I know you have stolen the nation's wealth. We won't lynch you and send you to prison, just come clean and don't run away to Puerto Rico or Israel or wherever you think of holing up. We just need to see your books.

orion
10-16-08, 10:27 AM
EJ, I would have thought Japan would give us more ideas. Do we have to let the system reset by hopefully a managed fall or keep throwing things at the wall till life takes over and gives us something else to worry about (world war, major world wide catastrophe, etc)? How about your experience with corporations, haven't we hit the typical mature corporate dead end where the fun growth stage is gone (we just don't get those highs from new debt like we used to)? I think of this with the infrastructure idea as yes we need it but unfortunately we won't get the bang out of it like China who is building from scratch and can use newer technologies without the probelm of dealing with existing technology and locations. Reinvention and accepting this is going to be a gnerational plan, that's the ticket

jtabeb
10-16-08, 10:36 AM
After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?


assuming the existing currency system persists?

That would not be a good (safe) premise to operate under.:)

orion
10-16-08, 11:24 AM
EJ, Another concept I have to answer your question is PSYCHOLOGY, pretty much 80%. I think this is why Japan is still in a funk, no sexy program / plan. This is also the factor that had driven the stock markets so high. The 20% of details and serious basis is just that because whatever plan is going to be imperfect. So back on pschology we should include;

1) Bold and big, involve all segments of population
2) Appeal to justice so have some tough punishment for some of the guilty
3) Appeal to sacrafice, we need to save more, use less hopefully doing so without any new laws
4) Do things we have put off (energy, infrastructure, not too many things to keep us focused)
5) Make it bipartisan (if we can't put our differences somewhat behind us now we really are toast)
6) Find a bipartisan leader! We really need someone who can convince everyone to work together, and probably not a politician or ex bank official, say Warren Buffet or business leader, they need name recognition, fantastic speaking ability, and down to earth character.

don
10-16-08, 11:26 AM
The Depression: A Long-Term View (http://mrzine.monthlyreview.org/wallerstein161008.html)
by Immanuel Wallerstein

The depression has started. Journalists are still coyly enquiring of economists whether or not we may be entering a mere recession. Don't believe it for a minute. We are already at the beginning of a full-blown worldwide depression with extensive unemployment almost everywhere. It may take the form of a classic nominal deflation, with all its negative consequences for ordinary people. Or it might take the form, a bit less likely, of a runaway inflation, which is simply another way in which values deflate, and which is even worse for ordinary people.


Of course everyone is asking what has triggered this depression. Is it the derivatives, which Warren Buffett called "financial weapons of mass destruction" (http://news.bbc.co.uk/2/hi/business/2817995.stm)? Or is it the subprime mortgages? Or is it oil speculators? This is a blame game, and of no real importance. This is to concentrate on the dust (http://books.google.com/books?id=rPgVp3vMOjcC&pg=PA560&dq=%22the+dust+of+history%22), as Fernand Braudel (http://books.google.com/books?q=inauthor:%22Fernand+Braudel%22&as_brr=3) called it, of short-term events (http://books.google.com/books?id=LPp63EKb9moC&pg=PA758&dq=%22miscellany+of+trivia+and+daily+happenings+wh ich+rises+like+a+cloud+of+dust+from+any+living+civ ilization%22#PPA758,M1). If we want to understand what is going on, we need to look at two other temporalities, which are far more revealing. One is that of medium-term cyclical swings. And one is that of the long-term structural trends.


The capitalist world-economy has had, for several hundred years at least, two major forms of cyclical swings. One is the so-called Kondratieff (http://books.google.com/books?hl=en&safe=off&q=Kondratieff%20Wallerstein&um=1&ie=UTF-8&sa=N&tab=wp) cycles that historically were 50-60 years in length. And the other is the hegemonic cycles which are much longer.


In terms of the hegemonic cycles, the United States was a rising contender for hegemony as of 1873, achieved full hegemonic dominance in 1945, and has been slowly declining since the 1970s. George W. Bush's follies have transformed a slow decline into a precipitate one. And as of now, we are past any semblance of U.S. hegemony. We have entered, as normally happens, a multipolar world. The United States remains a strong power, perhaps still the strongest, but it will continue to decline relative to other powers in the decades to come. There is not much that anyone can do to change this.


The Kondratieff cycles have a different timing. The world came out of the last Kondratieff B-phase in 1945, and then had the strongest A-phase upturn in the history of the modern world-system. It reached its height circa 1967-73, and started on its downturn. This B-phase has gone on much longer than previous B-phases and we are still in it.


The characteristics of a Kondratieff B-phase are well known and match what the world-economy has been experiencing since the 1970s. Profit rates from productive activities go down, especially in those types of production that have been most profitable. Consequently, capitalists who wish to make really high levels of profit turn to the financial arena, engaging in what is basically speculation. Productive activities, in order not to become too unprofitable, tend to move from core zones to other parts of the world-system, trading lower transactions costs for lower personnel costs. This is why jobs have been disappearing from Detroit, Essen, and Nagoya and factories have been expanding in China, India, and Brazil.

As for the speculative bubbles, some people always make a lot of money in them. But speculative bubbles always burst, sooner or later. If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be -- the U.S. Treasury and Federal Reserve Bank, the International Monetary Fund, and their collaborators in western Europe and Japan -- have intervened in the market regularly and importantly -- 1987 (stock market plunge), 1989 (savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long Term Capital Management mismanagement), 2001-2002 (Enron) -- to shore up the world-economy. They learned the lessons of previous Kondratieff B-phases, and the powers that be thought they could beat the system. But there are intrinsic limits to doing this. And we have now reached them, as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.


In the past, once a depression wreaked its havoc, the world-economy picked up again, on the basis of innovations that could be quasi-monopolized for a while. So, when people say that the stock market will rise again, this is what they are thinking will happen, this time as in the past, after all the damage has been done to the world's populations. And maybe it will, in a few years or so.


There is however something new that may interfere with this nice cyclical pattern that has sustained the capitalist system for some 500 years. The structural trends may interfere with the cyclical patterns. The basic structural features of capitalism as a world-system operate by certain rules that can be drawn on a chart as a moving upward equilibrium. The problem, as with all structural equilibria of all systems, is that over time the curves tend to move far from equilibrium and it becomes impossible to bring them back to equilibrium.


What has made the system move so far from equilibrium? In very brief, it is because over 500 years the three basic costs of capitalist production -- personnel, inputs, and taxation -- have steadily risen as a percentage of possible sales price, such that today they make it impossible to obtain the large profits from quasi-monopolized production that have always been the basis of significant capital accumulation. It is not because capitalism is failing at what it does best. It is precisely because it has been doing it so well that it has finally undermined the basis of future accumulation.

What happens when we reach such a point is that the system bifurcates (in the language of complexity studies). The immediate consequence is high chaotic turbulence, which our world-system is experiencing at the moment and will continue to experience for perhaps another 20-50 years. As everyone pushes in whatever direction they think immediately best for each of them, a new order will emerge out of the chaos along one of two alternate and very different paths.


We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times.


As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms. And we are moving into acute social conflict within states, as everyone competes over the smaller pie. In the short-run, it is not, by and large, a pretty picture.


<hr> Immanuel Wallerstein is Distinguished Professor Emeritus of Sociology, State University of New York at Binghamton. Among his numerous books are The Modern World-System (http://www.amazon.com/Modern-World-System-Agriculture-World-Economy-Discontinuity/dp/0127859195) (1974, 1980, 1989), Unthinking Social Science (http://www.amazon.com/Unthinking-Social-Science-Nineteenth-Century-Paradigms/dp/1566398991/) (1991), After Liberalism (http://www.amazon.com/After-Liberalism-Immanuel-Wallerstein/dp/1565843045) (1995), The End of the World As We Know It (http://books.google.com/books?id=PEmVAQ_HMc8C) (1999), and The Decline of American Power: The U.S. in a Chaotic World (http://www.amazon.com/Decline-American-Power-Chaotic-World/dp/1565847997/) (2003). This commentary was published on 15 October 2008. © Immanuel Wallerstein, distributed by Agence Global. For rights and permissions, including translations and posting to non-commercial sites, contact: rights@agenceglobal.com, 1.336.686.9002 or 1.336.286.6606. Permission is granted to download, forward electronically, or e-mail to others, provided the essay remains intact and the copyright note is displayed. To contact author, write: immanuel.wallerstein@yale.edu. Visit the archive of Wallerstein's previous commentaries at <www.binghamton.edu/fbc/cmpg.htm (http://www.binghamton.edu/fbc/cmpg.htm)>. These commentaries, published twice monthly, are intended to be reflections on the contemporary world scene, as seen from the perspective not of the immediate headlines but of the long term.

steveaustin2006
10-16-08, 11:33 AM
After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?

If an un-exitable, un-ending, debt deflation spiral is impossible in a global fiat system where all players or at least large enough western players try to re-inflate via co-ordinated attempts, perhaps they just haven't tried hard enough yet? esp. in light of the CDS markdowns to come?

If a financial driven event is being evolved into an economic event where does that put market pricing? It seems to me markets are pricing in economic events which are overblown at this point (?)

Unfortunately, I am also on the high seas having made my wager overseas on the bet that Chindia's real economies would be largely insulated from this financial driven event and betting that re or re-re-flation must work in a fiat system eventually.

What the market seems to be saying to me is that the derivatives related losses are much, much higher than is known yet.....or that no injections have actually worked through to the economy yet because not enough time has passed or because banks refuse to.

What happened to the central banks bypassing banks and becoming everyone's lender? Where do businesses get their loan apps for the Federal Bank of the Federal Reserve? or in my case where do my small and large commodity producers submit their apps based on Asian growth of 5%? (at which rate commodities would be used far in excess of two years ago)

Where are the globally coordinated stimulus packages pushing spending and building of bridges to nowhere?

serge_oc
10-16-08, 12:48 PM
Problem may be in taking past performance for granted. For example:

1. Wars cannot any longer lead the economy. My point: want a big war? Need to involve Russia and China. Want drawn out prolonged conflict that will leave domestic infrastructure intact? Go back to 1939 or maybe 1971. We fire guided super smart missile to Russia, don't expect them to fire one back. Rather expect an American city leveled in a nuclear blast.

2. Time frames. What's happening now is a classic example of music chair game. Money flows, everyone buys mortgage, money stops. Us bankers entered few numbers in a computer, heck now we own real property through repossession!! Once we have enough of the world, we let money flowing again.

What, CBs can't produce enough money? Come on. Sure they can. But not without igniting inflation. They will make enough money to cover top dogs and give them ability to spend like crazy acquiring assets while the rest of us worry about our little ROI and pathetic retirement plans.

The only lose cannon here is some countries not playing by the rules and finding their own way largely independent of the wholesome seriousness of 'liquidity', 'solvency', 'stock' etc.

Whaaat, they don't think beads of sweat on Big Ben's and Paulson's shining forehead is the most traumatizing event EVER?

If that happens, than there will be war, but not for the purpose of stimulating the economy, but for the domination and more likely survival of the global banking cast. In that case, duck....

FRED
10-16-08, 12:51 PM
After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?

If an un-exitable, un-ending, debt deflation spiral is impossible in a global fiat system where all players or at least large enough western players try to re-inflate via co-ordinated attempts, perhaps they just haven't tried hard enough yet? esp. in light of the CDS markdowns to come?

If a financial driven event is being evolved into an economic event where does that put market pricing? It seems to me markets are pricing in economic events which are overblown at this point (?)

Unfortunately, I am also on the high seas having made my wager overseas on the bet that Chindia's real economies would be largely insulated from this financial driven event and betting that re or re-re-flation must work in a fiat system eventually.

What the market seems to be saying to me is that the derivatives related losses are much, much higher than is known yet.....or that no injections have actually worked through to the economy yet because not enough time has passed or because banks refuse to.

What happened to the central banks bypassing banks and becoming everyone's lender? Where do businesses get their loan apps for the Federal Bank of the Federal Reserve? or in my case where do my small and large commodity producers submit their apps based on Asian growth of 5%? (at which rate commodities would be used far in excess of two years ago)

Where are the globally coordinated stimulus packages pushing spending and building of bridges to nowhere?


This thread is here to elicit feedback. In our view, Ka-Poom Theory holds that there are not many options on the menu.

1. Depreciate the dollar, a natural result of capital outflows as foreign central banks run out of money to send to the US. That part of Ka-Poom Theory appears to be happening.


http://www.itulip.com/images/netcapitalinflows1960-2008.gif

2. That means all of the "fixed" expenses that foreign governments used to fund in the US now have to be funded by the US, with negative implications for the US fiscal position, which wasn't so hot to begin with.

Charles Mackay
10-16-08, 01:53 PM
Yes, agreed. ...and stocks will continue to be deflated by commodities in the years to come. Check out the major trend line break and the rate of change extremes in '29 and '2000 !

http://webpages.charter.net/bigboard/stks.gif

Stocks valued in commodities went down until 1949 (20 years) implying that this time around maybe you could cash out of your gold, energy, and commodities and start buying equities again in around 2020.

Ed
10-16-08, 02:02 PM
Generic:

The bubble burst because it formed.
The bubble formed because asset price histories that look like cocaine intoxications were/are kept out-of-sight.
See for example:
“Real Dow & Real Homes & Personal Saving & Debt Burden” at
http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html

steveaustin2006
10-16-08, 02:21 PM
This thread is here to elicit feedback. In our view, Ka-Poom Theory holds that there are not many options on the menu.

1. Depreciate the dollar, a natural result of capital outflows as foreign central banks run out of money to send to the US. That part of Ka-Poom Theory appears to be happening.

2. That means all of the "fixed" expenses that foreign governments used to fund in the US now have to be funded by the US, with negative implications for the US fiscal position, which wasn't so hot to begin with.

Fred - First let me say how glad I am to be here. Thanks for sharing the knowledge.

I had thought that this current reflation was the main mechanism by which the dollar would ultimately be depreciated, once the repatriation scramble for dollars/yen halts....so that there is no decision to be made between reflation or any alternate should reflation fail, as the question poses.

Isn't depreciation the result of reflation under our current circumstances? So in that way, no decision is required - the policy of inflation is already underway and only timing is the open question(?)

phirang
10-16-08, 02:24 PM
This thread is here to elicit feedback. In our view, Ka-Poom Theory holds that there are not many options on the menu.

1. Depreciate the dollar, a natural result of capital outflows as foreign central banks run out of money to send to the US. That part of Ka-Poom Theory appears to be happening.


http://www.itulip.com/images/netcapitalinflows1960-2008.gif

2. That means all of the "fixed" expenses that foreign governments used to fund in the US now have to be funded by the US, with negative implications for the US fiscal position, which wasn't so hot to begin with.

Yea, all that hot money must be flowing into Shanghai or Moskva...:rolleyes:

bobola
10-16-08, 06:41 PM
My personal answer on what to do to get ready for the Poom is to buy a well built aluminum sailboat, sell the house and all the stuff that won’t fit in the boat, live on it on the SE coast while we work and save more, liquidate all assets and move the money offshore in several currencies and stock up on gold and silver coins. Secured down low in sailboat PM makes great ballast.

When I was single I had a paid for go-anywhere 35’ sailboat but little money in the bank. That was 13 years ago.

Today I’m married, boat sold long ago, work a corporate job, 7 years into a 15 year mortgage & building up the 401k and various other investments. If/when the big Poom hits, and things get very bad, such as civil unrest, what then?

Are we heading for a Y2K type doomsday scenario, but this time it’s for real?

Any thoughts?

c1ue
10-17-08, 03:15 AM
Don't forget the true nuclear option:

Adding an extra 0 to the dollar.

Cut our debts by 90%. Then add capital back into financial sector.

FIRE can resume.

Of course savers get screwed bad.

kartius919
10-17-08, 04:59 AM
That is the same as creating the "Amero," but the exchange rate may be much higher than when the time is right. I think they will just string this along and maintain/plunder? the broken system as long as possible. If it breaks down, then it breaks down and they will unveil the new currency. I'm sure every head of state is discussing such an option with their Bretton Woods redux.

I am seriously considering transferring my cash position into consumer staples, energy, and mining in the near future. Keeping cash is becoming a scarier proposition.

kingcopper
10-17-08, 07:56 AM
sadly, I believe capitalism's problems arise out of the greed of the very elite that find comfort from the system itself. I know many great people with great ideas and motivation but Wallsheep and Washington neuter their hope with the outright dishonesty. Innovation is stalled by the very system set up by are great mothers and fathers.

phirang
10-17-08, 08:49 AM
sadly, I believe capitalism's problems arise out of the greed of the very elite that find comfort from the system itself. I know many great people with great ideas and motivation but Wallsheep and Washington neuter their hope with the outright dishonesty. Innovation is stalled by the very system set up by are great mothers and fathers.

Life is tough. Overcome or make do...

mlg120856
10-23-08, 01:03 PM
How about killing the FIRE economy (bankers and brokers) so the patient can live. FIRE cannot survive if it kills the patient; so far, the bailouts are producing the death of the patient and FIRE seems to be sitting back like vultures waiting to swoop in on the dead patients assets.

How can FIRE survive if the patient is dead?

MARK TO MARKET and let FIRE go belly up.

Jay
10-23-08, 02:01 PM
This thread is here to elicit feedback. In our view, Ka-Poom Theory holds that there are not many options on the menu.

1. Depreciate the dollar, a natural result of capital outflows as foreign central banks run out of money to send to the US. That part of Ka-Poom Theory appears to be happening.


http://www.itulip.com/images/netcapitalinflows1960-2008.gif

2. That means all of the "fixed" expenses that foreign governments used to fund in the US now have to be funded by the US, with negative implications for the US fiscal position, which wasn't so hot to begin with.
FRED, I know this is probably evident and basic for most, but 1) does this graph include US Treasury purchases as foreign assets and 2) does it include only foreign private money or sovereign purchases also? Thanks.

FRED
10-23-08, 08:39 PM
FRED, I know this is probably evident and basic for most, but 1) does this graph include US Treasury purchases as foreign assets and 2) does it include only foreign private money or sovereign purchases also? Thanks.

This chart includes all foreign assets, official and private, invested in all US securities, that is, total net inflows.

donalds
10-23-08, 11:17 PM
Eric,

Guess I'm missing something here, but I recall in a very recent post a comment you made (perhaps I'm mistaken, and it wasn't you), that the dollar should not be expected to depreciate vs. other currencies, but rather vs. commodities.

Oil has plunged significantly from its 2008 highs, and the dollar has appreciated considerably. If the dollar should be expected to weaken dramatically against commodities, such as oil . . . what's going to drive up the price of these commodities, such as oil?

You mention that government attempts to re-inflate are starting from, among other things, a deficit rather than from a surplus. MY question: where it the public financing/taxpayers subsidized build up of infrastructure and alternative energy going to come from?

joebob
10-24-08, 05:07 AM
My personal answer on what to do to get ready for the Poom is to buy a well built aluminum sailboat. Secured down low in sailboat PM makes great ballast.

Any thoughts?

Your aluminum hull will be the anode if you put PM in the bilge.

grapejelly
10-24-08, 05:57 AM
Eric,

Guess I'm missing something here, but I recall in a very recent post a comment you made (perhaps I'm mistaken, and it wasn't you), that the dollar should not be expected to depreciate vs. other currencies, but rather vs. commodities.

Oil has plunged significantly from its 2008 highs, and the dollar has appreciated considerably. If the dollar should be expected to weaken dramatically against commodities, such as oil . . . what's going to drive up the price of these commodities, such as oil?

You mention that government attempts to re-inflate are starting from, among other things, a deficit rather than from a surplus. MY question: where it the public financing/taxpayers subsidized build up of infrastructure and alternative energy going to come from?

it isn't going to come from anything. It seems that the system is going to collapse before the next bubble can start. Things are way, way out of hand right now. The USD has gone parabolic against every currency but the Yen. Financial assets are collapsing.

Very soon we will start seeing massive outright printing of trillions of USD as the only thing left. The helicoptors.

Contemptuous
10-24-08, 06:40 AM
Grapejelly -

Just got flash mails from Arch Crawford and Robert McHugh (McHugh is really good) that we are right smack at the potential tradeable low. $675 gold and $8.80 silver, IF IT TURNS HERE. Otherwise it's gone. If it turns they are plotting it as a very stiff rally, 50% plus retracement potential into early January, then a the final plunge down past even these lows into the final corrective low with the DOW somewhere around 6K.

The second low going into February March is billed as so earthshattering that it's got potential for "regime change" and the loss of the democratic system (or the remnants rather). Arch Crawford s not one to bet against on the really big calls. Bottom line however is if we wake up tomorrow morning and this thing is still plowing south the entire script just got torn up and we are going straight into depression.

How do you like them apples?


it isn't going to come from anything. It seems that the system is going to collapse before the next bubble can start. Things are way, way out of hand right now. The USD has gone parabolic against every currency but the Yen. Financial assets are collapsing.

Very soon we will start seeing massive outright printing of trillions of USD as the only thing left. The helicoptors.

Monetary Base Rocket (http://silveraxis.com/todayinsilver/2008/10/23/monetary-base-rocket/)

<SMALL>October 23rd, 2008 </SMALL>
<SMALL></SMALL>
<SMALL><!-- by silverax --></SMALL>
Today we got news that the U.S. monetary base consisting of bank reserves and currency in circulation has skyrocketed to $1.15 trillion from $850 billion a mere 6 weeks ago, which is an increase of 35%, or 300% annualized. Meanwhile, the Adjusted Monetary Base tracked by the St. Louis Fed (which calculates the monetary base using bi-weekly averages) clocked in at $1.19 trillion. Here is how it looks on a chart:

http://silveraxis.com/todayinsilver/wp-content/uploads/2008/10/base_max_630_378-300x180.png (http://silveraxis.com/todayinsilver/wp-content/uploads/2008/10/base_max_630_378.png)

Click Chart to Enlarge

The Fed has added as much to the monetary base in 6 weeks as it has added in any prior 10 year period going back to the early 1980s. Indeed, the rate of increase appears to be about $100 billion every two weeks and yet the logjam in the credit markets still has not been cleared.

So, is this the fabled helicopter drop? Yessirreee! There is, however, a slight matter that deserves some mention. The money dropped from the helicopter has not reached the ground yet. In other words, most of this money is still being held by the banks in the form of Reserve Balances. Put another way, it has not yet started to work its way down through the fractional-reserve lending process to the credit-strapped private sector.

The reason these funds are being held and not loaned out by the banks is simple. The Fed is actually paying banks to hold the funds in reserves. Indeed, the Fed has just today increasing the rate it is paying by 40 basis points (http://www.federalreserve.gov/newsevents/press/monetary/20081022a.htm).

Some of you may know that the Fed was originally going to start paying banks for excess Reserve Balances starting in 2011 but the recent emergency bailout legislation moved that date up so that Reserve Balances would start to earn interest immediately.

The Fed’s intent is to try to keep the massive increases in Reserve Balances close to the heart so that these funds serve mainly to shore up the banks’ balance sheets but don’t create a tsunami of “unnecessary liquidity” in the money supply. Remember what I said earlier about jumping out of a burning building. In helicopter lingo, the $300 billion has been dropped but it is fluttering in midair due to an updraft created by the rotor.

I suspect, however, that the Fed will have to dispense with its “gradualism” before too long and fly the helicopter to open airspace in order to avoid a crash.

Even if the Fed has no intention of moving clear, the longer the money stays out there fluttering in midair, the more difficult it will be to keep it aloft. Moreover, once the dropped money has cleared the updraft from the helicopter’s rotor, it can no longer be reclaimed by the Fed without consequences, especially while the global economy remains on an unsure footing. Thus I suspect most of the dropped money will eventually flutter to the ground.

What I think we should watch for in particular is an increase in M1, which includes circulating currency (Federal Reserve Notes) and demand deposits. The latest data only goes up to October 13, but that data actually shows weekly average M1 shrinking by as much as $100 billion since the end of September.

If and when we see M1 reverse sharply upwards, we could start to suspect that the first batches of the monetary drop are starting to reach the ground and that a “hyperinflationary event” will not be very far behind. How long could this take? I give it 6 to 18 months although others say it could be literally weeks from now. Jim Sinclair claims something big will happen in 13 to 88 days, which is the timeframe between the U.S. elections and the inauguration of the next President.

G'mornin' Chris Coles. I see you are up. I'm turning in (wee hours of the morning here - and it's an ugly day dawning).

Chris Coles
10-24-08, 06:45 AM
I listened to a BBC Radio 4 report this morning from a Hedge Fund Conference in London and the interviewee sounded frightened.
http://news.bbc.co.uk/today/hi/today/newsid_7688000/7688225.stm

Later, Washington Post put up a report about AIG running out of the money loaned. http://www.washingtonpost.com/wp-dyn/content/article/2008/10/23/AR2008102303352.html?wpisrc=newsletter

I have posted that.

The FIRE economy has no option but to run out of money. Their wonderful idea of leveraging everything to the nth degree has come right back and bit them hard. The bubble was not in mortgages, it was in leveraged bonds being printed by the hedge funds and investment banks. But the losers are all the very wealthy that used the short term money these funds could provide to go out and buy up other assets. The loans must now be called in for the lending institutions to survive.

The real losers are the very wealthy whose inclination for more..... of anything they thought they could lay their hands on, because someone would lend them the money... short term... no problem.

http://www.timesonline.co.uk/tol/news/politics/article5004082.ece?&EMC-Bltn=KQUFQ9

steveaustin2006
10-24-08, 06:58 AM
Lukester et al,

What is that 'big event' when the money hits the ground in M1?

Do we first see bond yields rise? Do we first see a recovery in broad markets indices?

Then commodities prices rise rapidly to higher highs than previously (in other words all currencies fall)? Then that brings on an inflationary mindset? Then a flock to assets that are deemed to be inflation hedges? and an accompanying rout in the bond market?

In other words, what is the sequence of 'POOM'? and how exactly does wage inflation NOT take shape UNLESS price inflation only moves up gradually and marginally in the U.S.? If inflation took hold in consumer prices across the board in a big way, I would expect at the very least the public sector unions will strike, followed by others.

Contemptuous
10-24-08, 07:37 AM
Steve - no, if you don't see markets pull up here into the beginnings of a very large rally in the next two, three days or a week at the very outside, we are looking at the "deflationary blue screen of death. Seriously, the technical picture is screaming for a relief rally, with no parallels going back 150 years for the uninterrupted extent of this plunge.

Hyperinflating money coming down like rain, but for a good long while, no inflation - just plunging deflationary conditions. I have no idea of how the poom manifests thereafter, but this market is way, way overstretched into a single downleg. If it does not rebound here it breaks 300 year record books for plunge.

Apparently there has never been an instance in history of a huge deflation in a world governed by fiat money - but the very fact that it appears to be so is broadcasting that one should own and hang onto a very solid position in gold. Anyone here venturing into a what *appeared* to be a runaway deflation that is occurring in a 100% fiat money world, and who is only owning fiat paper notes or treasuries, is nuts, or foolish, or reckless, or all of those.

They will put the Federal Reserve Note into an incinerator trying to combat this thing.

In preliminary terms if markets don't now correct sharply that would NOT be inflationary. You'd of course see all commodites and dollar hedge assets temporarily decimated far more than they are already. The hyperinflation comes later, after everyone in the commodities had been turned into hamburger patties. G'night.


Lukester et al,

What is that 'big event' when the money hits the ground in M1?

Do we first see bond yields rise? Do we first see a recovery in broad markets indices?

Then commodities prices rise rapidly to higher highs than previously (in other words all currencies fall)? Then that brings on an inflationary mindset? Then a flock to assets that are deemed to be inflation hedges? and an accompanying rout in the bond market?

In other words, what is the sequence of 'POOM'? and how exactly does wage inflation NOT take shape UNLESS price inflation only moves up gradually and marginally in the U.S.? If inflation took hold in consumer prices across the board in a big way, I would expect at the very least the public sector unions will strike, followed by others.

And BTW, two or three of the newsletters I read are now calling for the long presumed top in bonds to not materialize! They call them to bottom out shortly and then bond prices go up again!

Charles Mackay
10-24-08, 11:58 AM
I don't know if any of you listened to Bernanke's speech to the Economic Club of New York? After the speech he took a Q&A where Martin Feldstein asked him what he had learned from his studies of the Great Depression that he could apply now. Bernanke said that the two good things that FDR did were firstly to "relieve" the country from the constraints of the gold standard and secondly to declare a bank holiday in which banks couldn't reopen until they were sound.

Well folks... there you heard it from the horse's mouth! The two "good things" were confiscating the citizens gold under threat of a $10,000 fine and imprisonment, and also closing your bank! These are the "GOOD THINGS" that FDR did!!! I guess he didn't have the guts to say devaluing the dollar by 75% after buying the people's gold was a "good thing" also!!!

Folks, you must keep your gold outside the U.S.. Keep it in Switzerland or at least in Canada. GoldMoney.Com is good or The Central Fund of Canada (CEF) or Perth Mint Certificates in Australia. Or open up your own safe box offshore.

Here is the Q&A video:
http://www.cnbc.com/id/15840232?video=891160288&play=1

Contemptuous
10-24-08, 03:04 PM
Gold's hard bounce off of the $685 overnight is actually right according to the more optimistic script for a major turn and basis of a stiff snapback rally. The $675-$685 was really the "line in the sand". Now if we see it break out over $730 in the next 3-4 trading days it's done a successful interim bottom and is going to stage a big rally. Find the bet whose premise is false, and then bet against it. King dollar - watch him soar and fly with the eagles. :D

hellstan
10-24-08, 03:55 PM
[wrapright]


After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?
__________________

Weaken dollar.
Competitive devaluation all over the board.

hellstan
10-24-08, 04:11 PM
Now if we see it break out over $730 in the next 3-4 trading days it's done a successful interim bottom and is going to stage a big rally.

730,14
High 746
@ Lukester : Crawford is very good. I received another mail yesterday calling for a big crash today and monday, then relief.

http://www.jsmineset.com/cwsimages/Miscfiles/6664_October2408Gold1230pmCDT.pdf

PS : Why the hell my images don't load normally anymore ? Did not change any settings…