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centrifugal:centripetal forces <=> deflationary/inflationary forces?

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  • centrifugal:centripetal forces <=> deflationary/inflationary forces?

    this was originally stimulated by the announcement that the region of sicily is broke, and is likely to be taken over by the italian central gov't.

    this process is occurring worldwide. regions are hurt by cutbacks in subsidies from national gov'ts. this is happening in italy, spain and in the u.s. similarly, in the u.s., localities are pressured by cutbacks in subsidies from their state gov'ts. in europe, nations are pressured by austerity imposed from above, generating centrifugal forces toward breakup. in belgium, stricture generates centrifugal force towards break-up. in the u.s., political polarization and stalemate paralyze fiscal policy. so stricture at one level causes stricture at the next level down, and tends to shake the system apart.

    in the e.u., pressures on national gov'ts are transmitted to demand action at the eurozone level, whether for political and fiscal integration [ever so slowly] or from the e.c.b. [like pulling teeth]. the eurozone tries to generate rescue/action globally from the imf, or the creditor brics. and the ecb draws on swap lines from the fed. strictures at one level generates pressure for action/rescue/further integration from the next level up, pushing to link the system together more tightly.

    italy will take over the regional gov't of sicily, and no doubt in the process will assume responsibility for their debts. will the u.s. bail out california? not anytime soon.

    the global political-economic system is at every level subject to ever-increasing both centrifugal and centripetal forces. meanwhile, the monetary system is subject to ever-increasing both deflationary and inflationary forces. my thought is that the deflationary forces are centrifugal- each for himself and god for all. the centripetal forces of integration seem to require inflation to become actualized.

    i'm groping for some theory here, and this is not fully thought out, but i thought i'd post it to see if it generates any feedback, clarification, or other ideas.

  • #2
    Re: centrifugal:centripetal forces <=> deflationary/inflationary forces?

    This is Tom Drake's blog, no opinion/comment from me, except that I have highlighted the relevant idea.

    Long Wave Thoughts 2012


    . . .

    The 1949 Long Wave low led to the late 1970's high and suggested 2002-04 as the next low. Although some commodity prices made their bear market lows in 1998, most them gradually made their lows by 2003, and so too, seemingly at the time, did interest rates. All the metals, grains, meats, energy, and tropical foods have long since made lows and given major gains the past decade.

    Bond yields broke with the Kondratieff wave in 2008 after having made their last previous lowest low on schedule in 2003. http://screencast.com/t/Rzr7CvXcDhX The liquidity panic of 2008 understandably caused a massive flight to safety, and only US Treasury bond markets had the size and depth to accomodate many trillions of panicked capital looking for safety. The rapid unwinding of this panic trade from almost 2% on the 20 year bond to 5% in a few months in 2009 promised to signal that the main Kondratieff inflation wave vehicles were back in synchrony. But continued panic by the US Federal Reserve and trillions of dollars of quantitative easing has kept rates near the 2008 lows and attracted much capital that concludes that things must be very bad indeed if the Fed is still panicked.

    So we have a bifurcated economy with inflation in the private economies of the world but deflation in government economies. The large banks in North America and Europe are effectivly bankrupt and wards of the state. They are under enormous pressures to raise capital, cut non-banking operations (speculation), and loan, loan, loan. But their reserves are all they have, so they are leaving them safely back at the Fed. Despite Fed printing and "loaning" to the banks, only a small part is leaking out to speculative hedge funds. Governments themselves are increasingly seen as close to financial implosion.

    Meanwhile, private corporations are doing relatively well and are self-financing or re-financing with very low yield bonds. World private inflation and growth proceeds, as it has since 1999-2003, with demand from emerging nations as well as from re-tooling in many industries. This dichotomy prevents, or at least has prevented, either the inflationists or deflationists from being correct overall. Nevertheless, gold and most prices are far above the 1999-2003 lows, so we may safely say that Kondratieff is still at the helm and will stay there another decade. Even so, and although inflation will continue, overall world economic growth will remain positive but modest for a few years. This will have a negative effect on stocks, moving from country to country in "confidence moves", until an all-out inflationary binge develops when bank reserves finally get loaned out.
    Justice is the cornerstone of the world

    Comment


    • #3
      Re: centrifugal:centripetal forces <=> deflationary/inflationary forces?

      i don't think the deflationary forces are confined to the gov't sector. deleveraging and debt-deflation is happening in the private sector.

      Comment


      • #4
        Re: centrifugal:centripetal forces <=> deflationary/inflationary forces?

        Originally posted by jk View Post
        this was originally stimulated by the announcement that the region of sicily is broke, and is likely to be taken over by the italian central gov't.

        this process is occurring worldwide. regions are hurt by cutbacks in subsidies from national gov'ts. this is happening in italy, spain and in the u.s. similarly, in the u.s., localities are pressured by cutbacks in subsidies from their state gov'ts. in europe, nations are pressured by austerity imposed from above, generating centrifugal forces toward breakup. in belgium, stricture generates centrifugal force towards break-up. in the u.s., political polarization and stalemate paralyze fiscal policy. so stricture at one level causes stricture at the next level down, and tends to shake the system apart.

        in the e.u., pressures on national gov'ts are transmitted to demand action at the eurozone level, whether for political and fiscal integration [ever so slowly] or from the e.c.b. [like pulling teeth]. the eurozone tries to generate rescue/action globally from the imf, or the creditor brics. and the ecb draws on swap lines from the fed. strictures at one level generates pressure for action/rescue/further integration from the next level up, pushing to link the system together more tightly.

        italy will take over the regional gov't of sicily, and no doubt in the process will assume responsibility for their debts. will the u.s. bail out california? not anytime soon.

        the global political-economic system is at every level subject to ever-increasing both centrifugal and centripetal forces. meanwhile, the monetary system is subject to ever-increasing both deflationary and inflationary forces. my thought is that the deflationary forces are centrifugal- each for himself and god for all. the centripetal forces of integration seem to require inflation to become actualized.

        i'm groping for some theory here, and this is not fully thought out, but i thought i'd post it to see if it generates any feedback, clarification, or other ideas.
        I'd love to help wrestle with this. I like the idea of a logical framework that separates out the variables that are, on balance, cohesive vs. dispersive. ("centrifugal" forces bother the physicist/engineer in me.) However, I am a bit puzzled by your suggestion that deflation and inflation may be projected along this axis. I tend to think more in terms of nations acting based either on self-interest or cultural imperative, whereas inflation and deflation can be either cohesive or dispersive depending on context.

        For example, in a currency war, inflation can be cohesive for the states in the EMU, while dispersive to the states not in the Eurozone, but still in the EU. But each state's response to these conditions will be determined by a linear superposition of their economic self-interests (assuming a given monetary philosophy) and their cultural affinity/repulsion for their various neighbors. These responses could be projected onto an arbitrary basis, such as the cohesive/dispersive one.

        Perhaps I am misunderstanding your intent?

        Comment


        • #5
          Re: centrifugal:centripetal forces <=> deflationary/inflationary forces?

          I'm not sure either where you're trying to go with this.

          From my view, the present situation is a result of years of accumulated failures in policy at all levels.

          As Sir Warren once said: "you only find out who is swimming naked when the tide goes out"

          The tide going out is years of asset inflation striking the rocks of fiscal reality. The naked swimmers are those who based their fiscal policies on the high tide. Austerity is naked swimmers hanging out in the tide pools.

          Comment


          • #6
            Re: centrifugal:centripetal forces <=> deflationary/inflationary forces?

            i'm trying to think about things systemically in terms of the global political-economic system, specifically the levels of political structure - in the u.s. it's locality/state/federal/international. there are cohesive forces such as the function of the federal gov't in cushioning regional economies, and dispersive ones such as the political choice of republican governors to refuse to implement obamacare. in europe the integrative and disintegrative forces are even more stark- both intra-eurozone and intra-national in places like belgium and, to a lesser degree, italy. note italy only became a nation in the latter half of the 19th century iirc.

            on this board some people have written about the possible appearance of a global currency, but more have focused on the loss of centrality of the u.s. dollar as a global reserve leading to a fragmentation of the ims into currency blocs. this is another example of a cohesive versus a dispersive outcome.

            i see these counterbalanced forces, some pushing toward further integration and stronger inter-level linkages, others toward shaking the global economy into pieces. and it reminds me of the counterbalanced pressures of inflation and deflation, so i'm trying to see if there's some connection.

            otoh, as astonas points out, stresses can push in either direction. i've certainly seen that in couples/marriages, in which stress might produce conflict and shake the thing apart, or it might elicit mutual support and make the relationship more solid. so at least in that system, stress per se is neither cohesive nor dispersive, but it usually pushes the system in one direction or the other.

            i'm still thinking about your post astonas, btw, which is why i haven't replied to it yet.

            Comment


            • #7
              Re: centrifugal:centripetal forces <=> deflationary/inflationary forces?

              Originally posted by jk View Post
              i'm still thinking about your post astonas, btw, which is why i haven't replied to it yet.
              Heh, no rush. This is certainly one of the thornier questions, but I think still worth pondering. Thanks for bringing it up!

              It was for similar reasons that I starting toying with the concept of "monetary culture" earlier. The idea was that one could think of states having a sort of "personality" that would give an indication, if not exactly a prediction, of how they might respond to certain exogenous forces, such as inflation and deflation. To my thinking, states of a similar monetary culture would come together under stress, states with incompatible cultures might be pulled apart by those same forces. But this does become very tricky. While culture is no doubt a real influence, it is also an evolving one, and not necessarily always dominant. Furthermore, a given cultural influence often appears irrational when viewed from another cultural perspective. And misunderstanding such "irrational" perspectives can also lead to a wide range of prejudices being given their head.

              I think a form of this general concept is already well represented in the media, and on this site. For example, I really appreciate GRG55's posts anticipating a separation of the northern states from the rest of the Eurozone. Though I do disagree on the relatively minor points of which side would initiate the split, and also which side France would wind up on, I think that he and I agree about the general polarization axis of Europe, and much of the end-result picture.

              As you can tell, I clearly have shifted much of my thinking to this monetary culture-based framework. But I am very much encouraged that you are taking a more reductionist approach here. I am eager to see it fleshed out more, since it may very well work better than my own, and provide a clearer and less mutable picture as well.

              Besides, when there's more than one well-defined hypothesis, it's both easier and more interesting to ascertain which is a better predictor of future events.

              But as I said, take your time. I'm sure the crisis will continue long enough for us to have as many rounds of discussion as we want on this one, without our becoming outpaced by events.

              Comment


              • #8
                The Relationship Between Inflation And Deflation

                Hmmm ... I might not be groking you right, but my reductionist way of summing up the relationship between inflation and deflation is thus:

                The cause of deflation is inflation.

                This may sound a bit too pat to take seriously, but consider: In order to deflate something, it has to be inflated first. Stop the damn inflation and you won't have to worry about this again.

                You're already familiar with my putting it in financial terms: The banking system creates money by lending it into existence. The money comes from the void. So what happens when it is paid back? It goes back where it came from: The void. In other words, creating money (inflation) is what creates the condition for destroying money (deflation).

                When money is borrowed, it inherently comes with the condition that it must be paid back. (Otherwise it's given, not borrowed!) Like salmon, the money "wants" to go back where it came from. So the inflationary process as we know it is like compressing a spring. The whole time inflation is happening, the deflationary pressure is building. At some point something interferes with the ability to continue inflation (once upon a time it was the gold standard); when there are no other constraints the last barrier is the ability to make debt service. That is, the debt has become so great not even the interest can be paid (think back to the subprime collapse). At that point, forget about trying to get people to keep borrowing more and more; they're puking up the credit they already have. Not even governments (viz, Europe) can keep it up. The collapse is colossal. The only way to keep inflating is to give the money into existence.

                So this is what we get for our being clever and finding ways to get around the constraints to expanding credit ... the magnitude of the deflationary collapse is just that much greater.

                So if this is so destructive, why do we keep doing it? You already know the answer to that. (Something about rentiers...) Remember the fraud at the core of the banking system ... people are getting stinking rich off of it. When you've got hundreds of millions of people in debt to you, you have the modern answer to feudalism. They're your serfs.
                Finster
                ...

                Comment


                • #9
                  Re: The Relationship Between Inflation And Deflation

                  Originally posted by Finster
                  When money is borrowed, it inherently comes with the condition that it must be paid back. (Otherwise it's given, not borrowed!) Like salmon, the money "wants" to go back where it came from. So the inflationary process as we know it is like compressing a spring.
                  So not centripetal/centrifugal, but yin-yang.

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