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  • Hyperdeflation Followed by Rampant Inflation in 5 years

    http://www.zerohedge.com/article/alb...opt-default-an

    Albert Edwards Predicts Deflation Followed By Double-Digit Inflation As "Governments Opt To Default, And Monetization Is Policy Lever of First Resort"

    By Tyler Durden
    Created 03/16/2010 - 10:44
    As if we needed any more confirmation that deflationary pressures continue to prevail and to swamp the broader economy, here is SocGen's Albert Edwards with his most recent (and humorous: we had no clue that the "UK?s ONS statistical office has just decided to throw canned fizzy drinks out of the UK?s CPI basket and replace them with small bottles of mineral water") menu prescriptions for the near- to mid-term future.
    First an appetizer, here is a look at US consumer leverage trends. Yes, good point: what leverage?




    Last week?s Flow of Funds report from the Fed showed that US total credit continued to disappear down the plughole, despite the government?s best efforts to inflate us back to prosperity (see chart below). The current recovery, based in very large part on the end of de-stocking, simply cannot be sustained while credit is disappearing at this debilitating dehydrating rate.
    [1]
    The recently released Q4 Flow of Funds data allowed economists to get a full view of the 2009 data. It was ugly. Most shockingly, the household sector shrank its borrowing for the seventh quarter in a row with minimal signs of any abatement to the process. Combined with continued rapid balance sheet shrinkage in both the corporate and financial sectors, total domestic debt contracted for the fourth quarter in a row (see front page chart). Now, we might be getting used to such news, but it is always worth remembering that, prior to the global meltdown, even one quarter of total domestic debt shrinkage was like seeing a black swan with some pink dots thrown in for good measure.
    Some statistical observations: while the process of deleveraging is on the right path, it has a long path to go. Just compare household debt between the lofty dot com days and today.




    With nominal GDP actually managing to inch up some 0.8% in the year to Q4 2009, the economy managed its first baby step along the long and winding road to normality, with US debt dipping under 350% of GDP (see chart below). Household leverage has returned to 94% from its peak of 96% in both 2007 and 2008. But consider this: at the peak of the Nasdaq bubble, household leverage was just shy of 70%. There is a very, very long way to go.
    [2]
    The entre: Japenese "Ice-Age" Melange.




    Many clients ask how we will know when the deleveraging process is over or whether there is a ?right? debt/income ratio. We will know when the deleveraging process has ended when we see an end to the unprecedented pace of decline in bank lending (see chart below). This process took three years in the early 1990s. Expect at least a decade of Japan-like Ice-Age pain.
    [3]
    Desert: Sovereign Debt Flambe.




    Ultimately, as my colleague Dylan Grice writes, I think we head back to double-digit inflation rates as governments opt to default. I certainly again expect to see CPI inflation above 25% in the UK and indeed in most developed nations in my lifetime ? I have happy memories of the three-day week and doing my homework by candlelight. In the near term, however, the deflationary quicksand will suck us ever lower until we suffocate. A key driver for underlying inflation remains unit labour costs. While unit labour costs decline at an unprecedented rate, they are sucking us inevitably into a Fisherian, debt-deflation spiral. Only then will we see how far policymakers are willing to go to debauch the currency. Last year saw them cross the Rubicon. Monetisation is now the policy lever of first resort.
    [4]
    In summary, the menu for the next 5 years: Hyperdeflation followed by rampant inflation, with a smattering of stagflation thrown in for good measure. Served chilled. Enjoy.

  • #2
    Re: Hyperdeflation Followed by Rampant Inflation in 5 years

    Richard Russell also thinks that we are heading for massive deflation. I read an article by Martin Wolfe of the FT yesterday and he was saying pretty much the same thing as well.

    I agree that deflation is going to become extreme. I cannot see with all this productive capacity being created in China, and excess capacity elsewhere in the West, coupled to high debt burden from consumers and corporates, also possibly high permanent unemployment, plus technically'insolvent' banks how deflation can be avoided.

    Comment


    • #3
      Re: Hyperdeflation Followed by Rampant Inflation in 5 years

      Take a look at core USA CPI ( I am not a fan of core cpi on its own, but thats the fed main thrust)

      Lowest in 12 months...and trending down. This is because the consumer is wipped..

      http://www.nasdaq.com/asp/econodayfr...sp?cust=nasdaq

      The Fed wants $USD down to pump this up via commodities: oil etc

      Comment


      • #4
        Re: Hyperdeflation Followed by Rampant Inflation in 5 years

        Originally posted by icm63 View Post
        Take a look at core USA CPI ( I am not a fan of core cpi on its own, but thats the fed main thrust)

        Lowest in 12 months...and trending down. This is because the consumer is wipped..

        http://www.nasdaq.com/asp/econodayfr...sp?cust=nasdaq

        The Fed wants $USD down to pump this up via commodities: oil etc
        1.) Why do we have to have the Fed pump inflation up through commodity inflation when finally, there is some relief in core inflation? Or am I not supposed to ask this Joe Six-pack kind of question? I mean: after having my head handed to me in the Great Recession, why can't I sit-back now and enjoy falling prices?

        2.) Just looking at my investments, finally I am seeing some relief of my losses in oil and gas trusts. Finally, some hope of a sunrise ahead in my heavy oil investments, and maybe even with General Electric too. And it would seem that the Fed is blowing wind into my sails by destroying the dollar. So what is going to happen next? It would seem that if the dollar is being destroyed, no-one can win in the long run because the cost of living is going to rise, not fall. (Everyone starves in the end, especially when farmers don't want dollars.)

        3.) My East Sooke, BC log cabin is going up in value, but no-one except for the feminist elite have jobs. So how long can this last when no-one can buy homes? Yes, homes are a store of value to deflate the dollar, but no-one has work to-day? Banks won't lend. How long can this Canadian real estate bubble keep inflating? :confused:

        4.) How long can oil keep going up when oil is being stored in ships offshore and is being kept from delivery? Oil, just like real estate, is an inflation hedge against Bernanke. So, how high is oil going to go? $90? $100/barrel? $147? And why would the Fed want to drive oil up? I mean, higher oil helps me, but it hurts everyone in the long run because it raises the cost of living. (The Putz from Princeton just doesn't get it.)
        Last edited by Starving Steve; 03-18-10, 01:52 PM.

        Comment


        • #5
          Re: Hyperdeflation Followed by Rampant Inflation in 5 years

          Originally posted by Starving Steve View Post
          1.)

          And it would seem that the Fed is blowing wind into my sails ...
          Blowing wind in your sails or blowing smoke somewhere else?

          Comment


          • #6
            Re: Hyperdeflation Followed by Rampant Inflation in 5 years

            Pretty sure the Fed will start buying up equities if deflation sets in.

            Comment


            • #7
              Re: Hyperdeflation Followed by Rampant Inflation in 5 years

              Originally posted by blazespinnaker View Post
              Pretty sure the Fed will start buying up equities if deflation sets in.
              They are probably already doing that right now. I think at this point, Goldman Sachs owns the Fed and the US. I believe that if GS wanted to, they could end Bernanke and Co. tomorrow(short equities-3kDOW and buy oil-$500/barrel and gold-$3000/ounce) and have told them as such.

              This isn't even a casino for GS as they will always know the cards. Absent a black swan event(9/11), they already know how this is going to all play out.

              Comment


              • #8
                Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                In the spirit of the MC5, I'm forecastin'.....

                GUNS, DOPE and F!@#&*' IN THE STREETS!!!:eek:

                Comment


                • #9
                  Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                  Please click one of the Quick Reply icons in the posts above to activate Quick Reply.

                  Comment


                  • #10
                    Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                    How can such a tread exist on iTulip? How can this be?

                    In 2006 we said no "massive deflation" will result from the collapse of the secularized debt bubble.

                    We said the Fed will put all the bad debt on its balance sheet.

                    Here, in black and white, is what happened.



                    We practically published this part of the Fed ledger here three years ahead of time.

                    We expect this idiotic confusion about deflation from other sites that only started a year or two ago, but how can such a lack of understanding exist here on iTulip where predictions of no deflation have been proven correct over and over again for more than a decade? Should we give up? Are so many seemingly bright people really so ineducable?

                    Three words. Repeat after me.

                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.
                    Double. Entry. Bookkeeping.

                    The banks' bad debts are the Fed's deposits and the Fed's assets and will be until they are not.

                    Why don't you get it?

                    The banks can increase their bad debts and the Fed can increase its balance sheet until the dollar gives in.

                    Maybe U.S. creditors freak out before the Fed's balance sheet reaches $600,000,000,000,000 and BTW assets minus liabilities = $30 billion more or less.

                    Then we get what? Oh, Ka-Poom as forecast here 10 years ago.

                    How boring these Internets have become.
                    Ed.

                    Comment


                    • #11
                      Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                      Originally posted by FRED View Post
                      How can such a tread exist on iTulip? How can this be?

                      We expect this idiotic confusion about deflation from other sites that only started a year or two ago, but how can such a lack of understanding exist here on iTulip where predictions of no deflation have been proven correct over and over again for more than a decade? Should we give up? Are so many seemingly bright people really so ineducable?

                      Why don't you get it?

                      Then we get what? Oh, Ka-Poom as forecast here 10 years ago.

                      How boring these Internets have become.
                      How can such a tread exist? Since I am the OP, I thought the zerohedge article had good discussion points, therefore shared. You may want to qualify the "no deflation has been proven correct................." Has the value of real estate not seen deflation? Want to talk about special interest cars (hotrods)?

                      I have no doubt that to the extent the FED prints (and other CB) more dollars that are chasing fewer non renewable natural resources, the only outcome is inflation.

                      But please, keep your disparaging comments off the forum.

                      Comment


                      • #12
                        Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                        Originally posted by Camtender View Post
                        How can such a tread exist? Since I am the OP, I thought the zerohedge article had good discussion points, therefore shared. You may want to qualify the "no deflation has been proven correct................." Has the value of real estate not seen deflation? Want to talk about special interest cars (hotrods)?

                        I have no doubt that to the extent the FED prints (and other CB) more dollars that are chasing fewer non renewable natural resources, the only outcome is inflation.

                        But please, keep your disparaging comments off the forum.
                        I agree. And I do think that while the final trend is inflation, we could IMO see one last deflationary deleveraging. I think it is excellent to discuss these points from time to time.

                        1 ) For the benefit of new viewers
                        2 ) To insure we *are* still on track. I'm disturbed that FRED came down so hard on the "we are right, we said this years ago line" instead of "we stated this years ago, we continue to have high confidence it will unfurl as we stated". Every day there are new factors to be considered.

                        NOTHING is 100% confidence.

                        BTW, been about a month (postings seem to occur every month now) so are we due (and the interviews we were told we'd finally see as well)?

                        Comment


                        • #13
                          Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                          Originally posted by Camtender View Post
                          How can such a tread exist? Since I am the OP, I thought the zerohedge article had good discussion points, therefore shared.
                          I thought it was interesting article, thanks for posting. My read on it is that more and more "professionals" have cottoned on to a version of ka-poom theory, in its original deflation-then-inflation form. The data presented in support of short-term deflation is also useful, as long you keep in mind that what will really happen is not deflation but just more fed intervention.

                          Comment


                          • #14
                            Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                            Originally posted by FRED View Post
                            How can such a tread exist on iTulip? How can this be?

                            In 2006 we said no "massive deflation" will result from the collapse of the secularized debt bubble.

                            We said the Fed will put all the bad debt on its balance sheet.

                            Here, in black and white, is what happened.



                            We practically published this part of the Fed ledger here three years ahead of time.

                            We expect this idiotic confusion about deflation from other sites that only started a year or two ago, but how can such a lack of understanding exist here on iTulip where predictions of no deflation have been proven correct over and over again for more than a decade? Should we give up? Are so many seemingly bright people really so ineducable?

                            Three words. Repeat after me.

                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.
                            Double. Entry. Bookkeeping.

                            The banks' bad debts are the Fed's deposits and the Fed's assets and will be until they are not.

                            Why don't you get it?

                            The banks can increase their bad debts and the Fed can increase its balance sheet until the dollar gives in.

                            Maybe U.S. creditors freak out before the Fed's balance sheet reaches $600,000,000,000,000 and BTW assets minus liabilities = $30 billion more or less.

                            Then we get what? Oh, Ka-Poom as forecast here 10 years ago.

                            How boring these Internets have become.
                            With such strong conviction, many have asked "why 70% treasuries?" :confused:

                            Comment


                            • #15
                              Re: Hyperdeflation Followed by Rampant Inflation in 5 years

                              Originally posted by FRED View Post
                              We expect this idiotic confusion about deflation from other sites that only started a year or two ago, but how can such a lack of understanding exist here on iTulip where predictions of no deflation have been proven correct over and over again for more than a decade? Should we give up? Are so many seemingly bright people really so ineducable?
                              FRED, most of us understand you, but look if you guys are wondering why you don't get more credit, this sort of illustrates why. Yes, some people are thinking 'price deflationary spiral' when they say deflation, but most people in investment markets are just thinking 'massive price drops' when they say 'massive deflation'.

                              So when they saw oil go from $147 to $30, that was massive deflation, albeit temporary. If you want credibility, as we all want iTulip to have, you need to be more precise. For example, right now you are making the same mistake I believe. You are calling for China to fall off a cliff, but say there will be almost no deflation. Look, it is difficult to imagine that in the short term commodity prices won't take a massive hit if the China bubble pops. Yes, the price deflation may be fleeting, but that is the point - you need to make these distinctions very clear; otherwise you/we get lumped in with all the rest of gold bug inflationista crowd who don't even understand the minutiae.
                              --ST (aka steveaustin2006)

                              Comment

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