Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

[photoncounter]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Thank you, but the percentage change showing relative CPI change doesn't really help as I'm trying to determine whether actual significant inflation (7%-15%) will kick in quickly (ie within a year), by looking at whether it has ever historically kicked in quickly. It doesn't appear to me as if it has. Fred posted some graphs that show CPI on a monthly basis instead of an annual basis, which shows it might have jumped for a month or so, but never for long enough to really pay down my house. EJs graph on an annual basis shows CPI measured by the year and I think is a better measure of prolonged inflation... and I still don't see that inflation has ever kicked in within a year of a deflationary/disinflationary period. Almost always it takes several years...

I remember reading it on these pages and something you may want to consider -- deleveraging that took about 2-3 years during the great depression only took about 6 months this time (for the same amount).

[johngaltfla]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

And the borrower of first resort will also be the investor/speculator of massive resort:
1. Goldman et al borrow "free money" from Uncle Sam and the other global fiat uncles
2. These various broker-dealer and preferred borrowers then, buy equities, commodities and any asset class they wish - causing rising stock markets, commodity inflation etc.
3. Consumers see their 401ks going back up as well as their purchasing power going back down - so with a combination of confidence (wealth effect and rising stock market) and fear (of inflation) AND renewed access to credit - the consumption and mild leveraging returns.

While I agree in theory with the austrians that only real capital can build real wealth, I'm not so sure that the world can't run a long long time on fictitious fiat capital and wealth. Unfortunate and unjust as it is, most don't recognize the unfairness or worse don't care. The "monopoly money" system can continue to run as long as that greenback continues to be accepted for labor.

I side strongly with the Austrian theory that capital seeks open markets to exploit for the purpose of increased economic efficiency to maximize profits. Thus the system outlined by the Keynesians and deflationists regarding a perpetual government increase in their share of economic activity pushes the good capital out of the market thus forcing them to double down or increase the government share or zombie capital to keep the status quo. The only growth created is a statistically flawed analysis concocted to create the illusion of growth. Once you start dissecting the government's methodology, you realize quickly that when GDP is expressed in real money, we have basically experienced very little real growth since the gold standard was removed in the 70's. Inflation looks like growth to the ignorant and foolhardy but the truth is that your returns have to increase exponentially to keep ahead of the true inflation rate to insure an adequate return.

That is why so many real capitalists are fleeing to Singapore, Hong Kong and hard as this is to say, Shanghai to seek real returns on their investments.

[johngaltfla]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

wage increases are not prima facie inflationary. you have to account for productivity changes.

According to the argument presented by the deflationist side, it is.

And please, tell me, where in government wage structure does productivity come into account? I'd love to hear that one as their percentage share of GDP increases month over month...

[goadam1]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

And the borrower of first resort will also be the investor/speculator of massive resort:
1. Goldman et al borrow "free money" from Uncle Sam and the other global fiat uncles
2. These various broker-dealer and preferred borrowers then, buy equities, commodities and any asset class they wish - causing rising stock markets, commodity inflation etc.
3. Consumers see their 401ks going back up as well as their purchasing power going back down - so with a combination of confidence (wealth effect and rising stock market) and fear (of inflation) AND renewed access to credit - the consumption and mild leveraging returns.

While I agree in theory with the austrians that only real capital can build real wealth, I'm not so sure that the world can't run a long long time on fictitious fiat capital and wealth. Unfortunate and unjust as it is, most don't recognize the unfairness or worse don't care. The "monopoly money" system can continue to run as long as that greenback continues to be accepted for labor.

It can run as long as there is someone to exploit in the scheme. Plenty of cheap labor. But we are running out of some important stuff like fisheries. Kill the pirates. Keep enough rice in bellies. Keep Idol on here.

[vinoveri]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

...The failure that the deflatioinistas fail to address is that government created credit will eventually impact velocity and the borrower of first resort will soon emerge at the lender of massive resort to the general economy.

And the borrower of first resort will also be the investor/speculator of massive resort:
1. Goldman et al borrow "free money" from Uncle Sam and the other global fiat uncles
2. These various broker-dealer and preferred borrowers then, buy equities, commodities and any asset class they wish - causing rising stock markets, commodity inflation etc.
3. Consumers see their 401ks going back up as well as their purchasing power going back down - so with a combination of confidence (wealth effect and rising stock market) and fear (of inflation) AND renewed access to credit - the consumption and mild leveraging returns.

While I agree in theory with the austrians that only real capital can build real wealth, I'm not so sure that the world can't run a long long time on fictitious fiat capital and wealth. Unfortunate and unjust as it is, most don't recognize the unfairness or worse don't care. The "monopoly money" system can continue to run as long as that greenback continues to be accepted for labor.

[ThePythonicCow]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

wage increases are not prima facie inflationary. you have to account for productivity changes.

Yup - the productivity of our government employees has increased dramatically. More red tape, regulations, propaganda, taxes, and bureaucratic nonsense :rolleyes::rolleyes:.

You are correct of course in some cases. The wages of the Chinese worker went up some, but their productivity went up more, and even better, their productivity was displacing higher cost manufacturing in the more "advanced" economies.

[jk]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

IMHO, the traditional measurements used by the deflationistas for "wage inflation" are somewhat skewed by their bias. If one uses the BEA Wage Cost analysis we have consistently experienced wage inflation for well over 15 years and using the government's own data, it is reflected in a persistent move upwards, much like our monetary base has been. Total compensation is a much more accurate measure and indicates that no matter the screams of "you can't have inflation without wage inflation" the numbers tell the tale.

I will be updating the data on these charts this weekend to keep it current.


Wages, minus additional benefits and compensation:


Eric, you're spot on again and I'm amazed that there is still a debate about monetary inflation versus a temporary credit contraction. The failure that the deflatioinistas fail to address is that government created credit will eventually impact velocity and the borrower of first resort will soon emerge at the lender of massive resort to the general economy.

wage increases are not prima facie inflationary. you have to account for productivity changes.

[johngaltfla]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

One more thing; if the Federal Reserve does not re-engage into buying the 10 and 30 year bonds within the next 30 days and allows the yields to accelerate to the upside the ARM reset disaster will accelerate into the fall and any pretense of a recovery will fail in 2009. Thus I think they will execute a dual course of action with a massive bond purchase program once yields approach 3.50% on the 10 and a devaluation, stealth as it might seem, of the USD to fire up the export sector again.

Failure to do so will only magnify the unemployment situation and exponentially expand the bankruptcies we are soon to experiencing in all aspects of the construction and construction supply sectors of the economy.

It is truly, inflate or die.

[johngaltfla]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

IMHO, the traditional measurements used by the deflationistas for "wage inflation" are somewhat skewed by their bias. If one uses the BEA Wage Cost analysis we have consistently experienced wage inflation for well over 15 years and using the government's own data, it is reflected in a persistent move upwards, much like our monetary base has been. Total compensation is a much more accurate measure and indicates that no matter the screams of "you can't have inflation without wage inflation" the numbers tell the tale.

I will be updating the data on these charts this weekend to keep it current.


Wages, minus additional benefits and compensation:


Eric, you're spot on again and I'm amazed that there is still a debate about monetary inflation versus a temporary credit contraction. The failure that the deflatioinistas fail to address is that government created credit will eventually impact velocity and the borrower of first resort will soon emerge at the lender of massive resort to the general economy.

[MarkL]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Thank you, but the percentage change showing relative CPI change doesn't really help as I'm trying to determine whether actual significant inflation (7%-15%) will kick in quickly (ie within a year), by looking at whether it has ever historically kicked in quickly. It doesn't appear to me as if it has. Fred posted some graphs that show CPI on a monthly basis instead of an annual basis, which shows it might have jumped for a month or so, but never for long enough to really pay down my house. EJs graph on an annual basis shows CPI measured by the year and I think is a better measure of prolonged inflation... and I still don't see that inflation has ever kicked in within a year of a deflationary/disinflationary period. Almost always it takes several years...

[Supercilious]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Yessss! I knew it!!! Metalman please confirm that the dumb blond chick in the clip is you. I have a bet to collect.
(See lukester you didn't believe me when I told you metalman must be the blond type and not the ordinary one. You owe me a 12 pack of beer)

Now on a more serious tone, can FRED or EJ confirm or not if identifying the D area as deflation (and not disinflation) is not a mistake in EJ's piece? If that is so, what have they done with my beloved disinflation. Was metalman's blood spilled in vain to defend the "its not deflation, it's disinflation" theory?

[jandkmeyer]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Quite the games that are played after nearly all EJ writings - like Chauncey Gardener describing his winter chores and the pundits pronouncing "There will be growth in the Spring!"

My own interpretation of EJ's/Warburton's tea leaves is "stagflation"; low capacity utilization but prices pushed upward by some combination of loose fiscal policy and a sinking dollar. But nothing too exciting. No wage inflation or new era of loose lending to really drive things. Seems like we've gone back to slow motion train wreck mode.

[metalman]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Hmmm.... Nobody wants to touch the subject of disinflation any more. I guess that leaves just me and metalman as defenders of the disinflation cause.

[metalman]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Hmmm.... Nobody wants to touch the subject of disinflation any more. I guess that leaves just me and metalman as defenders of the disinflation cause.

[cjppjc]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Yes (don't worry, third post is the charm), Yes, and Yes

Thanks. Lukester has a hard on for me right about now.
Btw, just got my first silver maples. Very nice. I now have the complete North American set. The Libertads look the best I think.