You're not going to believe this: Inflation/deflation debate still alive?

[metalman]

Re: You're not going to believe this: Inflation/deflation debate still alive?

I thought you guys might be interested in listening to even more debate about inflation/deflation. The usual suspects are involved. Mish begins by wanting to change the definition of deflation. Sigh...

http://commoditywatch.podbean.com/

as i said, give up. they'll never figure it out, and anyway they're selling funds and other financial products, s even if they did get it they'd have to spin it to fit the facts to the product features or no more paycheck.

[Chris]

Re: You're not going to believe this: Inflation/deflation debate still alive?

I thought you guys might be interested in listening to even more debate about inflation/deflation. The usual suspects are involved. Mish begins by wanting to change the definition of deflation. Sigh...

http://commoditywatch.podbean.com/

[metalman]

Re: You're not going to believe this: Inflation/deflation debate still alive?

Rick Ackerman is ever busier sidling over towards the dollar inflation camp without actually conceding he's "sidling over". Reminds me of the way a crab walks - SIDEWAYS. :mad:

CURRENT QUOTE:

So what do we think of the bearish price action yesterday in precious metals? We see it as a buying opportunity, and we will therefore continue to update our forecasts with correction targets that can be bottom-fished with relatively little risk. In the meantime, anyone who thinks the selling in precious metals is going to continue for much longer obviously does not understand the implications of a Federal budget deficit soon to leap above $10 trillion and presumably out of control. The spinmeisters may be able to distract CNBC viewers from the meaning of this, and from the inevitable destruction of the dollar that it must cause. However, our foreign lenders will surely recognize it as a warning of a catastrophe in the offing. Although falling oil prices could temporarily take some pressure off the dollar by causing the trade deficit to shrink, there should be no doubt that the moist ruinous phase of the currency’s bear market lies ahead.

All this is delivered with a "blow by blow" account of how his pivot point analysis nailed the bottom in the silver price swoon to within "one tick". Geez, with all this avid enthusiasm for the "bottom fishing" purchases of precious metals, combined with categorical assurances of the death throes for the US dollar, how the heck does Rick Ackerman compose himself for an about face with further arguments for generalised deflation? Mr. Ackerman, the above quotes in the context of your endlessly defended generalised deflation thesis are GOBBLEDEGOOK! Either the dollar is gaining against a broad index of goods and service prices, or it is losing ground. Please come on over here and explain to the iTulip people how you shoe-horn the "inevitable destruction of the dollar" which you now actually promote, with the generalized deflation you've spent years arguing for?

Does the name "Argentina" not provide Ackerman with a hint of the gargantuan conceit he is indulging here in not conceding that a foreign repudiation of the dollar (he's mentioning explicitly now!) hardly provides the backdrop for the USD to appreciate against a single damn thing, here in the US??

http://news.silverseek.com/RickAckerman/1216879200.php

rick's and mush's kids wade up to the deep end where the big ideas like the fire economy fit... go "oooh! scary!" and dog paddle away.

we try to give them swimming lessons, teach them crawl and butterfly strokes, but they'd rather hop and splash around in 3 ft of water with the same little toys... evil fiat money! dishonest fractional reserve banking! gold is money! the fire economy is in the deep end of the pool. they will NEVER understand what going on and going to happen. ever. give up.

Re: You're not going to believe this: Inflation/deflation debate still alive?

Rick Ackerman is ever busier sidling over towards the dollar inflation camp without actually conceding he's "sidling over". Reminds me of the way a crab walks - SIDEWAYS. :mad:

CURRENT QUOTE:

So what do we think of the bearish price action yesterday in precious metals? We see it as a buying opportunity, and we will therefore continue to update our forecasts with correction targets that can be bottom-fished with relatively little risk. In the meantime, anyone who thinks the selling in precious metals is going to continue for much longer obviously does not understand the implications of a Federal budget deficit soon to leap above $10 trillion and presumably out of control. The spinmeisters may be able to distract CNBC viewers from the meaning of this, and from the inevitable destruction of the dollar that it must cause. However, our foreign lenders will surely recognize it as a warning of a catastrophe in the offing. Although falling oil prices could temporarily take some pressure off the dollar by causing the trade deficit to shrink, there should be no doubt that the moist ruinous phase of the currency’s bear market lies ahead.

All this is delivered with a "blow by blow" account of how his pivot point analysis nailed the bottom in the silver price swoon to within "one tick". Geez, with all this avid enthusiasm for the "bottom fishing" purchases of precious metals, combined with categorical assurances of the death throes for the US dollar, how the heck does Rick Ackerman compose himself for an about face with further arguments for generalised deflation? Mr. Ackerman, the above quotes in the context of your endlessly defended generalised deflation thesis are GOBBLEDEGOOK! Either the dollar is gaining against a broad index of goods and service prices, or it is losing ground. Please come on over here and explain to the iTulip people how you shoe-horn the "inevitable destruction of the dollar" which you now actually promote, with the generalized deflation you've spent years arguing for?

Does the name "Argentina" not provide Ackerman with a hint of the gargantuan conceit he is indulging here in not conceding that a foreign repudiation of the dollar (he's mentioning explicitly now!) hardly provides the backdrop for the USD to appreciate against a single damn thing, here in the US??

http://news.silverseek.com/RickAckerman/1216879200.php

[ocelotl]

Re: You're not going to believe this: Inflation/deflation debate still alive?

Ocelotl -

Major trading partners to the US (like Mexico) would probably not be the first ones to enter into large scale USD dumping? However what you refer to, the internal inflation rate, would seem to be the "pressure point" for all US major trade partners to sharply reduce exposure to the USD. As global inflation rates rise with the fundamental costs pushing up the oil price, the single largest method of effective relief which oil exporter nations may find they still have, to keep at least some control on inflation seems most likely the decoupling from the USD and letting their currencies strengthen - especially the oil producers. The pricing power of their oil will of course only strengthen going forward, which provides a natural momentum for their currencies to remain stronger and/or rise vs. the USD, so this tactic seems to have a high probability of being widely used.

Does not spell good things coming for anyone living and working in the USD zone.

What will be fascinating to watch is how the world begins to evolve away from global outsourcing of manufacturing, as the price of long distance transport moves up enough to finally negate the cost benefits of having Americas goods manufactured in Vietnam, for example. It's hard to imagine a world of "nuclear powered commercial cargo ships" for example, no? And without that, in a world of $300 per barrel oil (3 - 4 years away?) how much cost advantage, (let alone strategic advantage for the entire world) is there to keep shipping the vast bulk of "low cost" manufactured goods from Asia to America? This may translate into surprisingly strong growth in factory floor industry for Central America and Mexico, to take over a quantity of manufacturing from SE Asia for the North American market. The world could look surprisingly different in just another 7-10 years. But of course, with Peak Cheap Oil, that is just a statement of the obvious.

A similar situation of demand dissapareance has already taken place before, at the bust of the dotcom bubble. I was working in maquila in a plant here in Mexico City that exported all its production to US. Suddenly, due to the bust, the demand dissapeared. What was an assembly plant of 1,000+ workers at the end of the year 2000 party dwindled to about 250-300 at the time I was laid off in august 2001. By 2005 that plant was absorbed in a company fussion.

Nowadays many major manufacturers are pricing the advantages of having a NAFTA covered plant in Northern Mexico to export to US, but, as you are pointing, case is not only shipping costs, that are going to get prohibitive in the next decade, but also demand destruction by the degrading economy of oil importers.

We that live in oil exporting countries may have a slight advantage, while extraction keeps supporting internal demand, and those of us that work in companies based on internal demand or are in a self sustaining economical niche have also a bit of extra time, but at the end, the oil shock is going to hit hard all of us, and if we are not prepared, it is going to get very ugly very quickly.

I really hope a decoupling of dollar and coupling on internal resources and commodities happen in the foreseable future. We mexicans face a critical situation, and we have to remember that a coupling to US and UK currency in the monetary law of 1905 was one of the factors that precipitated 1910 Mexican Revolution, and that French intervention on Spain by the Bonapartes resulted in the 1808 Spanish Revolution and 1810-25 dismantling of Spanish Empire. Hope the approach we are in the process of implementing this time stands enough to avoid a disaster in the coming years.

Re: You're not going to believe this: Inflation/deflation debate still alive?

Ocelotl -

Major trading partners to the US (like Mexico) would probably not be the first ones to enter into large scale USD dumping? However what you refer to, the internal inflation rate, would seem to be the "pressure point" for all US major trade partners to sharply reduce exposure to the USD. As global inflation rates rise with the fundamental costs pushing up the oil price, the single largest method of effective relief which oil exporter nations may find they still have, to keep at least some control on inflation seems most likely the decoupling from the USD and letting their currencies strengthen - especially the oil producers. The pricing power of their oil will of course only strengthen going forward, which provides a natural momentum for their currencies to remain stronger and/or rise vs. the USD, so this tactic seems to have a high probability of being widely used.

Does not spell good things coming for anyone living and working in the USD zone.

What will be fascinating to watch is how the world begins to evolve away from global outsourcing of manufacturing, as the price of long distance transport moves up enough to finally negate the cost benefits of having Americas goods manufactured in Vietnam, for example. It's hard to imagine a world of "nuclear powered commercial cargo ships" for example, no? And without that, in a world of $300 per barrel oil (3 - 4 years away?) how much cost advantage, (let alone strategic advantage for the entire world) is there to keep shipping the vast bulk of "low cost" manufactured goods from Asia to America? This may translate into surprisingly strong growth in factory floor industry for Central America and Mexico, to take over a quantity of manufacturing from SE Asia for the North American market. The world could look surprisingly different in just another 7-10 years. But of course, with Peak Cheap Oil, that is just a statement of the obvious.

[ocelotl]

Re: You're not going to believe this: Inflation/deflation debate still alive?

5.5% on our direct comparison CPI scale is troubling. Our housing cost increasings are due to steel, cement and related materials cost hikes, and that for the period 2003-6 housing costs were increasing below CPI, that had to change.

I do fully expect that for next Aug-Oct period, the Banxico daily auction increases from the actually 32 million USD to somewhere between 40 to 50 million (yep, Banxico buying more pesos)... That is really not too much, given that the daily trade between US and Mexico is somewhere around 1 billion USD, and Banxico reserves around 83 billion USD, real dumping of USD would mean in my opinion daily auctions on the 100s of million of USD.

:eek: My first correct call on what banxico is going to do... and before Bloomberg's note...

Mexico's Peso Holds Near Five-Year High on Interest-Rate Spread
By Valerie Rota
July 14 (Bloomberg) -- Mexico's peso held near a five-year high on mounting speculation the difference between Mexican and U.S. benchmark lending rates will continue to widen, drawing investors to the nation's higher-yielding securities.
The peso has risen 5.8 percent this year as two interest- rate increases by Banco de Mexico since October have swelled the spread between Mexican and U.S. lending rates to 5.75 percentage points, the biggest since September 2005. Mexican central bankers will raise the key rate by a quarter-percentage point to 8 percent when they meet on July 18, according to the median estimate of 20 analysts surveyed by Bloomberg.


Continued...

Also...

Mexican Bonds Rise on Bets Central Bank to Keep Rates Unchanged

15 de julio de 2008

El Banco de México anuncia que durante el periodo del 1 de agosto al 31 de octubre de 2008 subastará diariamente 40 millones de dólares. Dicho monto se determinó de acuerdo con lo dispuesto en las Circulares-Telefax 18/2003 Bis y Bis 1, como se ilustra en los siguientes cuadros:

Official Banxico press comunicate. (in spanish)

[ocelotl]

Re: You're not going to believe this: Inflation/deflation debate still alive?

...

Latin America Watch:

July 9 - Bloomberg (Jens Erik Gould): "Mexican inflation accelerated to the fastest in almost four years last month on higher costs for food and housing... Consumer prices climbed 5.26% in June from a year earlier..."...
[ATTACH]428[/ATTACH]

5.5% on our direct comparison CPI scale is troubling. Our housing cost increasings are due to steel, cement and related materials cost hikes, and that for the period 2003-6 housing costs were increasing below CPI, that had to change.

I do fully expect that for next Aug-Oct period, the Banxico daily auction increases from the actually 32 million USD to somewhere between 40 to 50 million (yep, Banxico buying more pesos)... That is really not too much, given that the daily trade between US and Mexico is somewhere around 1 billion USD, and Banxico reserves around 83 billion USD, real dumping of USD would mean in my opinion daily auctions on the 100s of million of USD.

[FRED]

Re: You're not going to believe this: Inflation/deflation debate still alive?

disjointed 'flation = disparate sectors of the economy asynchronously blowing up and collapsing. disjointed 'flation is of questionable stability, with the possibility of devolving into either a pan-inflationary or a pan-deflationary scenario. disjointed 'flation may also show a predominance of either inflationary or deflationary symptoms, without fully devolving into either extreme scenario. thus, the debates.

a key to examining this model is understanding the role of the financial system - the f.i.r.e. economy. the ongoing collapse of fire institutions raises questions about the mechanisms by which money will enter the real, production-consumption economy. see bill gross' recent piece at http://www.pimco.com/LeftNav/Feature...+July+2008.htm for his analysis, consistent with itulip analysis, that the mechanism must be federal spending.

edit: how does disjointed flation differ from a normal economy? after all, in any normal economy there will be some sectors growing and some declining. i suppose the difference is one of degree: the extreme nature of both the expansions in some sectors [e.g. tmt in the '90's, housing in the '00's], and the collapse in others [tmt in the early '00's, housing and housing-finance now].

EJ writes in:

As aways, you make good points. Thank you for noting Gross' recent article.

When I first started to look into the inflation versus deflation issue ten years ago, within a short time it became clear to me that the US was deflation prone due to over-indebtedness but also inflation prone because its currency was vulnerable to depreciation for all of the classical reasons, not least massive fiscal and trade imbalances, and foreign indebtedness.

I developed Ka-Poom Theory after concluding that in the event the US government by following post Great Depression anti-deflation monetary orthodoxy was setting the US up for a future inflation spiral kicked off by currency depreciation to defend against debt deflation. Later, as the government eventually found ways to compensate for dysfunction in the endogenous credit markets to prevent a self reinforcing cycle of credit contraction at some point after the inevitable debt crisis appeared, every effort to close the "break in the chain of payments" was to result in further dollar depreciation; all this even before foreign capital flows reverse. If and when that happens the greater inflationary process I've put forward in Ka-Poom Theory remains in the realm of possibility.

Next week I will dissect a strong inflation versus deflation analysis by Lehman economist Aaron Gurwitz published last week. It is not only thought provoking but lays out a compelling contradictory theory, that the US risks a deflation spiral long term. It's worth noting that the debate has reached the point that investment bank economists feel compelled to provide analysis of the question for their clients who are demanding that investment decisions be made with these factors in mind.

The error that most analysts make who are not familiar with the theory and the history is that the processes involved need to be conceptualized not in terms of levels of debt, or money, or credit, although levels are indicative, but rather relative money flows, changes in flows as measured in rates of change in levels, and interactions among processes that affect flows, such that processes that we have long experienced as homeostatic and stable can suddenly become unstable and chaotic. Inflation and deflation have to be understood as processes that can become suddenly unstable and self-reinforcing after a breaking point is reached, with monetary intervention either only marginally mitigating or even accelerating the process.

Of all the many articles and books I have read on the topic none is better than Irving Fisher's 1933 "Debt-Deflation Theory of Great Depressions" and I strongly recommend it to anyone with an interest in the subject.

Four conclusions of his which have stood the test of time that I believe are indisputable: 1) major depressions, whether inflationary or deflationary, follow from the malady of over-indebtedness and that all other factors, such as mal-investment, are secondary or result from the condition of over-indebtedness; 2) there is no such thing as a business cycle. There are processes that repeat, but not on their own, leading to; 3) markets do not heal themselves as they do not tend toward equilibrium. The myth of the self-healing market is pervasive, even among many of our esteemed members, despite fact that there exists not one shred of historical evidence to support it; and 4) deflations are always preventable, although the cure may be worse than the disease for many members of society, while inflations are not always preventable.

In spite of clear and ancient wisdom so well verified by 75 years of history, I frequently encounter all manner of confused analysis of the issue. I read about "inflation scares" and "deflation scares" and other creative and often tautological inventions to explain the impact of intervention by governments in the debt deflation process, as if the inflation expectations of market participants were a product of their own expectations.

The Fed has succeeded in preventing deflation and will continue to do so at considerable cost to the purchasing power of the US dollar. The Bernanke Fed is so keenly aware of the risks of a deflation spiral, given the degree of over-indebtedness of the US household, financial, and business sectors, that I imagine a white knuckle ride up the yield curve, Ka-Poomwise, with the Fed funds rate closely following inflation by no less than two points but never exceeding it for fear of tipping the system into a deflationary spiral before debt levels have been sufficiently reduced by the inflation process.

Re: You're not going to believe this: Inflation/deflation debate still alive?

Inflation blah-blah-blah, deflation blah-blah-blah, FIRE econ this that or the other blah-blah-blah, unsustainable debt blah-blah-blah, unsustainable US consumer vendor financing blah-blah-blah, unsustainable bubble in commodities blah-blah-blah, peak money blah-blah-blah, US dollar as global locomotive of inflation blah-blah-blah, 30 years of latent inflation coming home to roost blah-blah-blah, gold bubble blah-blah-blah, spectre of 1929 blah-blah-blah, soaring USD while all the inflation hedgers get taken to the woodshed for their stupidity and greed blah-blah-blah, contrarian this that and the other blah-blah-blah, contra-contrarian this that and the other blah-blah-blah, DOW theory non-confirmation thingys blah-blah-blah, Hindenburg omens blah-blah-blah, technical analysis portends this that or the other blah-blah-blah, folly of goldbugs blah-blah-blah, faith in productive assets that carry a yield blah-blah-blah, collapsing "energy footprints" blah-blah-blah, collapsing "money velocity" blah-blah-blah, collapsing banks portends deflation blah-blah-blah, collapsing banks portends inflation blah-blah-blah, economic collapse leading to wars blah-blah-blah, creeping US fascism due to bankruptcy blah-blah-blah, Michael Hudson says blah-blah-blah, Misesian theory says blah-blah-blah, Schumpeter says blah-blah-blah, Simon says blah-blah-blah, Gott im Himmel says blah-blah-blah, the impossibility of inflation due to static wages blah-blah-blah, the collapse of "third world" growth due to US economic implosion blah-blah-blah, central banks "invent" a new senior currency and so render "goldbugs" foolish blah-blah-blah, the general stupidity and naivete' of "goldbugs" blah-blah-blah, the financial origin of all commodity booms blah-blah-blah, the plummeting cost of manicures is intensely deflationary blah-blah-blah, China's manifest inflation vs. US manifest deflation is a supremely rational construct blah-blah-blah, China's GDP to collapse post-Olympics blah-blah-blah, Obama will do this that and the other, thus causing this that and the other blah-blah-blah, McCain will do this that and the other thus causing this that and the other blah-blah-blah, Israel will bomb Iran causing a massive deflation blah-blah-blah, America will bomb Iran thus causing a massive deflation blah-blah-blah, Iran will bomb the Republic of Sao Tome and Principe, thus causing massive deflation and another string of Hindenburg omens blah-blah-blah, Peace will break out thus causing the price of oil to collapse blah-blah-blah, the Bush administration will finally go away thus causing Peace to break out which will remove the "fear premium" in commodities and be intensely deflationary blah-blah-blah, the USD collapse will usher in an era of Peace through equality of nations blah-blah-blah, the plummeting price of Condos is intensely deflationary blah-blah-blah, an outbreak of SARS will be the trigger ushering in global deflation blah-blah-blah, an outbreak of blather will be the trigger ushering in a global deflation blah-blah-blah, the soaring price of a loaf of bread will trigger revolutionary outbreaks of brilliance among deflationista financial analysts blah-blah-blah ...

Meanwhile ... in the rest of the world, the earnestly conducted, blow by blow, North American INFLATION / DEFLATION debate is summarily ignored. Instead, they are merely struggling to cope with this : ...

_______________

Global Inflation Turmoil Watch:

July 7 - The Wall Street Journal (Roger Bate): "Amid Zimbabwe's political violence is an economic lesson for anyone who doesn't keep an eye on inflation... With food aid only trickling back into the country and hundreds of thousands without enough cash to buy food, it was clear during a trip there last month that the crisis is deepening. Consumer prices have more than doubled every month this year, in some cases doubling every week. A conservative estimate provided by Robertson Economic Information Services, a Southern African consultancy, says that prices are now three billion fold greater than seven years ago...

The exchange rate is currently an astronomical 90 billion Zimbabwe dollars to one U.S. dollar... Buying anything is a 'bizarre experience,' said Lucy Chimtengwende from Bulawayo, who spent $12 U.S. on lunch recently, with the bill in local currency being an astonishing 1.1 trillion Zimbabwe dollars. The menu had no prices on it, she told me by phone, prices are quoted to you and are constantly changing. And if you want to pay by check, good luck. Most proprietors don't accept them, and for those that do, the price is double, given the time it takes the vendor to receive payment."

July 8 - AFP: "Soaring food and fuel prices could spark widespread political unrest, Malaysia's Prime Minister Abdullah Ahmad Badawi said... Abdullah said the inflation crisis has erupted as a global recession looms, spelling trouble for the D8 group meeting in Malaysia. The countries represented at the forum were Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey. Abdullah also called on member nations to boost food production to avert conflict. 'The price of oil has skyrocketed to levels never anticipated... The price of food has increased beyond the normal abilities to pay by the poor, which form the majority of the world's people... There is also the danger of the food crisis creating political unrest in many societies.'"

July 7 - Associated Press: "Saudi Arabia: Sultan al-Mazeen recently stopped at a gas station to fill up his SUV, paying 45 cents a gallon -- a price Americans could only dream of as they pay nearly 10 times that at the pump. But cheap gas and the record wealth pouring into Saudi Arabia's coffers from high oil prices are little relief for al-Mazeen. The 36-year-old Saudi technician and many other Saudis say they're only feeling poorer amid the oil boom because of inflation that has hit 30-year highs in the kingdom. 'I tell the Americans, don't feel envious because gas is cheaper here,' said al-Mazeen. 'We're worse off than before.'"

July 9 - Bloomberg (Janice Kew): "Higher fuel costs may make taxi fares unaffordable for poorer South Africans, threatening jobs, Business Report said, citing Carel van Aardt, a research professor at University of South Africa... About 60% of commuters in South Africa use minibus taxis and most users earn 700 rand ($91) to 4,000 rand a month..."

July 9 - Bloomberg (Radoslav Tomek): "The Slovak government is ready to regulate prices after the eastern European nation switches to the euro to prevent 'speculative' increases that would accelerate inflation, Economy Minister Lubomir Jahnatek said. The government approved establishing a so-called Price Council which will monitor consumer prices throughout 2009.

The council will have powers to ask the government to regulate prices of particular goods or services, should it discover any ``anomalies' in their development, according to a document of the proposal discussed by the Cabinet today."

July 11 - Bloomberg (Khalid Qayum): "Pakistan's inflation accelerated to a 30-year high in June... Consumer prices in South Asia's second-largest economy jumped 21.53% from a year earlier..."

July 9 - Bloomberg (Abeer Allam and Abdel Latif Wahba): "Egyptian inflation accelerated to an average 11.7% in the fiscal year that ended June 30..."
July 7 - Bloomberg (Daryna Krasnolutska and Halia Pavliva): "Ukraine's inflation, the fastest in Europe... fell to 29.3% in June from 31.1% in May, which was the highest in Europe..."

July 9 - Bloomberg (Milda Seputyte): "Lithuanian inflation accelerated in June to the fastest pace in more than 11 years... The inflation rate rose to 12.5%, the third-highest in the EU, from 12 percent in May..."

July 7 - Bloomberg (Ott Ummelas): "Estonian inflation accelerated in June, returning to the fastest pace in 10 years, as energy and accommodation costs jumped. The rate increased to 11.4%..."

July 9 - AFP: "Inflation in some emerging countries in Latin America and Africa 'is getting out of control,' International Monetary Fund head Dominique Strauss-Kahn said..."

Currency Watch:

July 9 - Bloomberg (David M. Levitt): "New York's Chrysler Building, once the world's tallest skyscraper, was acquired yesterday by the Abu Dhabi Investment Council, a Middle Eastern sovereign wealth fund, for an undisclosed price."

The dollar index declined 0.9% to 72.1. For the week on the upside, the South Korean won increased 3.8%, the Euro 1.3%, the Danish krone 1.3%, the South African rand 1.3%, the Swiss franc 1.1%, and the Australian dollar 1.0%. On the downside, the Taiwanese dollar and the Brazilian real both declined 0.1%.

Commodities Watch:

July 7 - Bloomberg (Chanyaporn Chanjaroen): "Aluminum rose to a record in London as a power shortage forced smelters in the north of China, the world's largest producer of the metal, to reduce output."

Gold rose 3.3% to $964 and Silver 2.4% to $18.82. August Crude added 40 cents to $144.52. August Gasoline declined 0.6% (up 43% y-t-d), while August Natural Gas sank 12.9% (up 58% y-t-d). September Copper dropped 5.3%. September Wheat dropped 6.2% and August Corn sank 8.8%. The CRB index declined 2.3% (up 28.6% y-t-d). The Goldman Sachs Commodities Index (GSCI) fell 1.2% (up 44% y-t-d and 73% y-o-y).

China Watch:

July 7 - Wall Street Journal Asia (Lawrence J. Brainard): "It's becoming ever clearer that China's inflation problem is a monetary phenomenon after all, and not just a temporary spike in the prices of a couple food staples. But consensus on how to solve that monetary problem is still elusive. Beijing's adoption last week of administrative measures to combat speculative 'hot money' inflows shows policy makers still believe... that tightening regulation alone can do the trick.

That may prove a costly mistake. Consider the scale of the problem facing policy makers. Headline consumer price inflation has clocked in at or above 7.1% every month this year. Supply shocks for foods like pork play a role, but the fundamental problem is too much money pouring into the economy, chasing too few assets. One indicator of this is that China has recently been accumulating foreign assets at the astonishing rate of $75 billion a month."

July 8 - Bloomberg (Tian Ying): "China's car sales rose 17% in the first half as economic growth spurred demand in the world's fastest growing major vehicle market. Automakers sold a total of 3.61 million cars, sport-utility vehicles and multipurpose vehicles..."

July 11 - Bloomberg (Li Yanping and Nipa Piboontanasawat): "Foreign direct investment in China rose 45.6% in the first half from a year earlier, swelling inflows of cash that may stoke inflation in the world's fastest-growing major economy. Spending by overseas companies increased to $52.4 billion..."

Japan Watch:

July 10 - Bloomberg (Mayumi Otsuma): "Japan's wholesale inflation rate rose to a 27-year high in June as companies raised prices to counter record oil and commodity costs. Producer prices climbed 5.6% from a year earlier, after a revised 4.8% gain in May..."

July 11 - Bloomberg (Toru Fujioka): "Japanese consumers became the most pessimistic they've been in at least 26 years as higher gasoline prices and food costs eroded their spending power."

India Watch:

July 11 - Bloomberg (Kartik Goyal): "India's inflation accelerated to the fastest pace since 1995... Wholesale prices rose 11.89% in the week to June 28..."

July 11 - Bloomberg (Cherian Thomas and Kartik Goyal): "India's industrial production grew at the slowest pace in more than six years and Standard & Poor's said it may cut the nation's credit rating to junk if the economy deteriorates further... Bonds dropped after S&P said its BBB- ranking on India's long-term local currency debt may be lowered to 'speculative grade.' 'A rating downgrade would be a blow to India,' said Ramya Suryanarayanan, an economist at DBS Bank Ltd... 'Heading in that direction isn't good as investors are already panicking about inflation, growth and fiscal prospects.'"

Asia Bubble Watch:

July 9 - Bloomberg (Seyoon Kim): "South Korea's retail sales rose 10.2% in May as consumers paid more for gasoline and bought more cars and computers."

July 7 - Bloomberg (James Peng): "Taiwan's export growth unexpectedly accelerated in June on demand from China, Europe and Japan. Overseas shipments rose 21.3% from a year earlier after increasing 20.5% in May..."

July 9 - Bloomberg (Soraya Permatasari): "Malaysia's central bank said inflation probably exceeded 6% in June, higher than earlier estimated and bolstering expectations it will raise interest rates as early as this month."

July 8 - Bloomberg (Kyung Bok Cho): "Asian companies outside Japan will face a 'perfect storm' of rising commodities costs and slowing growth in export volumes, triggering earnings-estimate downgrades by analysts, Citigroup Inc. said. Materials and industrials stocks... have 'lofty' valuations and should be avoided..."

July 8 - Bloomberg (Naila Firdausi): "Indonesia's consumer confidence index dropped to a record low in June after the government increased fuel prices a month earlier and on concern that food costs will continue rising, a research body said."

July 8 - Bloomberg (Woro Widya Utami and Berni Moestafa): "Indonesia may have to spend as much as 300 trillion rupiah ($33 billion) to cap fuel prices next year as oil surges, Finance Minister Sri Mulyani Indrawati said."

Latin America Watch:

July 9 - Bloomberg (Jens Erik Gould): "Mexican inflation accelerated to the fastest in almost four years last month on higher costs for food and housing... Consumer prices climbed 5.26% in June from a year earlier..."

July 8 - Bloomberg (Daniel Cancel and Matthew Walter): "Venezuelan annual consumer prices in June rose the most since 2003 as the easing of price caps on foods caused supermarket prices to surge. Consumer prices rose 32.2% in June from a year earlier..."

DA-FLATION-BAND.jpg

[jk]

The difference is this:

Deflation = Great Depression.

No jobs, but everything gets cheaper for those with existing cash.

Inflation = Weimar Republic.

Everyone gets screwed - with or without cash - and then Hitler comes.

So you see, it does matter.

disjointed 'flation = disparate sectors of the economy asynchronously blowing up and collapsing. disjointed 'flation is of questionable stability, with the possibility of devolving into either a pan-inflationary or a pan-deflationary scenario. disjointed 'flation may also show a predominance of either inflationary or deflationary symptoms, without fully devolving into either extreme scenario. thus, the debates.

a key to examining this model is understanding the role of the financial system - the f.i.r.e. economy. the ongoing collapse of fire institutions raises questions about the mechanisms by which money will enter the real, production-consumption economy. see bill gross' recent piece at http://www.pimco.com/LeftNav/Feature...+July+2008.htm for his analysis, consistent with itulip analysis, that the mechanism must be federal spending.


edit: how does disjointed flation differ from a normal economy? after all, in any normal economy there will be some sectors growing and some declining. i suppose the difference is one of degree: the extreme nature of both the expansions in some sectors [e.g. tmt in the '90's, housing in the '00's], and the collapse in others [tmt in the early '00's, housing and housing-finance now].

[c1ue]

Re: You're not going to believe this: Inflation/deflation debate still alive?

The difference is this:

Deflation = Great Depression.

No jobs, but everything gets cheaper for those with existing cash.

Inflation = Weimar Republic.

Everyone gets screwed - with or without cash - and then Hitler comes.

So you see, it does matter.

[afishmcvay]

Re: You're not going to believe this: Inflation/deflation debate still alive?

Okay, I'll admit it. I don't understand the whole debate at all. All it leads to is questions in my mind like this:

Why does the entire economy inflationary or deflationary? Why is it important to be in 100% in one camp or the other? I see elements of both happening right now from what I've read.

Some other questions: I definitely get how fractional reserve lending increases the immediate money supply. However, I don't see any discussions on the impact of interest in all of that. After all, when you lend $100, you don't expect to get $100 back. You want $110 back or, if you are a credit card company, $124 plus fees. ;)

It seems like repaid interest money would lessen the payor's ability to spend money "real" things. My sense is that interest (or at least too much of it) puts downward pressure on prices (especially discretionary items) in the long term.

Also, how would paying back a loan be 100% deflationary? In theory, the reserves of the bank have just increased. Couldn't they lend it out again at the rate of their reserves? Doesn't the payor now have more money buy stuff?

If default isn't deflation, then why would the Feds express worry about it in their actions to inflate the dollar?

Also, I'm not sure that I buy (tee-hee) that all money created stays in the system forever. Created money can be mal-invested and therefore it is lost: buildings rot, or are bulldozed, crops misplanted, raw materials shipped 1/2 around the world, assembled, and thrown away in dumpster without use are examples of destroyed money. (Or at least to me. ;))

I guess the debates are lost on me. What I see two or three (or more) very intelligent men, whose actual advice and worries about the economy appear to be very similar, all talking to each other in semantic circles. The picture painted by all of you isn't pretty or going to be solved anytime soon. :mad:

[FRED]

Re: You're not going to believe this: Inflation/deflation debate still alive?

What is missing from your chart, FRED, is the price action of gold.

Telling iTulipers that an environment of sustained negative real interest rates is ripe for gold investing is like telling followers of Copernicus that the earth is not the center of the universe.

Not unique to iTulip, however. Zeal's charts are decent.

[Jim Nickerson]

Re: You're not going to believe this: Inflation/deflation debate still alive?

What is missing from your chart, FRED, is the price action of gold.