The truth about deflation - Eric Janszen

[ThePythonicCow]

Re: The truth about deflation

socialism....for a while maybe?....until its stable enough to get the private economy going again

I don't think that the state change between socialism and free market capitalism is like that between water and ice, refreezing what has melted.

I think it is more like the reverse of the state change between dynamite and the acrid smoke and fine powder residue of an explosion.

It is rare for the political dynamite even needed to form something like the United States to form in the evolution of human civilization. Once we lose what our founding fathers deeded us, writ in their blood and vision, it might never be seen again on this planet, or it might take another thousand years.

(Sorry, the chemical and political metaphors above are so entwined that not even I know for sure how to unravel them ... don't think about this post too hard.)

[ThePythonicCow]

Re: The truth about deflation

First, he [Nadeem Walayat, I presume, mentioned in an earlier post of mine above] does not address the longer term rise in gold prices.

What long term rise? Gold is about the same price it was nearly thirty years ago ;).

Or, less flippantly, gold did rise from 2001 to early 2008, but one could claim that rise was because commodity prices in general were rising then, thanks to the last great massive overdose of liquidity from our retired Monetary Drug Lord, Mr. Greenspan.

Or by "long term" did you mean last century, not last few years? Pretty clearly breaking the bonds between gold and our various world currencies led to that change.

I rather place my trust in ITulip than the blowhard.

Yeah - well yes - ok.

[kartius919]

Re: The truth about deflation

Why is there no other currency or precious metal that is in a position to replace the Dollar? His logic is very flawed and outright dangerous. Don't accept his conclusions for face value. For example, he claims that the short term decline in gold prices indicates it has failed to serve as the global currency. First, he does not address the longer term rise in gold prices. Second, he fails to show how market prices of a derivatives product has any bearing on global monetary policy. He oversimplifies the debate and comes to oversimplified answers.

Even assuming that the other world currency collapses before the US dollar, why does he assume that the US dollar won't collapse along with the rest of the fiat?

I rather place my trust in ITulip than the blowhard.

[marvenger]

Re: The truth about deflation

socialism....for a while maybe?....until its stable enough to get the private economy going again

[GRG55]

Re: The truth about deflation

Exactly right!

Keen and Janszen concluded in their last iTulip discussion that letting wage inflation rip is the only viable medium term political solution to the debt deflation problem. Will the next administration be the one to do the evil dead? It's been shaping up for years.

Inflation is Dead! Long Live Inflation!

Gonna be tough to do this with the unemployment rate having hit an inflection and now rising. Show me an employment position in the USA [outside of Treasury Secretary and his close friends :rolleyes:] that has the pricing power to pass on even nominal wage increases.

Only thing that comes to my mind is employees of the Federal Government. Perhaps that's where it starts. And perhaps for the first time in maybe 40 years it becomes cachet to seek a government job? Let's face it, that's the only sector that can "create" the money to pay the wages, benefits and pensions with any degree of security for the recipient.

[marvenger]

Re: The truth about deflation

I'm glad you said it. I have a tough time evisioning zimbabwe but I wouldn't dismiss it altogether either.

[GRG55]

Re: The truth about deflation

There's still something that makes me feel uneasy about ka-poom and its this; both Hudson and Keen seem to suggest that we've hit a point where more debt cannot be created, the economy cannot sustain it and to me it seems the only way to reflate the economy is to literally print the money and then you end up like Zimbabwe I guess.

One of Keens arguments for the point of no more debt is the fact that there is no one to lend to, they've loaned hundreds of thousands of dollars to individuals with no jobs or assets, this has never happened before and so is maybe an additional point to consider when assuming that no deflation will occur because none has occured since going off gold standard.

If the government just keeps loaning the money into existance then this is just compunding the problem of printing money because there's more interest payments that have to made on revenue that's not there.

So if this view is correct, what really is worse, trashing the economy through hyperinflation or deflation death-spiral? The only guy that seems to enjoy hyperinflation in zim is Mugabe and I don't think the West will be so tolerant of their leaders having access to this kind of abuse of power.

So I guess I'm thinking that a hyperinflation is possible but it won't end up like Zim, something else will happen.

I have much less confidence in this regard than you do.

Imagine the uproar and resistance from the people and their elected representatives if the US Treasury Secretary was to demand unlimited powers, with specific exclusion from any accountability, under the threat of collapsing the financial system if not granted. That would never happen would it... :rolleyes:

[marvenger]

Re: The truth about deflation

I think 5) with less restrictive measures such as allowing various other essentials such as vaccines that aren't produced in the country to be imported will help, but it will only be marginal, there's alreasy an oustanding debt with interest bill fast approaching unpayable if not already there. I can't see spartan lifestyles and working to pay off foreign debts to be a politically workable solution for the US, and rightly so, it wasn't the workers that created this mess.

[GRG55]

Re: The truth about deflation

Big Ag needs petro to grow and to ship. No petro, no ship, all same. Yes, they have no bananas (read wheat).

Yes, they have no water.
Good call. A bit of wheat for now, but not for long...

Saudi Arabia scraps wheat growing to save water

Tue Jan 8, 2008 11:02am EST
RIYADH, Jan 8 (Reuters) - Saudi Arabia is abandoning a 30-year programme to grow wheat that achieved self-sufficiency but depleted the desert kingdom's scarce water supplies.

The government will start reducing purchases of wheat from local farmers by 12.5 percent per year from this year, officials from the agriculture and finance ministries said on Tuesday.

The kingdom aims to rely entirely on imports by 2016.

"The reason is water resources," said one official, who did not want to be identified.

Saudi Arabia produces 2.5 million tonnes a year of durum and soft wheat, enough to meet domestic demand...

[GRG55]

Re: The truth about deflation

Yup.

On the bright (less dark) side, we still produce some of our own energy. I'd guess we could still import energy as well, just at exhorbitant prices. Anyone employable in domestic energy production would have a job.

Perhaps we can think of this as "what would happen if oil jumped to $400/barrel, and stayed there?"

For most of us, life would go on, with adaptions and hardships. Those caught in the wrong place, at the wrong time, with too few reserves, could be in serious trouble.

Just watch the layoffs in your domestic energy industry [petroleum, coal, nuclear, etc.] through this winter and next year. Engineers and geologists are not needed when capital is no longer being spent.

The old oil patch adage "the best cure for low oil prices is...low oil prices" is going to be visited upon us at what may be the worst possible time, unfortunately.

[Sidewinder]

Re: The truth about deflation

So options are

1) printing and very nasty Inflation
2) Debt deflation and hope it stops being self perpetuating at some point
3) debt jubilee Hudson style
4) More controled inflation with forced wage increases

I'm with Jimmy in being uncertain with how 4) is achieved

I too find this challenging to wrap my head around - perhaps it is because I am an engineer...:confused:

How about:
5) Protectionist stance regarding imports of everything but energy

[marvenger]

Re: The truth about deflation

How can this be accomplished?

So options are

1) printing and very nasty Inflation
2) Debt deflation and hope it stops being self perpetuating at some point
3) debt jubilee Hudson style
4) More controled inflation with forced wage increases

I'm with Jimmy in being uncertain with how 4) is achieved

[jimmygu3]

Re: The truth about deflation

double nominal incomes. the debts then become serviceable and in fact more debt can be undertaken. this requires only 15% income inflation for 5 years.

How can this be accomplished? Policies that create domestic jobs and penalize outsourcers?

[FRED]

Re: The truth about deflation

double nominal incomes. the debts then become serviceable and in fact more debt can be undertaken. this requires only 15% income inflation for 5 years.

Exactly right!

Keen and Janszen concluded in their last iTulip discussion that letting wage inflation rip is the only viable medium term political solution to the debt deflation problem. Will the next administration be the one to do the evil dead? It's been shaping up for years.

Inflation is Dead! Long Live Inflation!

[ThePythonicCow]

Re: The truth about deflation

Over at http://www.howestreet.com/articles/i...rticle_id=7822 , in a posting entitled "U.S. Dollar Bull Market Update" Nadeem Walayat concludes, if I understand accurately, that there is a Ka, but no Poom, on account of there being no other currency or precious metal that is in a position to replace the Dollar in its Reserve role.

Sure, the Dollar has its problems, but the others have worse problems, except for the Yen, which is well served by supporting the Dollar's Reserve role.

The global recession beginning now strengthens the dollar, as the United States is the last nation on earth likely to collapse into default anytime soon. The recent airlifting of dollars to other central banks further binds the world to the dollar. The central banks, in his view, clearly don't see gold as still having a central role in our currencies. For money to be invested with a five to ten year time span, he suggests energy, agriculture and other commodities, picking up over the next year.