Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[Jim Nickerson]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

http://bespokeinvest.typepad.com/bespoke/ 1/30/09

Below is Bespoke's impression, emphasis mine to highlight.

GDP Price Index Enters the Deflation Zone

While the markets have been focused on the better than expected GDP report for the fourth quarter, the GDP price index was potentially even more notable. While economists were looking for a quarter/quarter annualized increase of 0.4%, the actual level was a decline of 0.1%. This negative print is only the seventh time since the end of WWII (and the first time since 1954) that prices decrease based on this measure. For now at least, the Fed's view that "inflation pressures will remain subdued in coming quarters" appears to be right on target.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I'm a novice on economic matters, so I'm reduced to evaluating those wiser and more experienced than I mostly on the logic of their arguments.
When EJ said that the deflationists were wrong about their contention that the government will be unable to get money into the economy, I thought about it. I concluded that if I was the "American consumer", and people all around me were losing jobs, and stores were closing left and right, would I borrow money, even at zero percent interest? The answer is no. I'd batten down the hatches, spending and borrowing as little as possible until the storm had passed.
As a result of this realization, it appeared to me that EJ might be wrong on this point, and the deflationists correct.

I can't speak for EJ (although I will note that his stock short call in Dec 2007 is still active and has been very profitable) but for me the key is in the phrase "until the storm had passed".

It does not take consumer spending or borrowing to cause inflation in an economy or country. All it takes is creating more money than goods, as per one of the basic definitions of inflation.

While I believe that we're still in deflation (and Finster's FDI also shows it) per my BKX adjusted total money supply work etc., that does not mean it can't switch back to inflation virtually as fast as the deflation arrived. There are some signs of things reversing, and an inflationary currency "event" is also possible.

[raja]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Your points are well taken. I don't claim that long term deflation is absolutely impossible, I don't think EJ does either. We do, however, have Bernanke's playbook.

At some point you just have to take a side. You could choose Mish's bombastic reasoning or EJ's less bombastic reasoning (apparently perceived by some as wishy-washy).

Spartacus,

I believe you misunderstand my intent.
I'm a novice on economic matters, so I'm reduced to evaluating those wiser and more experienced than I mostly on the logic of their arguments.
When EJ said that the deflationists were wrong about their contention that the government will be unable to get money into the economy, I thought about it. I concluded that if I was the "American consumer", and people all around me were losing jobs, and stores were closing left and right, would I borrow money, even at zero percent interest? The answer is no. I'd batten down the hatches, spending and borrowing as little as possible until the storm had passed.
As a result of this realization, it appeared to me that EJ might be wrong on this point, and the deflationists correct.
I was not generally criticizing EJs theories or championing Mish's.

Then, when Fred totally missed what I was saying, which I thought was very clear, the alarm bells went off.
To me, this suggested that Fred was so caught up in defending EJs position, that he was operating with blinders. That's what people do when they fervently get behind a cause -- they don't hear you. And, they make mistakes.

I've come down on the side I have because we have that playbook and are not tied an ideology saying
"the FED can do nothing",
"I'm an Austrian", or
"Rothard RUL3Z!!!, K3yn3s dr00lz!!! ".
(trying to be funny, not facetious)

It's not about taking sides. EJ made an assertion . . . I pointed out what I thought was a flaw in that assertion . . . and I was hoping for some intelligent discussion about it. I have no ax to grind. I'm not a Mishite, a Misesian or an iTuliper -- I'm just here to learn how to save my financial skin.

"no brakes on government" means several things
1. government can spend as much as it wants
2. they can set the stage to where there is no risk to banks writing loans
3. they can set the stage (maybe with new forms of insurance) to where there is little or no risk to people with good credit taking out loans.

Then fear don't enter into it.

Now you miss my point.
I'm saying that as the economy progressively tanks, people with good credit will fear to borrow money.
I agree that government spending would be an effective way to inject money . . . but only if people spend it to buy stuff, rather than pay down debt. The latter is what I think they will do.

Answering the same question 100 times and keeping gross photoshop'd porn off the site can be tiring, and may lead to reading something new with many of the same words as older posts as another one of those older posts.

Perhaps. But when I restated my point, Fred never did respond.

[Slimprofits]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Jeff Rubin Chief Economist and Strategist for CIBC World Markets - Reflation - 01/23/09

Headline US CPI inflation will be running north of 4% in less than a year.

also included in the same report, Oil Prices: Another Spike Ahead:

Global demand snapped back at around a 3% pace after the two declines in oil consumption seen in the early 1980s. Even a 2-2½% bounceback would leave the world facing even tighter supply conditions than it did in 2007 when oil prices moved from $60 to $100 per barrel. Back then, demand was about 1.5 million barrels per day more than supply. This imbalance, not only led to a very rapid inventory drawdown, but also attracted speculative activity in oil markets. By our estimates, we expect to see an even larger imbalance, almost two million barrels per day, between recovering demand and shrinking supply as early as 2010.

[Sharky]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

That is correct. That is part of the process. Please see the now frequently copied Ka-Poom Theory circa 1999.

I was responding to the OP, where that mechanism wasn't mentioned as a possible trigger for hyperinflation.

The Ka-Poom theory and follow-on reports such as Ka-Poom Theory Revisited, suggest that the flow of repatriated dollars will stop in response to rising interest rates.

What I'm suggesting is that that might not be the case. If the integrity of the currency is put into serious doubt, perhaps by a currency crisis of some sort, the Fed could easily lose control over the situation, which would make "managed inflation" impossible.

Another factor that might lead to a loss of control is that the Fed might not be able to increase interest rates as they might need to. The impact of higher rates on the domestic economy (jobs, housing prices, etc) could easily be seen as politically unacceptable in comparison to the alternative.

[jtabeb]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

But Ka-Poom Theory accounts for both disinflation and inflation. iTulip looks at the financial system, markets, and economy as interacting processes, undergoing constant change, and can't tell assets from commodities. Mish looks at the thing as a giant, undifferentiated mass, like a train rumbling toward a knocked out bridge over a ravine. In the train goes, down it goes, and he's right!

Credit contraction and asset price deflation are bigger and moving at a faster rate than government credit and money inflation now, resuting in the disinflation that iTulip has talked about. But i this was deflation as in the USA in the 1930s or even Japan in the 1990s, in dollar terms gold will not be at $880, silver at $11, platinum at $969, oil at $40, but at $300, $4, $400, and $15 or $20. To call this deflation is to misunderstand what's really going on. It's a critical error.

The proper term is "coincident asset price deflation with simultaneous currency devaluation"

or more simply "asset deflation with currency inflation"

or even more simply "we're Fuc*ed"

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

And excessively emotional and "high horse" comments like your "I'll just wander off with them in sympathy" don't work in your favor.

Seems like a pretty low key way to make that point to me. BTW, he wasn't telling you to go take a hike, it was the other way around, no? Otherwise I'm a huge fan of yours Bartos. You are one of the smartest (and politest) people on these pages [usually! ].

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Thanks for the clarification Bart. What do you think of the curiosity that there was a very large decline in the CRB in 1948-1949, one of the exceedingly few (2 or three declines only, in a century?) in the past century of a scale rivaling the current CRB decline, and that this occurrence was exactly 60 years ago? I don't have any irrevocable conviction about it, but it's certainly an interesting coincidence given that the "60 year commodity cycle" has been claimed and/or identified as the cornerstone of several different secular studies of market action? WD Gann for instance, whose winnings from the markets rivaled those of Jesse Livermore, insisted the 60 year cycle was one of the most critical insights into markets and cyclicality, and was the core reason he was able to be that successful a speculator? Is your view that iTulip discards this possibility too summarily? They have been quite unambiguous in discarding notions such as this, I believe. Of course one can make observations like this which in no way diminish the very great body of unique analysis iTulip provides. We are merely discussing one small area of their approach.

I've never seen anything negative from EJ about things like the business cycle when combined with fundamentals etc..

He and iTulip are just not exactly big fans of the out there stuff like astrology/Bradley or Gann squares or TA etc. No big deal in my book - iTulip tolerates and allows a lot of variety even though the official position is that they're unworkable.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Bart - iTulip does not buy into the "cycles" idea to the best of my understanding. "Cycles" are suspiciously akin to "waves" and as far as I can grasp, that is a thoroughly discredited thesis regarding any fruitful observation of asset markets epiphenomena at iTulip. Not to mince terms, "Cyclical Predictability" is a bad word, here.

I've never seen anything negative from EJ about things like the business cycle when combined with fundamentals etc..

He and iTulip are just not exactly big fans of the out there stuff like astrology/Bradley or Gann squares or TA etc. No big deal in my book - iTulip tolerates and allows a lot of variety even though the official position is that they're unworkable.
As you know, I seldom post out there stuff or even talk about short term trading or futures, and not only because its tricky, dangerous and not for everyone. Its also just plain manners. I seldom talk about religion when in a group of atheists either, as an example.

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Bart - iTulip does not buy into the "cycles" idea to the best of my understanding. "Cycles" are suspiciously akin to "waves" and as far as I can grasp, that is a thoroughly discredited thesis regarding any fruitful observation of asset markets epiphenomena at iTulip. Not to mince terms, "Cyclical Predictability" is a bad word, here. iTulip in recent weeks has quite categorically stated that an intelligible approach to understanding market movements can only derive from the vantagepoint of marketplace fundamentals and reasonably traditional macro-economics.

Have you ever squared your "market cyclicality" thesis away with iTulip's editorial view, or does it remain an uncomfortable area of divergent viewpoints? In case my comment is read as ambivalent, I for one commend your work and embrace that cyclicality 100% (it's a very valuable insight!), and as it's 100% empirically derived and most eminently does display "cycles" which are suspiciously similar to "waves", I'm left wondering how exactly iTulip concludes that a technical scrutiny of reliably anticipated periodicity in the markets is a specious endeavor altogether. iTulip are infinitely subtle and modulated in most other analyses, but when it comes to "cycles" and "waves" a certain inflexibility creeps in.

Ka-Poom also aligns well (or vice versa) with my own original work on a hard vs. paper asset cycle which is basically inflation driven, and goes back over 200 years. You'll notice that the down periods during a hard asset cyle last longer than a "brief" period of deflation and I submit that the Ka period also includes disinflation or stagflation if you prefer.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Oops, you're right. I read the "pre-Clinton CPI" from the main page, rather than the SGS CPI from their charts page. Fair enough, the theory could still hold -- and I should point out that I never said it couldn't still hold, just that it might not.

As you can see above, I can be reasonable. I think Ka-Poom makes plenty of sense, right up until the point where it the credit system breaks entirely. It's an open question whether another cycle can be initiated, and I think its worthwhile to ask at what point the theory will be falsified. Otherwise you're just being dogmatic.

Fair enough - mistakes do happen.

I have no problem with asking about a theory or whatever, or talking about it being falsifiable but Ka-Poom in my book is not about calling turns perfectly, but rather about a broad framework within which to judge events. The Ka-Poom chart has been noted on multiple occasions as not being intended for timing even though its accuracy has been pretty decent.

Ka-Poom also aligns well (or vice versa) with my own original work on a hard vs. paper asset cycle which is basically inflation driven, and goes back over 200 years. You'll notice that the down periods during a hard asset cyle last longer than a "brief" period of deflation and I submit that the Ka period also includes disinflation or stagflation if you prefer.

[metalman]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Oops, you're right. I read the "pre-Clinton CPI" from the main page, rather than the SGS CPI from their charts page. Fair enough, the theory could still hold -- and I should point out that I never said it couldn't still hold, just that it might not.

As you can see above, I can be reasonable. I think Ka-Poom makes plenty of sense, right up until the point where it the credit system breaks entirely. It's an open question whether another cycle can be initiated, and I think its worthwhile to ask at what point the theory will be falsified. Otherwise you're just being dogmatic.

'all models are wrong, but some are useful' is the credo here. ka-poom has been very useful for ten years... kept me in gold, not trading it. check it...



you don't need a credit system to have mega inflation. eg. argentina... virtually no credit in the economy and double digit inflation. ka-poom theory accounts for that, too... a declining currency from repatriated dollars fuels the inflation.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Bart - with respect, I can't say I agree with this approach as were everyone to adopt and practice this viewpoint (those who disagree are "trolls") this community would rapidly "evolve" towards ever greater homogeneity of thinking. I notice Fred does not qualify your assertion, indicating he'd also like to see less disagreement or challenge to "the thesis". I greatly appreciate iTulip but the day you guys begin to tighten this intolerance of "trolls" to the point you are booting posters such as Kurt above for the altogether pointed and rational question he asked, I'll just wander off with them in sympathy. Metalman's constant barking in response to such "deviant" opinions represents the syndrom run amok. Don't like "all think alike" clubs. And your and Fred's definitions of "trolls" are acutely vulnerable to an invisible threshold question: when do such objections merely become a circling of the wagons?

Opinions vary Lukester, but when someone starts posting with partial data and gets their facts wrong and merely makes assertions, then they deserve to be challenged at the very least.

Trolls do exist, whether you admit to it or take it into account or not. Whether that poster is one or not remains to be determined in my opinion, but I will always challenge incorrect facts or shoddy thinking or assertions or logical fallacies or similar when I see them.

And excessively emotional and "high horse" comments like your "I'll just wander off with them in sympathy" don't work in your favor.

[Kurt Horner]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

You're inaccurate, and also seem to like cherry picking... and are completely ignoring that the full SGS CPI peaked at around 13.6% in 2008.

Oops, you're right. I read the "pre-Clinton CPI" from the main page, rather than the SGS CPI from their charts page. Fair enough, the theory could still hold -- and I should point out that I never said it couldn't still hold, just that it might not.

If you don't care for Ka-Poom theory and apparently have so much attention on disproving it, why are you even here?

As you can see above, I can be reasonable. I think Ka-Poom makes plenty of sense, right up until the point where it the credit system breaks entirely. It's an open question whether another cycle can be initiated, and I think its worthwhile to ask at what point the theory will be falsified. Otherwise you're just being dogmatic.

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Bart - with respect, I can't say I agree with this approach as were everyone to adopt and practice this viewpoint (those who disagree are "trolls") this community would rapidly "evolve" towards ever greater homogeneity of thinking. I notice Fred does not qualify your assertion, indicating he'd also like to see less disagreement or challenge to "the thesis". I greatly appreciate iTulip but the day you guys begin to tighten this intolerance of "trolls" to the point you are booting posters such as Kurt above for the altogether pointed and rational question he asked, I'll just wander off with them in sympathy. Metalman's constant barking in response to such "deviant" opinions represents the syndrom run amok. Don't like "all think alike" clubs. And your and Fred's definitions of "trolls" are acutely vulnerable to an invisible threshold question: when do such objections merely become a circling of the wagons?

You're inaccurate, and also seem to like cherry picking... and are completely ignoring that the full SGS CPI peaked at around 13.6% in 2008.

If you don't care for Ka-Poom theory and apparently have so much attention on disproving it, why are you even here?