Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[flintlock]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Sadly, I have to agree with the above.

My guess is we'll see about a 50/50 split on this new bill between pork and real stimulus. So the pigs will continue to line up at the trough.

[seanm123]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The above statement implies that the advice you gave to your congressional contacts was not taken, or had a negligible impact on the legislation currently going through congress. I have argued in other threads that I thought it might not be an efficient use of iTulip's analytic skills to propose a detailed solution to the current crises, but rather a better use would be to analyze the solution that will actually get implemented.

I would be very interested in knowing what brought you to make the above statement.

Toast -Special interest groups write nearly half of the 10,000 bills that the House of Representatives and the Senate consider passing into law each congressional term. My best guess is the leaders in Congress haven't written a bill in years perhaps since they were freshmen, I have read that few even read the bills before voting. We (iTulip members) do not have a PAC or lobbying group as part of our little online learning university. Even if we did decide to fund lobbyists or start a PAC we would need lots of veterans of DC and their contacts to deal with the partisan politics that is Washington. It gets very expensive.

I have some experience since I worked for a PAC back in the 90's during Telecom deregulation, the task of getting and audience with Congresssmen and Senators is daunting. If anything take a look at the public outcry that forced the original Tarp Bill vote to fail and then the forces that made it pass, namely the threats of martial law and lobbyists.



I feel that most of us here are simply along for the ride, and like most I am trying to protect my wealth and profit where I can. I would love to be able to infuence the process but alas just watching the inaguration and who was up on the dias and reading about who funded it tells me volumes.


EJ has stated his case as to what he is up to with our politicans, and I can tell you for sure he is pissing in the wind unless someone is willing fork over enough money to challenge the lobbyists from the dark side.

[bill]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Surely, the underlying reason for the package is to try and overcome the reduction in tax income caused by the financial sector problems over the last year or so? In that case, there will be no incentive for government to just as suddenly try and stop the inflationary period once it starts as the upturn in the economy will of itself bring in more tax income.

So surely that is the underlying mechanism that prevents moderation?

Once the stimulus takes traction, revenue increases... wow! so now EJ rushes in and says hey you guys, take your foot off the accelerator and they look at him as though he is the proverbial inventor with a new idea.

Not likely they say, not invented here. We like the stimulus, look it gives a boost.

And so the wheel turns faster and faster. Food for thought?

5:min to 6:min says it all
http://www.pbs.org/nbr/site/research...90122_buffett/

[BadJuju]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

the stimulus will make things worse. The economy will not recover. There will be one more stimulus, then another. Then another.

This is exactly what caused the Great Depression.

You sound like you are depressed. You need sufficient stimulation. :p

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Missing: Almost a year of zeros...


Btw, a "castle" is a beer; not a stone palace on a European hill ;-)

Seriously though, while buying into ka-poom theory, I look for disconfirming evidence. As a radical option, would a "literal helicopter Ben" affect the thinking? (the post on the next day summarises the feedback this fund manager got).

Inconceivable? ("The Princess Bride" comes to mind)

"...the whole idea won’t work because it is actually not possible to be that irresponsible..."
With a history of irresponsibility as a guide, perhaps "not possible" should be introduced to Taleb?

Yeah but at least the beer is as cheap as water!!!

[Pericles]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Speaking of hyperinflation, a piece on NPR today told of the teacher's union in Zimbabwe turning down an offered thirteen trillion dollar a month salary package, which comes to US$20.

Ouch. Weimar, my ass. Mugabe.

Missing: Almost a year of zeros...


Btw, a "castle" is a beer; not a stone palace on a European hill ;-)

Seriously though, while buying into ka-poom theory, I look for disconfirming evidence. As a radical option, would a "literal helicopter Ben" affect the thinking? (the post on the next day summarises the feedback this fund manager got).

Inconceivable? ("The Princess Bride" comes to mind)

"...the whole idea won’t work because it is actually not possible to be that irresponsible..."
With a history of irresponsibility as a guide, perhaps "not possible" should be introduced to Taleb?

[grapejelly]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

the stimulus will make things worse. The economy will not recover. There will be one more stimulus, then another. Then another.

This is exactly what caused the Great Depression.

[Chris Coles]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

First of all the stimulus package has just been passed. http://news.bbc.co.uk/1/hi/world/americas/7857276.stm

Congress passes economic package

Mr Obama's package was passed by 244 votes to 189 The US House of Representatives has passed President Barack Obama's $825bn (£576bn) economic stimulus package.

Surely, the underlying reason for the package is to try and overcome the reduction in tax income caused by the financial sector problems over the last year or so? In that case, there will be no incentive for government to just as suddenly try and stop the inflationary period once it starts as the upturn in the economy will of itself bring in more tax income.

So surely that is the underlying mechanism that prevents moderation?

Once the stimulus takes traction, revenue increases... wow! so now EJ rushes in and says hey you guys, take your foot off the accelerator and they look at him as though he is the proverbial inventor with a new idea.

Not likely they say, not invented here. We like the stimulus, look it gives a boost.

And so the wheel turns faster and faster. Food for thought?

[photoncounter]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I believe there is a very high probability the equity indexes in the US are going to soar - more than the commodities even - and all within the next 5 years. Your PE valuations are old school. The monetary events in progress have not even the most remote parallel in the past 50-100 years. That is not an insignificant point with regard to casting bets on the near future direction of equities. IMO US equity indexes have a good shot at spearheading the global economic recovery, with the monetary *cures* in progress serving as nitro rocket fuel. I know, it seems wildly implausible at the present time.

Lukester, here's an article I found in another thread that is predicting a stock market bull in the near future...not the same as your views, but it will be interesting to see how this pans out. FYI, I am bearish, but what do I know ! As they say - "financial markets can remain irrational longer than you can remain solvent"

http://www.kitco.com/ind/Gerbino/jan272009.html

What Happens Next

• The economy stagnates for another 9-12 months then turns around.
• Unemployment goes down with the induced economic upturn.
  
• The stock market rallies but never gets above its old highs.
• Inflation comes back with a vengeance.
• Commodities resume their bull market and turn the deflationistas into inflation believers.
• Interest rates will go up with inflation and probably to much higher levels.
• The stock market will go down when interest rates start going up.
• Long term bonds will become the worst investment in the world.
• The dollar will go down but so will other currencies as many world governments print their way out of their economic woes as well.
• Gold will go to new highs.
• Housing and real estate will recover but higher interest rates will slow this sector down considerably in the future.
• The gold and silver mining stocks will become the best performing sector on Wall Street for many years.
• The price of oil will go up due to inflation and global production declines of 5-8% per year from most of the largest oil fields in the world.
• The U.S. “recovery” will help the world recover and almost all countries will have another artificial economic expansion from all the paper money they have printed as well.
• China and India will create more shortages of basic materials and commodities by the sheer size of the populations and their economic and industrial progress.
• The U.S. will have even more economic dislocations from all the new paper money and debt taken on by Washington.
• The country gets set up for the next horrible recession some time in about 3-4 years.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Assuming that any government entity can just "push a button" to create money is assuming that any-one entity has the authority to do that. They are in reaction mode to the market which is in real time, so there will be a lag affect between their creation of money and the markets destruction of credit.

TARP was created within something like 2-3 weeks, and for government that's virtually instantaneous. I submit that the current delay for the $850+ billion has much more to do with the new administration than anything else. Also note that Federal debt has been growing at over 10% annually for months.

And I urge caution on not taking what the Fed has done so far and for about a year into account, along with applicable monetary lags etc.

As of last October, I had estimated US credit & money destruction at about $3.6 trillion and to date the Fed & Treasury have added/created about $3.5 trillion... just a for what its worth.

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Fully agree with your assessment as to the very powerful pincer-effects converging upon commodities prices. Probably one of the best longer term investment stories out there stretching right out into the 2030's. My comment about "no decoupling" between commodities and equities was in reference to the extent of market crashes. During crashes they move together up or down more often than not. My only point of disagreement with your call is that the equities markets **must** carry out a long crash or remain lifeless after the current crash. I believe there is a very high probability the equity indexes in the US are going to soar - more than the commodities even - and all within the next 5 years. Your PE valuations are old school. The monetary events in progress have not even the most remote parallel in the past 50-100 years. That is not an insignificant point with regard to casting bets on the near future direction of equities. IMO US equity indexes have a good shot at spearheading the global economic recovery, with the monetary *cures* in progress serving as nitro rocket fuel. I know, it seems wildly implausible at the present time.

Assuming that any government entity can just "push a button" to create money is assuming that any-one entity has the authority to do that. They are in reaction mode to the market which is in real time, so there will be a lag affect between their creation of money and the markets destruction of credit. Look at all the hoops that the government has to jump through just to get 850B while the market wipes trillions off of bank balance sheets.

As far as the divergence in commodity and equity prices go. Equities are still overpriced maybe not according to trailing PE but absolutely according to future ones which are gonna show a big haircut for the next couple of quarters. Then once equities correct sufficiently to lure investors back in, it will be at very low historic PEs as befits a recovering stock market after a deflationary gang rape. Also dividend yields will have to rise above the paltry 3 percent currently to justify the risk. Try more like 8-10 percent in yields. Now commodities are not just a domestic consideration but a global one. You think Chinas gonna go back to 70s levels of consumption? I dont think so, they'll use a considerable part of their foreign dollar reserves to buy commodities to both spur domestic consumption and build infrastructure, while dropping their dollar peg being too onerous of a burdon to continuously bear and they'll be off to the races establishing a new trading block sans USA,because we'll be a basket case. The dollar with all its propagation and printing is a "dead man walking" it will lose it's foreign reserve status once something is devised to replace it. The world has no choice but to replace it because we will print it into oblivion otherwise. The Chinese are already experimenting using Yuan to settle domestic trades and if they get together with OPEC and design a new currency its all over for dollar hedgemony.

Now since we wont be able to produce energy we need in quantities we need the price will go up. Still needing to establish savings again in this country for financing a new economic paradigm away from FIRE look for decreased domestic consumption and a longer recession in labor, but the government will pay people to stay home and away from flamable objects so that will be inflationary (more dollars, less goods).

Overseas in the east they don't have the credit problems we do, they have a savings base and a poplulation willing to add to it. They have manufactoring infrastructure and a loose regulatory environment to get things done. They are going to come out of this quicker than we will and then they'll be off to the races competing for the same commodities we will which will cause commodities to rise. During the 70s stagflation we did see a decoupling of commodity and equity prices. Up until the "great deleveraging of 08" you saw a big difference in the ratio between the two. The difference is that commodities are in a secular bull market that has corrected and equities are in a flat out bear market to the past decades phony growth.

The big story of the 21st century is that the world is getting alot smaller and we are going to have to COMPETE for finite resources with our other long suffering brothers and sisters elsewhere and at least right now, they've got the jump on us until we get our heads out of our derrieres.

[BadJuju]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

It is not fun. The stuff happening in the UK is probably a few years ahead of the US, or maybe a few months...but the same thing will happen in the US.

I would certainly hope it is a few years ahead, if only to give me more time to prepare. :mad:

[grapejelly]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The aim of CBs and government is the same. They want to drive asset prices higher in nominal currency.

They are unhappy because asset prices are falling, in currency terms. I use the word "currency" to mean fiat of course.

People interpret this fall as deflation but it is not. I won't rehash the argument I already made. Just pointing out that the effect of assets falling in currency terms is a dramatic drop in the ability of banks to lend and borrowers to borrow.

So less currency will be borrowed into existence.

The government and CBs will NEVER tolerate this. Therefore they will, whatever the cost, put money into the banks in unlimited amounts, without appearing to do so, an force banks to lend and borrowers to borrow.

All to drive asset prices up in currency terms.

This *will* happen.

Mish has long argued "you can't force borrowers to borrow." But in reality you can. You can drop interest rates to zero and make credit available in unlimited amounts.

You reliquify your captive nationalized banks through good-bank bad-bank.

Take over all the bum assets. And don't pay interest on reserves. Banks must pay interest to depositors, so they will be forced to try to lend.

The government will be their primary client, of course. The government will borrow in almost unlimited amounts, and pay a low rate but one that allows the banks to make a "profit".

The money so created will then filter into the economy.

The government spending will increase the share of GDP taken by the government and this is highy destructive to productivity and wealth.

You will see a larger flood of wealthy successful people move their assets out of the US.

It is not fun. The stuff happening in the UK is probably a few years ahead of the US, or maybe a few months...but the same thing will happen in the US.

[phirang]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

It needs to pop IMO.
What's holding it together now?

client oil exporters...

[vinoveri]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The treasury market would explode, destroying asset prices.

Epic FAIL.

It needs to pop IMO.
What's holding it together now?