Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[phirang]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

So instead, as has been suggested before, give everyone a debit card for $12k which they must spend at least $1k pe rmonth over the following year or lose it. No hoarding possible and no deflation. $12k x 100million households = $1.2trillion - a small fraction of what's been committed to the banking/investors sector so far.

Equity while a fundamental concept of justice, seems to be often ignored by the elite.

The treasury market would explode, destroying asset prices.

Epic FAIL.

[vinoveri]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Giving everyone $10,000 only works if the people believe that the fed will not attempt to stabilize the price level after the deflation risk passes. Otherwise the money will be hoarded and deflation will continue.

So instead, as has been suggested before, give everyone a debit card for $12k which they must spend at least $1k pe rmonth over the following year or lose it. No hoarding possible and no deflation. $12k x 100million households = $1.2trillion - a small fraction of what's been committed to the banking/investors sector so far.

Equity while a fundamental concept of justice, seems to be often ignored by the elite.

[Charles Mackay]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Maybe the secret fed cam should be sent in today? Rick Santelli reports of secret FED meetings going on Tues and Wed. this week... all very hush hush. :eek:

I think the only way EJ's soft landing is possible is if capital controls and even limits to bank withdrawals are implemented first. The smart money is just too mobile and we all have trigger happy fingers on our own keyboards!

I can foresee a scenario where the crisis intensifies allowing the above to be legislated and then the massacre of the savers takes place.

That is why I'm not sure trying to time the exit from your T Bill stash is such a good idea. I think it's rather risky to not have a significant chunk of your portfolio already protected.

[FRED]

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.

If you'd like this answered, recommend you post your question as an Ask EJ in the subscription area.

[we_are_toast]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

What the Fed and Treasury cannot do, however, is increase the purchasing power of the money created, regardless of quantity, or the creditworthiness of the US. These are only earned by sound fiscal, economic, and trade policy, and here the US, in the name of fighting a short term crisis, is heading in the wrong direction, with stimulus programs without a clear return on investment, and spending commitments that bring the nation's global credit limit into question.

For a nation with so much internal and external debt, inflation is not only possible but also the most politically convenient outcome in the long run, and one that the current structure of debt allows without the exertion of political will to deal with the debt in a way that diffuses the growing conflicts of interest between debtors and creditors as the crises deepens.

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.

[labasta]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Another EJ article which is slightly out of my league.

I can see the deflationistas argument as bogus or beaten, but I can't seem to get my head around the difference between inflation and hyperinflation.

Is it true that at the moment the US's creditor nations are not buying as much dollars as before due to the economic slowdown (but they are still buying)?

Would someone be so kind as to continue with that story and show me the difference between the inflation and hyperinflaiton thesis.

Thank you.

[*T*]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Can you make an argument as to why it would be politically-expedient to do so for them?

It isn't politically expedient as a deliberate choice, but to avoid hyperinflation presumes a level of fine control in withdrawing and the ability to withdraw the liquidity without re-imploding the economy. We have already seen the sledgehammer approach from Bernanke.

When the time comes to withdraw the liquidity, the 'balance of risks' will point towards leaving it in the system. Remember the Fed's credibility is based on being effective deflation fighters, not effective inflation fighters. To withdraw would require a cultural shift at the fed, which would only happen after the event.

It's really not wholly different from EJ's scenario, except that I think it will come through disorderly currency adjustment. The adjustment through higher interest rates will not be available as the fed will be buying treasuries.

[marvenger]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

EJ was saying the government can increase and decrease the money supply to counteract deflation spirals and hyperinflations but they cannot control the purchasing power of the dollar by doing this, especially when they spend on crap programs. Foreigners buying dollars was what was and still is giving the dollar its purchasing power.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Here's an article that describes how things were in the 1930's compared to now...

Bad news: we're back to 1931. Good news: it's not 1933 yet


http://www.telegraph.co.uk/finance/c...-1933-yet.html

There's both some incorrect or incomplete facts there and its also missing many other stat comparisons.

Monetary & fiscal stat comparisons, 1929 and now

[Slimprofits]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I'm far from 100% certain, but yes I do believe that it was to be expected.

If velocity goes up and all other factors are held constant, relative inflation is the result. Higher inflation and bonds don't like each other, and bonds have a hissy fit...

Thank you, Bart.

[photoncounter]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Also note that these two relationships are not a guarantee nor am I trying to say that they're the only effect, but I'm rather trying to suggest that you or anyone look at what actually happened (and what is happening now) and make your own judgments.

Here's an article that describes how things were in the 1930's compared to now...

Bad news: we're back to 1931. Good news: it's not 1933 yet


http://www.telegraph.co.uk/finance/c...-1933-yet.html

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

True, but if USA prints and prints what the point of China and Japan holding loosers, they may as well cut losses and sell, and that will be a lot of paper for the FED to buy up. Agency debt included.

Fair enough... and although there's lots missing from that view, I think I'll just agree to disagree on the full picture.

[occdude]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Deflating assets are not limitless. The full scope of assets disintegrating has a bottom by definition, as assets are finite. Derivatives are inflammatory vapor, but the underlying assets can and do find a floor in valuation. Fiat money instead, is infinite and we've never observed a global economic crash in history before which occurred in a 100% fiat world. There is no "leash" or "governor" built into the fiat money engine, it can accelerate to any level required, not just in the US, but e v e r y w h e r e . I'm thinking the USD can rally for several years, but I'm under no illusion as to which effect can reach out further in time, between asset destruction and fiat money issuance, the fiat money can run a great deal further. IMO the stock market and real estate will NOT continue to KA. Real estate can limp into recovery, but the stock market can react to the upside like a scalded cat. In fact I bet it will, in about six to twelve months.

Big bada-poom in stocks not too far out. You are getting blinded by the current stock market declines into thinking along the trend most recently in motion, i.e. unholy market collapses in progress. IMO a little ways forward it will be setting the floor for a hellacious boom - one for the history books coming up **soon**, and if you say "yeah but what is going to underpin it as all the fundamentals are crap" my read (because I fear and distrust the stock markets anyway and think it's subject to huge sentiment swings) is that fundamentals can often be of overestimated prime mover value also in the equities markets, for longish periods of time anyway. 3-6 trillion of new credit shoved out the door, with banks getting legislated into lending if things get constipated enough - that is all the rocket fuel we'll need to see the DOW scoot up to 30K within five years. I bet that is exactly what we get by 2013-2014 and a great wave of "apparent" renewed prosperity can emanate out from that boom - gargantuan fiat inflation can produce some strange and improbable artifacts.

BTW, in the thick of the largest declines in history, commodities and equites have actually been positively correlated. I think it is in fact less probable to see an equities market ongoing collapse or stagnation alongside soaring commodities. I can imagine a lot of happy faced investors in the North American indexes, looking out a couple of years from now. That describes iTulip's POOM really, just suggesting it's arriving two or three years earlier. Deflation in various asset classes and wild inflation in others with steepening unemployment, and then throwing in things like booms in oil and gold - this conjunction of effects make no sense to me.

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.

[icm63]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I also think you're missing the overall point from EJ and others about the ability of a CB or government to inflate or create money at will. The world does not have to lend any country money in order for inflation to be created.

True, but if USA prints and prints what the point of China and Japan holding loosers, they may as well cut losses and sell, and that will be a lot of paper for the FED to buy up. Agency debt included.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Bart thanks for the nice chart of the 1940s..

In the 1930's what was the USA government debt/GDP ratio then, was it easy for USA to raise govt debt and borrow and spend its way out of deflation. I assume the USA can raise more funds buy selling its bonds to overseas central bankers (using their savings and surpluses god bless them).

So if the world lends USA the money at good rates there is a good chance then, but what if the rates are not so good, and treasury interest rates rally resulting from such massive supply over lack luster demand.

Thats not so good for asset prices...

Debt/GDP was between 20-40% during the period, and yes it was easy to borrow - and also easy for the Fed to create money too, as the monetary base stats show.
Did you see what happened when both base and debt increased on my chart covering 1920-1940, after a lag? And what happened when they both started dropping in 1935-36, after another similar lag?

I also think you're missing the overall point from EJ and others about the ability of a CB or government to inflate or create money at will. The world does not have to lend any country money in order for inflation to be created.


Additionally, in theory a world wide inflation or hyperinflation could occur without any country lending any other country anything.