Deflation-Inflation argument heats up

[sunskyfan]

Re: Deflation-Inflation argument heats up

I would say that correct adjective to use about government spending is not"reckless" it is "panicked". We are being kept in the dark for the most part about what is going on in the BIG banks. If this was an inflation party then why?

[sunskyfan]

Re: Deflation-Inflation argument heats up

I was not being a gold basher. Ever been on the other end of suggesting that inflation may not come around here ? I was having fun with the the folks who are sharp in a single (not simple) minded way about gold and it's kissing cousin inflation that's all.

[FRED]

Re: Deflation-Inflation argument heats up

I was not being a gold basher. Ever been on the other end of suggesting that inflation may not come around here ? I was having fun with the the folks who are sharp in a single (not simple) minded way about gold and it's kissing cousin inflation that's all.

Inflation arrived in 2008 and never left. It is less obvious in certain prices, such as gasoline, but otherwise look around you for Inflation in America - Part I: Five signs of inflation and more.

Gold is not rising in price. As we have warned for a decade, the dollar is losing purchasing power.

[mickeyc21]

Re: Deflation-Inflation argument heats up

Deflation is what is happening. There is no argument.

The last thread on this topic had people claiming prices were rising. Even the AP can see this is not true:
http://apnews.myway.com/article/20091004/D9B4D6C01.html

Credit is contracting faster than the monetization that is occurring. "Disinflation" is disingenuous. We are experiencing the very definition of deflation.

Inflation way well be a serious threat in the future. It is not a threat now unless you believe that employment will come roaring back and everyone decides that paying the mortgage is a good investment.

It takes money supply AND DEBT people! Debt is money until it doesn't get repaid. Not paying the mortgage or the credit card permanently destroys a large amount of purchasing power. The Fed has been trying to simply fill this gap.

It is not worth trying to have a discussion with a gold bug as the shiny metal drives people crazy. I own gold and I own it for the same reason that most people do: disaster insurance. I could care less about inflation in regards to my gold holdings.

You can be right for the wrong reasons and iTulip's self congratulation on "winning" the inflation argument simply looks ludicrous to anyone paying attention. Expand your timeline a little and say it will happen later but claiming victory now makes me question the intellectual honesty of the sites writers.

[np]

Re: Deflation-Inflation argument heats up

Interesting observation on ism prices paid today : http://www.zerohedge.com/sites/defau...ces%20Paid.jpg

[jtabeb]

Re: Deflation-Inflation argument heats up

[quote=mickeyc21;126711]Deflation is what is happening. There is no argument.
quote]

Wrong, Wrong, and WORNG!!!

"Virtually without exception, hyperinflation arises as a result of a collapse of the currency. It does not stem from demand pull or costs running out of control.
The prerequisites for hyperinflation are a deflationary or non-inflationary recession/depression leading to major government deficits. The government issues debt paper to finance the deficits. Initially investors continue to buy the government bonds especially as in the case of the US with the dollar being a reserve currency. This is the first stage of the money printing cycle.
Then foreign investors stop buying the bonds and the government has to buy their own paper. This is the second stage of the money printing cycle which is called quantitative easing (a nonsensical fancy word for money printing).
As the money printing accelerates due to growing deficits, foreigners will no longer buy the worthless paper and the currency begins to fall. This leads to a vicious circle of a falling currency, more money printing, inflation and finally hyperinflation. I realise that this is simplified version of the course of events leading to hyperinflation but I believe in explaining things so that most people can understand.
In my view the quantitative easing will now accelerate both in the UK and the US. Unemployment is going up in both countries. Real unemployment in the US is over 20% which is 30 million people. With dependents there are now 100 million people in the US affected by unemployment.
In the UK real unemployment including benefit seekers is 17% or 6.4 million. Including dependents there are 20 million people affected by unemployment. That means that both in the US and in the UK there around 1/3 of the population is affected by unemployment and the numbers are getting bigger daily. This is an untenable situation.
The next area which will necessitate acceleration in money printing this autumn is the financial system. None of the problems in the banks or the financial system have been solved in the last 12-18 months. They have just been swept under the carpet. The toxic debt situation is still critical. A big percentage of the $1 quadrillion derivatives is worthless.
The lower figure, circa $500 trillion, of outstanding derivatives published by the BIS is just another “adjustment” in order to massage the figures. Other major problem areas in the US are Option A and Alt A mortgages. This could be a bigger problem than sub-prime. Then we have commercial real estate, personal credit, car loans, etc. Most of these loans were raised in good times and there is no chance whatsoever that they will be repaid in bad times. The average Americans is one pay check from bankruptcy. The UK is in a similar position.
My strong opinion is that the US dollar and the UK pound are going to very weak this autumn. This is the beginning of the hyperinflationary stage which will later spread to many countries. "

[jtabeb]

Re: Deflation-Inflation argument heats up

[quote=mickeyc21;126711]Deflation is what is happening. There is no argument.
quote]

Wrong, Wrong, and WORNG!!!

"Virtually without exception, hyperinflation arises as a result of a collapse of the currency. It does not stem from demand pull or costs running out of control.
The prerequisites for hyperinflation are a deflationary or non-inflationary recession/depression leading to major government deficits. The government issues debt paper to finance the deficits. Initially investors continue to buy the government bonds especially as in the case of the US with the dollar being a reserve currency. This is the first stage of the money printing cycle.
Then foreign investors stop buying the bonds and the government has to buy their own paper. This is the second stage of the money printing cycle which is called quantitative easing (a nonsensical fancy word for money printing).
As the money printing accelerates due to growing deficits, foreigners will no longer buy the worthless paper and the currency begins to fall. This leads to a vicious circle of a falling currency, more money printing, inflation and finally hyperinflation. I realise that this is simplified version of the course of events leading to hyperinflation but I believe in explaining things so that most people can understand.
In my view the quantitative easing will now accelerate both in the UK and the US. Unemployment is going up in both countries. Real unemployment in the US is over 20% which is 30 million people. With dependents there are now 100 million people in the US affected by unemployment.
In the UK real unemployment including benefit seekers is 17% or 6.4 million. Including dependents there are 20 million people affected by unemployment. That means that both in the US and in the UK there around 1/3 of the population is affected by unemployment and the numbers are getting bigger daily. This is an untenable situation.
The next area which will necessitate acceleration in money printing this autumn is the financial system. None of the problems in the banks or the financial system have been solved in the last 12-18 months. They have just been swept under the carpet. The toxic debt situation is still critical. A big percentage of the $1 quadrillion derivatives is worthless.
The lower figure, circa $500 trillion, of outstanding derivatives published by the BIS is just another “adjustment” in order to massage the figures. Other major problem areas in the US are Option A and Alt A mortgages. This could be a bigger problem than sub-prime. Then we have commercial real estate, personal credit, car loans, etc. Most of these loans were raised in good times and there is no chance whatsoever that they will be repaid in bad times. The average Americans is one pay check from bankruptcy. The UK is in a similar position.
My strong opinion is that the US dollar and the UK pound are going to very weak this autumn. This is the beginning of the hyperinflationary stage which will later spread to many countries. "

[GRG55]

Re: Deflation-Inflation argument heats up

Interesting observation on ism prices paid today : http://www.zerohedge.com/sites/defau...ces%20Paid.jpg

Yep, we're going into another deflation scare.

The Fed will have no problem justifying easy money policies from here to eternity at this rate. And Fiscal Stimulus II is no doubt in the works [although politically they'll probably have to invent some other name for it, like Put America To Work, or something like that ]

All we need to complete the picture is falling asset [e.g. stock market] prices and that should crush the remaining inflationistas out there and get everyone back into the US Dollar.

[MarkL]

Re: Deflation-Inflation argument heats up

Deflation is what is happening. There is no argument.

The last thread on this topic had people claiming prices were rising. Even the AP can see this is not true:
http://apnews.myway.com/article/20091004/D9B4D6C01.html

Credit is contracting faster than the monetization that is occurring. "Disinflation" is disingenuous. We are experiencing the very definition of deflation.

Inflation way well be a serious threat in the future. It is not a threat now unless you believe that employment will come roaring back and everyone decides that paying the mortgage is a good investment.

It takes money supply AND DEBT people! Debt is money until it doesn't get repaid. Not paying the mortgage or the credit card permanently destroys a large amount of purchasing power. The Fed has been trying to simply fill this gap.

It is not worth trying to have a discussion with a gold bug as the shiny metal drives people crazy. I own gold and I own it for the same reason that most people do: disaster insurance. I could care less about inflation in regards to my gold holdings.

You can be right for the wrong reasons and iTulip's self congratulation on "winning" the inflation argument simply looks ludicrous to anyone paying attention. Expand your timeline a little and say it will happen later but claiming victory now makes me question the intellectual honesty of the sites writers.

I don't think Eric is claiming that severe-inflation is here, ubiquitously, permanently, and across segments, just that signs of it are appearing in various areas, such as the downsizing of products, the substitution of cheaper ingredients, and in particular types of products and classes and that this is the beginning of the inflationary trend. Thus, I also think Eric is stating that deflation (or disinflation) has ended, indicating that at this point we are moving towards an inflationary trend.

I, personally, would not be surprised to see another round of deflation as in Ka-Ka-Poom. There's still a lot of bad commercial mortgages, bad consumer mortgages, bad Pension Plans and bad Banks that will vacuum up capital.

But regardless of whether Eric has accurately called the exact point that deflation stopped and we turned the corner to inflation, or not, his general insights are far more accurate than any other source I'm aware of. For me, the question is not whether Eric was exactly right on any one point. This is economics! The question is whether he was more right than everybody else. IMHO, the answer is unquestionably "yes."

[LorenS]

Re: Deflation-Inflation argument heats up

I'm a gold bug too, but unlike Abby Jo, I never put nor recommended to anyone a 70% weighting of my portfolio into it. I've never borrowed money for PM investments and certainly wouldn't recommend it. Most folks who buy gold aren't anywhere near the brain dead lemmings that most stock or house investors have been.

My gold has done well, and my cash has outperformed "stocks". My energy stocks have done OK, but not great.

If gold and silver go into the tank I'll still have pretty metal discs and loads of cash, stocks and bonds. How many stock investors were/are equally prepared for a total bust in their favorite market?

My house is the only asset I "own" that can put a big hole in my finances (due to the mortgage). It likely will too.

I'm not confident in anything. The future is determined by human decisions - not math, not the best theory. We will have the future we collectively create - that's the scary part.

[ThePythonicCow]

Re: Deflation-Inflation argument heats up

But please stop talking about 'inflation' or 'deflation' as if they were some well-defined monolithic terms where "printing money -> hyper-inflation in prices -> gold goes through the roof" causal-mish-mash is the only 'definition' used to think with. It's not. And shouldn't be.

That's not only counterintuitive, but conceptually messy and will risk YOU losing YOUR wealth, because you have too blunt instruments to think with and you can't understand what is going on.

Yup.

We will have fewer dollars to spend, and most of what we purchase will cost more.

We will have less wages from our jobs, as we work fewer hours at flat or depressed wage rates. We will have less from our borrowing, as we deleverage.

It will cost more as the dollar loses its global reserve status and everything imported or depending on imports costs more.

The simple "supply-demand" curves for money are -not- the entire picture. No doubt too many dollars are sloshing about the world, and it's getting worse. That much will be labeled "inflation." But the average American individual and business sees fewer spendable dollars, not more. That will be labeled "deflation."

The inflation-deflation debate will rage on. I need to learn to tune it out better, as I've already learned to do with the anthromorphic global warming/cooling/change ruckus.

But halcyon, it surprised me when you ended your comment with a recommendation we re-read EJ each time we gain further understanding of these matters. I find EJ firmly on the "now we are entering inflation, after the brief anticipated bout of deflation" side of things. He seems just as wound up in the Great Inflation vs Deflation Debate as the next guy. Am I missing something? What's your take halcyon on EJ's position on this topic?

[metalman]

Re: Deflation-Inflation argument heats up

Yup.

We will have fewer dollars to spend, and most of what we purchase will cost more.

We will have less wages from our jobs, as we work fewer hours at flat or depressed wage rates. We will have less from our borrowing, as we deleverage.

It will cost more as the dollar loses its global reserve status and everything imported or depending on imports costs more.

The simple "supply-demand" curves for money are -not- the entire picture. No doubt too many dollars are sloshing about the world, and it's getting worse. That much will be labeled "inflation." But the average American individual and business sees fewer spendable dollars, not more. That will be labeled "deflation."

The inflation-deflation debate will rage on. I need to learn to tune it out better, as I've already learned to do with the anthromorphic global warming/cooling/change ruckus.

But halcyon, it surprised me when you ended your comment with a recommendation we re-read EJ each time we gain further understanding of these matters. I find EJ firmly on the "now we are entering inflation, after the brief anticipated bout of deflation" side of things. He seems just as wound up in the Great Inflation vs Deflation Debate as the next guy. Am I missing something? What's your take halcyon on EJ's position on this topic?

the 'debate' is over.

no deflation spiral.

no stag-deflation.

the only guys still arguing are the mish-mashies who can't understand why oil is $75 when physical oil demand is off 30% from 2001 when oil sold for $16.

they don't get that there are two economies... fire & p/c.

they don't get the relationship between asset inflation and commodity inflation.

their conceptual model was wrong so the predictions they made were wrong.

what a waste of time to keep rehashing it.

move on.

the masters of the universe prevented a new great depression.



cost?

$1 trillion of crap on the fed's balance sheet.

$1.4 trillion 2009 deficit.

now what happens?

[jpatter666]

Re: Deflation-Inflation argument heats up

the 'debate' is over.

no deflation spiral.

no stag-deflation.

Agreed. But I could see my way to the Ka-Ka-Poom thesis -- especially in tandem with an S&P crash. Short, brief and nasty with Poom likely right on the heels, but still there.

[ThePythonicCow]

Re: Deflation-Inflation argument heats up

the 'debate' is over.

no deflation spiral.

no stag-deflation.

I did not suggest either a deflationary spiral or stag-deflation.

I realize, metalman, that any post I make with either of the words "inflation" or "deflation" in them may well provoke recitation of the iTulip party-line from your good self. Nor can I say as I quite blame you; if I were you, I'd read EJ's posts with far more care than I would This Pathetic Cow's posts . Heck, even I myself, said cow personified, do as much.

However I suspect that this inflation/deflation debate will continue for a while in the larger world, for the reasons I stated in my previous post.

[ST]

Re: Deflation-Inflation argument heats up

There's not many predictors of success, but there is one decent predictor of failure: intellectual hubris.

Let's presume an equity crash occurs, if you recall EJ's S&P500 to 500-600 just six months ago, one of the many assumptions is that the Fed steps in far quicker to reflate than it did last time. Why is this assumption valid? If anything has the Fed not gained confidence by witnessing oil crashing from $147 to $30, without slipping into a deflationary spiral? That reflation was not quick, where asset/commodity prices was concerned.

I think we are too quick to judge that the next movement, must be so different from the last - dogma that assumes the next event must always be unrecognizable. We assume that the Fed, whom EJ has acknowledged, can pull most of the levers, if not the combined G8 central bank club, will push headlong into a stagflation cycle without trying to bring prices down to a more acceptable range to promote their version of economic growth. I would suggest that, if anything, the Fed has gained confidence that it can and will be able to set prices in a range they deem acceptable. This leaves open the chance that underlying prices will not rise in the fashion EJ thinks.

I am not saying for certain that I think this will or will not happen. What I am saying is that to presuppose you know precisely what is going to happen over the next 1-18 months, let's say, is in complete contradiction with EJ's short term track record which does not support, overall, being right in the short term. What becomes important is cumulative error over the long run, and this is where EJ's record shines, notwithstanding short term blips. So you must leave open the possibility that with so many potential catalysts, arguably more than we have witnessed during the past ten years, there is plenty of opportunity for things to go unexpectedly over say 1-18 months, if not longer.