Nov 142013
 
 November 14, 2013  Posted by at 9:52 am Finance


Dorothea Lange Social Security Tattoo August 1939

“Unemployed lumber worker goes with his wife to the bean harvest, Oregon”

Don’t get me wrong, I’m not saying things will happen in this order and timeframe. Just that they’re going to if central banks and treasury departments don’t up the ante. But they will. The question becomes more important now whether it’ll be enough to continue keeping their – presumed – demons at bay. They can’t go on forever. You can inflate asset price bubbles only so much. And then people will lose faith. So the order and timeframe is definitely an option.

Deflation is already here. Everyone’s talking about lower inflation numbers than expected everywhere, but prices have been pushed up artificially in so many ways and in so many places that, even given the fact that they all ignore what inflation really is, it’s getting profoundly absurd. Ironically, a few interesting lines this week came from an unexpected corner, the Telegraph editorial staff:

 

The last thing highly-indebted Britain wants is price deflation

 

The drop in the level of inflation revealed by the Office for National Statistics took some analysts and economists by surprise. It had been anticipated that CPI inflation would fall from its 2.7% mark in September to just 2.5% last month. Instead, it plunged to 2.2%, with the biggest downward contributions coming from transport.

It sparked questions – with much of continental Europe spiralling towards deflation and risking a repeat of Japan’s own crisis – over whether the whole world could be moving into deflationary mode.

At a time of near-double-digit increases in energy bills, this might seem a rather hard case to argue, yet the fact of the matter is that even in traditionally inflationary Britain, price pressures are easing fast.

[..] … on closer scrutiny, the sort of inflation currently being seen is mainly down to so-called “administered prices”, or prices which are being deliberately pushed up by government diktat either as part of the deficit reduction programme or green agenda.

Recently announced increases in energy bills are calculated by the Bank of England to have added 15 basis points to the CPI inflation outlook, a not insignificant amount but not enough to change the big picture on inflation. Most of the pressures right now are on the downside. Some European countries are, however, already in technical price deflation. Both Spain and Sweden, for instance, have recently reported an annual fall in prices, and even parts of Germany are experiencing month-on-month price contraction.

But then the last place a highly indebted nation such as Britain wants to be in is outright price deflation. There may not be much danger of that yet for the UK but the world as a whole seems very much to be drifting in that direction. This is worrying, not least because it implies continuation into the almost indefinite future of today’s very low interest rate environment. This doesn’t seem to be doing a great deal for demand but it is certainly putting a rocket under asset prices, creating bubbles and now fairly obvious misallocation of capital.

 

I’m indebted to the Telegraph for giving a name to something I have denounced several times in the past: governments raising “inflation” levels through taxes. My argument of course is that taxes should never be counted towards inflation, because doing so would mean inflation and deflation are easy as pie to control by governments (which they are very obviously not, or this “control” would be applied all the time and there would never be any inflation or deflation). Anyway, we can now call this phenomenon “administered prices”…

The paper neglects to note that this is one of the main ways in which Japan purports to fight its deflation: through higher taxes. That will not end well. Look, one more time: inflation means an increasing money supply and/or a higher velocity of money. No more, no less, and certainly not higher prices by themselves. If the money supply increases and/or the velocity of money does, prices will rise, but only as a consequence, and across the board. Nothing to do with taxes. And if for instance the Big Six UK energy companies raise their prices through fraudulent bookkeeping, that doesn’t – and shouldn’t – count towards inflation, but towards fraud.

As for the velocity of money, you can see in this graph from Lacy Hunt and Van Hoisington (more on them later) that in the US, it’s come down in just 15 years from the highest point in more than 100 years to the lowest in the past 60 years. That is huge. That must have a tremendous influence on the economy, no matter what unemployment numbers are released, or what records stock markets set. As economic data go, the latter ones can only be entirely secondary to this:

 


When the velocity of money is that low, and we know there’s no huge increase in the money supply (though there may be in the monetary base), how can inflation numbers still be positive? Good question. You tell me.

 

That deflation (money supply and/or velocity of money shrinks and, only after that, prices and wages fall) is a growing worry, becomes clear through the following Bloomberg piece as well. It’s just that until now it remained hidden behind a veil of – mostly – central bank stimulus measures, which are behind various asset bubbles. Most of it is credit, backed by taxpayers, doled out to financial institutions and invested in stocks. Or, you know, the UK cabinet supplies cheap housing credit, people fall into the trap and buy their dream home, and, voila, “inflation” numbers go up. All nonsense designed to keep you from finding out what’s really going on, and to keep using your money to keep banks from going bankrupt. Bloomberg:

 

Central Banks Risk Asset Bubbles in Battle With Deflation Danger

 

Central banks are finding it’s easier to push up stock and home prices than it is to prevent inflation from falling short of their targets.

While declining costs for everything from gasoline to coffee can be good news for consumers, disinflation makes it harder for borrowers to pay off debts and businesses to boost profits. The greater danger comes when disinflation turns into deflation, which leads households to delay purchases in anticipation of even lower prices and companies to postpone investment and hiring as demand for their products dries up.

Federal Reserve Chairman Ben S. Bernanke and his central-bank counterparts are trying to avert the deflationary danger by pumping up their economies with lower interest rates and monetary stimulus. They have bet the run-up in stock and home prices they’ve engineered would boost consumer and corporate confidence and spur faster growth and higher inflation. Now they’re having to maintain or intensify their aid – running the risk those efforts do more harm than good by boosting equity and property prices to unsustainable levels.

“You have a wall of liquidity” that’s “leading to asset inflation and eventually to bubbles,” Nouriel Roubini, chairman of Roubini Global Economics LLC, said Nov. 7 on Bloomberg Television’s “Street Smart.”

Global inflation will be about 2.8% this year, the second-lowest since World War II, amid high unemployment in developed nations and slowdowns in emerging markets, according to Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. Even after policy makers slashed interest rates and bought bonds, about two-thirds of 27 inflation-targeting central banks tracked by Morgan Stanley still are undershooting their goals or watching prices rise in the lower end of preferred ranges.

“We have seen, in the last months, deflationary tensions building up,” Laurent Freixe, executive vice president of Nestle SA, the world’s biggest food company, said in an Oct. 17 conference call. “There is no growth in the marketplace, so everyone is fighting for a share of a shrinking pie.” [..]

 

It might be more accurate to say we increasingly have multiple claims to the same pieces of the pie.

 

The central-bank largess is buoying world stock markets, as investors seek higher returns than they can get with government bonds. Japan’s Nikkei 225 Stock Average is up 40% this year. The MSCI World Index, which includes both emerging and developed country markets, has risen 19%. [..]

Home prices also are rising. The S&P/Case-Shiller index of property values in 20 U.S. cities climbed 12.8% in August from a year earlier, the fastest pace since February 2006. U.K. house prices increased for a ninth month in October, while apartment values in parts of Germany have jumped by an average of more than 25% since 2010. [..]

 

The easy money lacks punch because the “pipes” that carry stimulus from financial markets to the rest of the economy are “clogged,” Mohamed El-Erian, Pimco’s chief executive officer, said in an interview.

 

So why don’t you explain to us what Bernanke has done to unclog those pipes, Mo?

 

Commodity prices have fallen as demand from China and other developing economies has ebbed. The Washington-based IMF forecasts oil prices will slump 7.7% next year while non-fuel commodities will drop 2.9% in dollar terms. It also projects governments will keep cutting budgets, with the aggregate deficit of advanced nations at 4.5% of gross domestic product this year and 3.6% next year.

The region most at risk is the 17-nation euro area, where banks are deleveraging and wages are falling in nations including Spain. The ECB already is turning more aggressive after inflation slumped to a four-year low of 0.7% in October, less than half its target of just below 2%. Prices may not pick up any time soon, Draghi has warned. Unemployment is a record 12.2%, and the European Commission said last week it anticipates growth of just 1.1% in 2014.

“Deflation is not imminent, but it has to be on the mind of central bankers,” ECB Governing Council member Ewald Nowotny said yesterday in Vienna. The central bank still needs to do more because “a ‘Japanification’ of the euro area is a clear and present danger,” Joachim Fels, co-chief global economist at Morgan Stanley in London, said in a Nov. 10 report to clients.

Avoiding that fate may be hard. While Draghi has raised the possibility of charging banks to park cash at the ECB, colleagues have warned a negative deposit rate could hurt banks’ profitability and make them even less willing to lend. [..]

The Fed has found that expanding its balance sheet — now at a record $3.85 trillion — hasn’t been a panacea. Since the U.S. recession ended in June 2009, growth has fallen short of its predictions, and in nine of the last 10 estimates for 2013, policy makers have lowered their forecasts. Inflation, too, is lower than projected and has undershot the Fed’s 2% target starting in May 2012. The personal-consumption-expenditures index, the board’s preferred gauge, increased 0.9% in September from a year earlier, matching April for the lowest since October 2009. The rate will stay low in 2014, at about 1.25%, according to Sinai.

 

People are not spending, i.e. the velocity of money has fallen. A lot. And no, tempting them into more cheap credit is no solution for that. Because that means more debt. And it’s debt that is dragging economies down in the first place.

 

In Japan, the BOJ has had some success in battling deflation after swinging into action in April, when it pledged to double the monetary base through purchases of government bonds and other assets. Consumer prices excluding fresh food rose 0.7% in September from a year earlier, down from 0.8% in August, the fastest increase since November 2008. The yen has dropped about 20% against the dollar in the past year, boosting prices of imported goods. “Core inflation is now no longer negative,” said Jerald Schiff, deputy director of the IMF’s Asia-Pacific Department. That “is a major victory in the Japanese context.”

 

Yeah, but Japan does this through “administered prices”, prices which are being “deliberately pushed up by government diktat”. Again, if that could work, everybody would be doing it, and all the time.

 

While the aggressive actions that central banks have taken haven’t done all that much for global growth, they have boosted asset values worldwide, pushing home prices from Canada to Australia and Sweden to China to levels that may turn out to be unsustainable. Some Fed officials have pointed to costlier homes, farmland and bonds as causes for concern.

“We’ve seen real bubble-like markets again,” Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager with $4.1 trillion in assets, said at an Oct. 29 panel discussion in Chicago.

 

See, what these people are saying is in essence that Fed policies have not had the desired effect, or not enough of it, and now things are getting even worse, because they were so wrong, and deflation looms (even if many prefer for now to call it disinflation).

I have a problem with that. Which is that I, and others with me, have said for years that this would happen, that QE wouldn’t “help” the real economy. Just look up what debt deflation is, and it all becomes clear. It’s embarrasingly simple.

I mean, what exactly is the idea? That Ben Bernanke honestly tried to fight unemployment by stuffing the accounts Wall Street banks have with his own Fed, full of excess reserves? Because that’s all QE has resulted in in practical terms, isn’t it? I know that it has probably affected the “mood” in the markets somewhat as well, but is that really something Bernanke should fake? Is that part of his mandate as well, to fool people into believing things? I don’t see how.

Really, how wrong can a man in his position be before he’s pushed to look for alternative employment? And don’t look for any relief from Janet Yellen either, she’s been part of that same Fed all these years that continues to hand out $85 billion a month and has nothing to show for it other than some perceived moodswing and those bloated excess reserve accounts. Here’s what Yellen will say today in her nomination hearing before the Senate Banking Committee:

 

“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases … I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy. [..] … the Fed has “made progress in promoting a strong and stable financial system, but here, too, important work lies ahead.” “Her approach is let’s do more QE now to get the job done faster,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York … “Yellen is repeating her commitment to getting the job done.”

 

In other words: Yellen’s not going to change a thing, despite that fact that everything the Fed has done so far has been a huge and costly failure as far as the real economy is concerned, which is what the Fed claims to be execute QE for.

 

I am not kidding you: this is a real problem for me. Because either those who keep claiming that Bernanke and the rest of the Fed board have made nothing but honest mistakes for years are right, and I am profoundly stupid – which I don’t think I am -, or I am right and the Fed is loaded with really stupid people. And I don’t believe that either.

There is a third option, however and of course: that the Fed has not at all been doing what they say they have, and it wasn’t a long line of mistakes, but something else altogether.

Found a fitting description of that too. In a highly interesting must read piece by Yanis Varoufakis. Fitting, also, because what the Fed does is the same thing the ECB does.

 

Ponzi Austerity – A Definition and an Example

 

Ponzi austerity is the inverse of Ponzi growth. Whereas in standard Ponzi (growth) schemes the lure is the promise of a growing fund, in the case of Ponzi austerity the attraction to bankrupted participants is the promise of reducing their debt, so as to liberate them from insolvency, through a combination of ‘belt tightening’, austerity measures and new loans that provide the bankrupt with necessary funds for repaying maturing debts (e.g. bonds).

As it is impossible to escape insolvency in this manner, Ponzi austerity schemes, just like Ponzi growth schemes, necessitate a constant influx of new capital to support the illusion that bankruptcy has been averted. But to attract this capital, the Ponzi austerity’s operators must do their utmost to maintain the façade of genuine debt reduction.

The obvious thing to do, under the circumstances, would be for Athens to default on the bonds that the ECB owned. But this was something that Frankfurt and Berlin considered unacceptable. The Greek state could default against Greek and non-Greek citizens, pension funds, banks even, but its debts to the ECB were sacrosanct. They had to be paid come what may. But how? This is what they came up with in lieu of a ‘solution’: The ECB allowed the Greek government to issue worthless IOUs (or, more precisely, short-term treasury bills), that no private investor would touch, and pass them on to the insolvent Greek banks.

The insolvent Greek banks then handed over these IOUs to the European System of Central Banks (through the so called ELA program of the ECB) as collateral in exchange for loans that the banks then gave back to the Greek government so that Athens could repay… the ECB. If this sounds like a Ponzi scheme it is because it is the mother of all Ponzi schemes.

[The creation of the first Ponzi Austerity scheme in Greece] is but one example of the vicious cycle of Ponzi Austerity that is being replicated incessantly throughout the Eurozone. Its stated purpose is to reduce debts. But debt is rising everywhere. Is this a failure? Yes and no. It is a failure in terms of the EU’s stated objectives but not in terms of the underlying ones.

For, in reality, the true purpose of the ‘bailout’ loans was to effect a cynical transfer of the Periphery’s bad debts from the books (mainly) of the Northern European banks to the shoulders (mainly) of Northern Europe’s taxpayers. Sadly, this cynical transfer, effected in the name of European ‘solidarity’, led to a death dance of insolvent banks and bankrupt states – sad couples that were sequentially marched off the cliff of competitive austerity – with the awful result that large sections of proud European nations were dragged into the contemporary equivalent of the Victorian Poorhouse.

 

Great article. Great novel view of things. And a great quote. Let’s get back to the Fed.

We can say for the Fed what Varoufakis says about the ECB (and the troika):

Fed policies. A failure. Yes and no. A failure in terms of stated objectives but not in terms of the underlying ones

Is the Fed trying to revive the US economy? If they are, they have been making lots of mistakes. Lots. Too many. All they’ve done is make mistakes. Other than creating a moodswing. But those are notoriously temporary. And this one depends on financial markets expecting more and more “free money“, not on an improving economy. What do they care, if the money keeps coming anyway?

This QE game has raised the Fed balance sheet by well over $3 trillion. And ballooned the too-big-to-fail-but-dead-broke banks’ accounts with the Fed by about the same amount.

 

But still, you have these respected analysts who keep on hammering the same single tune: it’s all mistakes, none of it happens on purpose. Like Lacy Hunt at Hoisington:

 

Federal Reserve Policy Failures Are Mounting

 

[..] … when an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.

[..] … the Fed’s forecasts have consistently been too optimistic, which indicates that their knowledge of how Large Scale Asset Purchases (LSAP) operates is flawed. LSAP obviously is not working in the way they had hoped, and they are unable to make needed course corrections. [..]

If the Fed were consistently getting the economy right, then we could conclude that their understanding of current economic conditions is sound. However, if they regularly err, then it is valid to argue that they are misunderstanding the way their actions affect the economy.

During the current expansion, the Fed’s forecasts for real GDP and inflation have been consistently above the actual numbers.

One possible reason why the Fed have consistently erred on the high side in their growth forecasts is that they assume higher stock prices will lead to higher spending via the so-called wealth effect. The Fed’s ad hoc analysis on this subject has been wrong and is in conflict with econometric studies. The studies suggest that when wealth rises or falls, consumer spending does not generally respond, or if it does respond, it does so feebly. During the run-up of stock and home prices over the past three years, the year-over-year growth in consumer spending has actually slowed sharply from over 5% in early 2011 to just 2.9% in the four quarters ending Q2.

Reliance on the wealth effect played a major role in the Fed’s poor economic forecasts. LSAP has not been able to spur growth and achieve the Fed’s forecasts to date, and it certainly undermines the Fed’s continued assurances that this time will truly be different. [..]

The standard of living, as measured by real median household income, began to stagnate and now stands at the lowest point since 1995. Additionally, since the start of the current economic expansion, real median household income has fallen 4.3%, which is totally unprecedented. [..]

Over-indebtedness is the primary reason for slower growth, and unfortunately, so far the Fed’s activities have had nothing but negative, unintended consequences.

Another piece of evidence that points toward monetary ineffectiveness is the academic research indicating that LSAP is a losing proposition. The United States now has had five years to evaluate the efficacy of LSAP, during which time the Fed’s balance sheet has increased a record fourfold.

It is undeniable that the Fed has conducted an all-out effort to restore normal economic conditions.

 

No, Lacy, that is not undeniable. I just did. And I have to wonder: why would you say that? Why would anyone? Do you really believe all you said there? That this entire group of more than average intelligent people make all these mistakes, and misinterpret all of these signals, despite having more and better access to data than anyone else, and you still don’t wonder if perhaps they’re not trying to do what they say they are? How can you claim to be an analyst if you don’t even question your most basic assumptions? How is that analysis and not apologism?

 

John Hussman writes some good market opinion, but he sort of falls into the same apology trap:

 

Leash the Dogma

 

It’s fascinating to hear central bankers talk about the economy, because in the span of a few seconds they can say so many things that simply aren’t supported by the evidence. [..] quantitative easing essentially proposes that rapid increases in the monetary base can achieve reductions in the unemployment rate. But when we examine the data, we find very little to support this view, regardless of whether the relationship is posed in terms of growth rates, levels, changes, coincident changes, or subsequent changes in unemployment. [..]

In my view, most of the response to quantitative easing reflects psychological factors rather than mechanistic ones. Certainly the scale of QE has been enormous, and suppressed short-term interest rates have undoubtedly motivated a reach-for-yield in more speculative assets. But it remains true that the amount of credit market debt in the U.S. is roughly 19 times the current size of the monetary base (with an average maturity of about 5-6 years), while the value of U.S. equities is easily over 6 times the monetary base.

So quantitative easing effectively relies on the extent to which investors shun zero-interest cash amounting to less than 3.9% of that available portfolio. In any environment where low-interest but liquid and non-volatile securities become desirable as even a small part of investor portfolios, quantitative easing is likely to lose its presumed ability to “support” financial markets. [..]

The truth is that Fed policy has the capacity to do enormous damage by adding fuel to asset price bubbles when investors are already inclined to take risk, yet has very little power to “support” asset prices when investors are inclined to avoid risk. The confidence that the Fed can, in all circumstances, drive asset prices higher is largely psychological – mostly due to misattributing the 2009 recovery to monetary policy instead of the move to end “mark to market” accounting. Yet even to the extent that stocks have been driven higher, there is very little evidence that the “wealth effect” on jobs and economic activity has been large. This is something that the Fed should have understood years ago. [..]

I continue to believe that it is plausible to expect the S&P 500 to lose 40-55% of its value over the completion of the present cycle, and suspect that whatever further gains the market enjoys from this point will be surrendered in the first few complacent weeks following the market’s peak.

 

See? they’re doing everything wrong. Ergo: boy, must they be stupid. Only, that second part is left out.

What I do find interesting is Hussman’s last claim: that it’s plausible to expect the S&P 500 to lose 40-55%. And he’s got a nice graph to show where things stand:

 

 


What can hold off a crash? Probably only more asset purchases by the Fed, and temporarily at that. Enter Janet Yellen stage left. Or does anyone doubt that the S&P would look completely different if QE had never happened? But even then. The people at the Fed are aware of the velocity of money data, they’re not nearly as thick as the analysts make them out to be. They know they’ve long lost the deflation battle. Maybe they can move people to take some of their money out of stocks and into something else, something that moves money around a bit more. Or maybe they can push some money or credit into the real economy through real estate prices. The problem there is that increasing credit doesn’t do much, if anything at all, that can be seen as positive. Not in an already hugely overindebted economy.

At some point you need to ask: stock market crash? What stock market? How is it still really a stock market if it hinges to such a large extent on the Fed pumping money into Wall Street banks? At the very least, you might question if the S&P still reflects an actual market at all, if that market is supposed to reflect what goes on in the economy, and obviously doesn’t. You might want to ask what purpose such a largely illusionary stock market has, what its use is within the larger economy. And while you’re at it, you might also want to answer what use the financial system as a whole is to the real economy, if all it does is squeeze money out of it.

We know the Fed can prop up the S&P for a while, and though we don’t know for how long, we do know that they’re running out of time. That’s what Hussman’s graph says. And wouldn’t we perhaps be better served by a market, and by data, that better reflect what’s going on in the real economy? So we know where we actually stand, and not what some moodswing or another says about that? The entire market, the entire financial system, has turned into a zombie that feeds on the American people’s life blood.

Let’s redefine all this talk, and call a spade a spade: The Federal Reserve defines and executes policies aimed at aiding the banking system, not the overall US economy. And although the Fed may claim that these are one and the same, it could have known – and it does – that they are not. The idea that supporting the banks equals supporting the US people, is just that: an idea. The Fed, more than anyone else, has access to the data that prove this. It knows how badly off the banks are.

So quit propping them up, throw open their books and let’s start restructuring. If you choose not to – here’s looking at you, Janet – stop pretending you’re acting on your dual mandate, that you have the people’s best interest at heart. There’s no evidence of that anywhere to be found in anything but words.

We may make it to Christmas without a market crash, with lots of happy expectations for record sales and a last bout of happy moodswing. That’s not that interesting. What is, is what’ll happen after that. We already have deflation, once you look past the words. And we have a stock market so grossly overvalued it can only be labeled a zombie. Record holiday sales are not going to materialize with the velocity of money at a 60-year record low. And then what, Janet? Increase QE? Double or nothing for the most costly “failure” in US history? All it takes is for people to keep believing, right?

 

 

Home Forums Deflation, A Stock Market Crash And Then Christmas

This topic contains 26 replies, has 10 voices, and was last updated by  alan2102 3 years, 2 months ago.

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  • #9079

    Dorothea Lange Social Security Tattoo August 1939 “Unemployed lumber worker goes with his wife to the bean harvest, Oregon” Don’t get me wrong, I’m no
    [See the full post at: Deflation, A Stock Market Crash And Then Christmas]

    #8984

    Please note that since we are now actively in transfer to the new site, things added in the meantime may temporarily end up in limbo. Like this post….

    #8985

    Rebecca
    Participant

    I have one quick question for you.

    I agree with your analysis and the trend towards deflation, but how does this account for the continuing rise in food prices and how will that effect and be affected by the larger situation?

    Thanks!

    #8986

    jal
    Participant

    “Deflation is already here.”

    Not for me.
    I think that it is for those with money buying distressed assets with free money from the central banks.

    “People are not spending, i.e. the velocity of money has fallen.”

    I would agree that people are not spending. People who have savings are spending their saving. Since the majority of people don’t have saving, and their costs of what they need are going up then its becomes a simple exercise of cutting in one place to spend in another place.
    Even borrowing/credit has dried up, except, for student loans and car loans.
    On the other hand, the velocity of money has increased among the “big players” getting “free money.”

    If we did not have the internet, very few people would be aware of what is happening.

    “Because either those who keep claiming that Bernanke and the rest of the Fed board have made nothing but honest mistakes for years are right, and I am profoundly stupid – which I don’t think I am -, or I am right and the Fed is loaded with really stupid people. And I don’t believe that either.

    There is a third option, however and of course: that the Fed has not at all been doing what they say they have, and it wasn’t a long line of mistakes, but something else altogether.”

    “That this entire group of more than average intelligent people make all these mistakes, and misinterpret all of these signals, despite having more and better access to data than anyone else, and you still don’t wonder if perhaps they’re not trying to do what they say they are? How can you claim to be an analyst if you don’t even question your most basic assumptions? How is that analysis and not apologism?”

    “At some point you need to ask: stock market crash? What stock market? How is it still really a stock market if it hinges to such a large extent on the Fed pumping money into Wall Street banks? At the very least, you might question if the S&P still reflects an actual market at all, if that market is supposed to reflect what goes on in the economy, and obviously doesn’t. You might want to ask what purpose such a largely illusionary stock market has, what its use is within the larger economy. And while you’re at it, you might also want to answer what use the financial system as a whole is to the real economy, if all it does is squeeze money out of it.”

    “Let’s redefine all this talk, and call a spade a spade: The Federal Reserve defines and executes policies aimed at aiding the banking system, not the overall US economy…. The Fed, more than anyone else, has access to the data that prove this. It knows how badly off the banks are.”

    Since this is not Zero Hedge comment section, I will only say that I’m reminded of an old discussion, by the teen boys of yester-years which I’m sure most of you are familiar, if you are too young to know then ask your grad parents.
    “Did you get to first base?
    Did you get to second base?
    Did you get to third base?

    ( Only a small minority will get to enjoy third base)

    #8987

    pipefit
    Participant

    I think I’m in agreement with Jal’s view of money velocity. According to the chart in the article, velocity of money has been falling (more or less steadily) since 1997, and is now at a half century low. But oil and gasoline prices are far higher than the 2001 and 2009 lows, when money velocity was higher. And there exists the energy price head winds of a huge natural gas glut and rising crude production volumes (USA) and declining crude import volumes.

    So if the problem is a quickly vanishing supply of cheap oil, velocity of money can go to zero and there still won’t be much cheap oil. And every year that goes by means even less legacy cheap oil in the mix.

    We’re almost 6 years into this credit bust, and consumer and producer prices keep grinding higher. If there were any serious monetary deflation it would have bled through to consumer prices by now.

    This isn’t to say there won’t be a stock market crash and massive contraction of the economy. However, it will be hyper inflationary, not deflationary.

    #8988

    davefairtex
    Participant

    Rebecca-

    If you look at global food prices (taken from prices of futures contracts on everything from wheat, sugar, pork, beef, etc), the picture is one of falling prices since 2011, not rising prices. Overall, commodities have dropped too. Including gold & silver. Of course those are global food prices, so prices of local stuff for which there is no international market may vary.

    And since 2012, eurozone bank credit has declined, and right now its declining by 7% per year. “Normal” is growing 5-12% per year (2003-2008), so that’s quite a swing.

    These things all point to deflation, at least over the past few years.

    Naturally I pick 2011 as my reference point, rather than the trough after the 2008-2009 crash. I could also pick 2008 – top of the bubble – and food prices are down from that point as well.

    Again, what we care about for purposes of this discussion is not the price of lettuce in Cleveland, it’s the overall directionality of pressure from the monetary system. Is it inflationary, or deflationary? All my data suggests – deflation.

    The recipe is really pretty simple. Willing borrowers create money via the banking system. And so when bank credit declines, when borrowers default, or repay their loans in aggregate, that’s monetary deflation by definition.

    There was a small business survey in the US – they asked businesses what was their major concern. Inflation was mentioned by 3% as their top concern. Government rules & regulations: 21%, Taxes 20%, poor sales 19%. That’s anecdotal evidence that seems to confirm what my monetary data is showing me.

    Some people get stuck “fighting the last war”; since we’ve had inflation since the Depression, therefore, we must have inflation today, data be damned. And they are convinced that nothing has changed since the 1970s, even though we’ve had a multi-generational debt bubble pop of massive proportions and the credit indicators I watch (especially in the eurozone) supports what Ilargi is saying.

    Why do we care? If we think there is inflation because we just watch lettuce prices, when in fact its deflation that is the overall problem, we might make the wrong decision about what is to come, and how to protect yourself.

    If hyperinflation starts up, it will show up in the data quickly. And I’ll be the first one up on the soapbox talking about it. But until the data supports a hyperinflationary trend – why on earth must we expect that as the logical outcome when the data says otherwise?

    #8989

    Rebecca
    Participant

    Dave,
    I understand basic economics and how inflation and deflation work. I’m not arguing that deflation is not happening in most parts of the economy; you can walk into any big box country in the store today and get a 32″ for as much as $50 less than two or three years ago. Everything is decreasing in price except for necessities.

    Food prices are one of the things that’s rising, and that goes against the deflationary trend. It’s not just “the price of lettuce in Cleveland,” it’s what people require to stay alive. Remember that any society is only three meals away from anarchy. People all over the U.S. who pay attention have been complaining about how much food prices have gone up, and I’ve seen it myself. I watch my family’s food budget quite closely, and the only thing that has gone down this year overall is coffee. Eggs are up 20 cents this year, agave is up 50 cents (wholesale), cocoa powder just jumped 30 cents (though that will probably come back down somewhat due to holiday sales), etc.

    #8990

    davefairtex
    Participant

    Rebecca-

    I did mention that edible items with international prices have (by and large) gone down since 2011. Wheat: down, Corn: down, Soybeans: flat, Cocoa: down, Cattle: down, Sugar: way down, Coffee: way, way down – as you noticed. Coffee is down 66% from its peak.

    They don’t have futures for eggs or Agave, so I can’t comment on those. Likely egg prices are locally determined (i.e. lettuce in Cleveland), and agave – well I’m not sure we should classify that as one of the “things people need to survive.” Although I suppose sugar falls under that heading as well. If the high price of agave disturbs you, you can always switch to sugar. 🙂 I would venture a guess that people on low incomes most likely don’t buy agave.

    Your observation about cocoa is valid – cocoa over the past 6 months IS up 20%, but it still remains down 30% from levels that peaked in 2011. It all depends on where you draw your starting point. If it is six months ago, and you just focus on cocoa, then you’re right.

    Please, do me a favor. Rather than relying on your shopping list to determine price movement of necessities worldwide, look at global/international price charts for the input commodities. That way you are taking a look at a broader picture, not just stuff that affects you personally, in your local area.

    at stockcharts.com:
    $DJAAG (corn, soybeans, wheat, sugar, soybean oil, coffee and cotton)
    $DJASO (cotton, sugar, coffee index)

    $CORN, for instance, is almost HALF of what it was back in 2011 (and 2012). You know, back when Mexico was about to have a revolution because of high corn prices. And of course we don’t hear about that anymore. That’s because corn prices have plummeted. But good news never makes headlines.

    I get most of my aggregate data from the UN FAO, and the rest from looking up individual futures contracts and indices. My request to you: please, go look at the global price data. Then come back and tell me I’m wrong.

    And before you complain that this data is irrelevant or meaningless, the peaks in these charts from FAO correlated pretty closely to the revolutions across the (poor) MENA countries, linking directly back to your point about every nation being 3 meals away from revolution.

    That research here:
    https://necsi.edu/research/social/foodcrises.html

    However, the updated version of those food price charts? Declining from that 2011 peak.

    #8991

    First, you can’t have inflation in one segment of an economy and deflation in another. That’s not how it works. You don’t need to look at food prices to know where you are either, though Dave does an admirable job. That velocity of money graph is really all you need, because it says the money supply would have to explode just to keep up with the downward pull caused by money flowing through the economy at the slowest pace in 60 years. It isn’t. At that pace, increasing the money supply makes hardly any sense, because people are not spending anyway, so it wouldn’t flow. You would also have to see increasing wages, and that too is not happening. There will be no inflation unless people can be forced to spend, and that is near impossible when their debts are so high. On the other hand, there are huge amounts of debt that have yet to be written down, restructured or defaulted on, and all that means more deflationary pressure. Food prices are not a factor in that, certainly at local levels. There is no such thing as food inflation.

    #8992

    Ken Barrows
    Participant

    I think the wage-deflation link nails it. How can inflation rear its ugly head when real wages have been stagnant (in the USA) for 80% of workers since the early 1970s? If wages begin to rise, I’d look at it again. But how can that happen when more and more work is part time?

    #8993

    davefairtex
    Participant

    Ilargi-

    I know food prices shouldn’t be “the metric” for deflation, but I think they are (in aggregate, in terms of overall international price trends) a signpost of sorts. Droughts can confuse things, so can big harvests, so can geopolitics, so its a poor substitute for the more accurate monetary indicators you describe. But because its a signpost everyone understands, I just can’t resist using it.

    Those two factors – credit growth, and velocity – are the important indicators. And not just credit growth anywhere. To be useful in fighting deflation, the new money has to be given to someone who will spend it into the economy – a homeowner, a consumer, a business, etc. If its borrowed by a worried company and the cash sits on the balance sheet, it doesn’t help fight deflation.

    But right now, velocity is dropping, AND credit is contracting. By anyone who understands how things work, and who really take the time to look at the time series and understand what they mean, the conclusions are undeniable.

    The funny thing is, I don’t hear anyone – and really, I mean anyone – talking about declining bank credit in Europe, and to me it’s the smoking gun of why there’s no growth over there.

    Spain – its credit contraction is 14% PER YEAR in overall bank loans, and we know all those Spanish banks are lying through their collective teeth about the extent of their bad debt. [There was a good recent article on that] They are just now starting to come clean. And we imagine with this massive credit contraction Spain will somehow magically return growth? Not. Gonna. Happen.

    Attached files

    #8994

    pipefit
    Participant

    dave said, “…so its a poor substitute for the more accurate monetary indicators you describe.”

    Why not just use y-o-y consumer prices, using the measuring metrics that were in place in 1980, before all the smoothing, seasonal adjusting, and hedonic replacement? In 2011 consumer prices were up 11%, y-o-y, and in the 9% to 8% range in 2012 and 2013.

    When you have a mix of cheap oil and expensive oil, the price is set by the cost of production of the marginal barrel. Demand gets whacked, and the high cost fields get idled, and the price of crude plunges. In 2001 it plunged all the way to $11/bbl, but in 2009, during a far steeper recession, it bottomed at $35/bbl. The higher 2009 bottom represents the much smaller portion of the global oil production stream comprised of legacy cheap oil at that time. And today, legacy cheap oil is an even smaller % of the total.

    We had near perfect growing conditions in the USA farm belt this past growing season, so I wouldn’t put too much hope in lower grain prices staying down. Besides, consumer food prices are a function of many inputs, not just grain prices.

    Why don’t go to the grocery store in the next week or so and buy 100 items that you are sure to buy again in six months time and carefully record their prices and net weights. If there is massive deflation now, don’t you think the identical basket of 100 items will cost much less next May? What if that basket cost 4.5% more(y-o-y 9%)?

    #8995

    Why not just use y-o-y consumer prices

    Because they say nothing about inflation or deflation, other than as a lagging indicator. Why look at prices when you can use much more accurate and immediate indicators? Whether prices fall today or in 6 months or 18 doesn’t tell you much about where an economy is moving. M and V are far superior signs.

    For instance, deflation makes people poorer (reflected today in wages, profits), and of course they will try to make up for what’s lost by raising prices wherever they can. Until they can’t. So at least some prices can very well rise during early phases of deflation, but you get to misinterpret that if you look only at prices.

    #8996

    alan2102
    Participant

    Stock market crash by xmas? Maybe. But predicting market crashes is dangerous business — as Chris Martenson et al learned this year.

    Nadeem Walayat, proprietor of marketoracle.co.uk, has a different view, below. We’ll see who is right.

    https://www.marketoracle.co.uk/Article43068.html
    Stock Market Forecast 2014 Crash or Rally? Drone Wars and the Nuclear Apocalypse Stock-Markets / Stock Markets 2014 Nov 11, 2013 – 11:46 AM GMT
    By: Nadeem_Walayat
    [snip]
    The bottom line is this: the US government shutdown is GREAT NEWS! because for bull markets to persist and continue they NEED BAD NEWS every few months, THEY NEED MOST PEOPLE TO BE SKEPTICAL, TOO AFRAID TO INVEST! And so it continues to be the case for the DURATION OF THIS BULL MARKET, where over 90%, NINTEY PERCENT OF Market commentators have been WRONG and continue to be WRONG, Everyone who has just proclaimed its END IS WRONG and Will BE CRUCIFIED, just as they have been crucified at every market turn for the past FIVE YEARS !
    YOU WANT TO LOVE MARKETS THAT ARE HATED!
    YOU WANT TO BE AFRAID OF MARKETS THAT ARE LOVED!
    UNDERSTAND THIS – THIS stocks stealth bull market is one of the GREATEST bull markets in HISTORY!

    #8997

    alan2102
    Participant

    Ilargi: y-o-y consumer prices “say nothing about inflation or deflation, other than as a lagging indicator.”

    OK. So here’s my question: would rising consumer prices every year for, say, 10 years in succession, mean anything? Anything at all? That is, they may be a lagging indicator, but still an indicator (after a lag), right? If that is true, then what do they indicate? If anything.

    #8998

    Stock market crash by xmas? Maybe. But predicting market crashes is dangerous business …

    So I didn’t. My exact words:

    I’m not saying things will happen in this order and timeframe. Just that they’re going to if central banks and treasury departments don’t up the ante. But they will.

    And may I add to prove my point:

    Enter stage left Janet Yellen ….

    You know, if only just to avoid a repeat of all the times when we said things MIGHT happen, and then be accused ad nauseum by the less literate of saying they WILL happen. Because that gets old fast.

    Perhaps I should add that unlike Nadeem (even though he re-publishes our articles all the time), Nicole and I don’t focus on markets, which is maybe why this site is not called The Automatic Market. Not that there’s necessarily anything wrong with trying to be as rich as you possibly can in 2 weeks time, it’s just that it’s not what we do. We try to look a few inches beyond that.

    #8999

    So here’s my question: would rising consumer prices every year for, say, 10 years in succession, mean anything? Anything at all? That is, they may be a lagging indicator, but still an indicator (after a lag), right? If that is true, then what do they indicate? If anything.

    10 years seems a good time frame, as long as you don’t try arguing the past 10 prove anything towards your notion. See ya in 10.

    #9000

    Gravity
    Participant

    The western economies have been in deflationary depression since 2008 or before, as banking and financial assets were irreversibly deflated then, due to aggregate debt saturation and fraud failure, and the money supply being leveraged on the value of those assets, inflation has become impossible because the metric expansion of the money supply cannot be resumed. The price discovery of said depressed assets has been prevented to afford the temporary illusion of mere stagnation instead of revealing the extent of collapse.

    There are two officially acknowledged channels of inflation, cost-push and demand-pull inflation, and both should be provably untenable if the aggregates of both wage-based purchasing power and credit consumption are stagnant or declining, despite increasing real costs of oil-based inputs, there’s insufficient price support to maintain the price of most goods and services at a given volume of overproduction.

    “At some point you need to ask: stock market crash? What stock market? How is it still really a stock market if it hinges to such a large extent on the Fed pumping money into Wall Street banks?”

    https://www.ufppc.org/us-a-world-news-mainmenu-35/10633
    https://3.bp.blogspot.com/-kP9gqCRn7vI/Tkn9LZJGR6I/AAAAAAAAMSs/q-XB3yWUxo8/s1600/corpcontrol.png
    https://www.ladydragon.com/news2012/super-entity.jpg

    Last I heard, half the stocks on earth are now owned by a financial oligarchy comprising 8000 people, the same group who collectively own the central banks and most of the financial superstructure, the ‘wealth effect’ was only ever intended for their benefit. As is tradition, the overclass will quietly exit the market just before the crash which their financial concordance of scandalous manipulations will inevitably percipitate, poised to consolidate the remaining productive assets they don’t own yet, when these are sufficiently deflated, using the worlds remaining liquidity to appropriate the ownership of most of the planets people and real wealth as the western middle class is simultaneously dissolved beyond remedy.

    Conspiracywise, to conceal their plunder in the ruin of the west, but especially to remove the threat of a counter-revolution against them, the oligarchs final assault on the remnants of liberty and democracy will undoubtedly entail a deliberately provoked WW3 in some form, perchance by triggering a second formidable market crash and blaming some strategic enemy via a false flag event, but said overclass may have divergent agendas on the desired magnitude of planetary destruction and depopulation, concerning the preservation of infernal hierarchy, but that’s off topic.

    #9001

    pipefit
    Participant

    alan asked, “That is, they[prices] may be a lagging indicator, but still an indicator (after a lag), right? If that is true, then what do they indicate? If anything.”

    Consumer prices have been rising at a year over year rate of about 8% or 9%, on average, for the last decade, if measured in the same way that they measured prior to 1980. That means that the inflationary forces are overwhelming the deflationary forces.

    When deflation seemed to be on the brink of getting the upper hand, in 2008 and 2009, the y-o-y price increase plunged to only +5%. This tells you that if we get a huge dose of deflation like these guys are talking about, you will see it at the gas pump, the grocery store, and everywhere else almost immediately. Certainly within a few months.

    They are using this ‘lagging indicator’ jargon because they can’t understand why prices keep going up, year after year, in a so-called deflationary environment. The answer is simple. There are always both deflationary forces and inflationary forces in every economy. And in our economy, the inflationary forces have the upper hand. If they didn’t, prices would be falling hard.

    They point to bankrupt cities like Detroit, with a few tens of billions of dollars getting written off. But every year, the USA federal govt. adds $6.5 Trillion to the debt. There is the $1 trillion cash deficit, and another $5 or $6 trillion in (present worth of) new unfunded liabilities. The reason for this is that they have looted the Social security trust fund, and now must account for trillions in unpaid interest every year.

    These guys here imply that the USA Federal Govt. will eventually default on their Social Security and Medicare obligations, and they might. But the result of that will be instant anarchy, or concentration camps, not deflation. You will see shortages and barter, which is a form of currency failure, which is a form of hyper inflation.

    #9002

    Yeah, we wouldn’t want to go off topic. Nice first 2 paragraphs.

    #9003

    Chris
    Participant

    pipefit post=8246 wrote: These guys here imply that the USA Federal Govt. will eventually default on their Social Security and Medicare obligations, and they might. But the result of that will be instant anarchy, or concentration camps, not deflation. You will see shortages and barter, which is a form of currency failure, which is a form of hyper inflation.

    Huh? You think the govt will do nothing until one day on the first of the month they will go to print the SS checks and realize, “Ooops! There’s no money in here. Sorry!” Long before the money runs out they will come out and say, “we’re running out of money, we need to cut benefits, raise taxes, etc in order to honor our obligations.” We’ll get “austerity” just like they’ve been doing in Europe. That will be deflationary. The elites will squeeze the people as hard as they can as long as they can to extract as much wealth as they can. But eventually the people will get fed up and elect a populist President who will promise a chicken in every pot. That is where the tip into inflation may occur as the new populists in govt crank up the presses. This is exactly what happened in the US in the 30’s and only WWII saved us from high inflation. Since every other factory on the planet had been destroyed people had to buy all their stuff from us. They gave us gold and we paid off our debts.

    So we will get deflation before inflation. Remember that high/hyper inflation is always and only a political phenomenon. The Fed CANNOT create high/hyper inflation because all of the currency they create is offset by debt. So there is no net currency creation. Only Congress can truly “print” currency by sending cash to the people who will spend them and the currency pool expands.

    #9004

    davefairtex
    Participant

    Why not go to the store and calculate my own personal grocery cost inflation rate from the set of products I buy every week? Well primarily because I don’t assume that I can intuit what the overall monetary pressures are worldwide from just looking at how my own shopping list behaves. Let’s say I buy sugar, and coffee – while Rebecca buys Cocoa and Agave. We will see two very different ‘inflation rates’. Which one is right? And how about the Egyptian’s inflation rate? Or the person from Mexico? Heck, if there is a problem with the cocoa crop, cocoa prices rise. Is that “cocoa inflation” (i.e. more money chasing the same number of goods)? No. That’s just a shortage of cocoa. Like right now, we have a glut of natgas here in the US. Is that deflation? Of course not. Its just overproduction of natgas.

    My focus is either nationwide and/or worldwide. Grocery lists aren’t of interest for me because of that. I watch input prices because I’m looking at global macro trends. Not just my own corner of the world.

    Now then, for those who claim we have inflation for the past decade – sure, if you choose your starting point as 2003, you can easily make the case that its been an inflationary time. Money supply has also dramatically increased over that period. Heck, go back to 1990. You’ll see even more inflation. That’s what my data shows anyway. Massive credit growth = big inflation numbers.

    But I have zero interest in the period prior to the bubble pop. This is because I’m trying to understand how the bubble pop has affected the economy, and especially the answer to the question “what state are we in now.”

    From what I can tell, there was a burst of commodity-push inflation (which isn’t monetary inflation) immediately after the 2009 low that lasted through early 2011. And then it stopped cold. Almost all commodities sold off after that peak.

    What’s more, if you are seeing your shopping list increase in price since that peak in 2011, you aren’t buying wheat, or corn, or soybeans, cocoa, coffee, sugar, or even gasoline (stockcharts weekly: $WHEAT, $CORN, $SOYB, $DJACC, $COFFEE, $SUGAR, $GASO).

    Perhaps you like agave, ahi tuna, wild-caught salmon, or some other stuff that has its own supply & demand curve to it and that is unrelated to monetary matters.

    Me, I just look at the input commodity prices for the big agricultural and energy commodities and draw general conclusions from that.

    And I have to say, I’m not an avid shadowstats reader. That man over there has been predicting imminent hyperinflation “next year” for the past 6 years. It’s imminent in 2014 too, just FYI, just like it was back in 2008. He had more of a case back then with all that credit growth. Now, unless the Fed drops 10 trillion dollars in the wallets of the actual people of the United States, they most likely won’t get hyperinflation.

    Having said that, I have to say that Ilargi is in the business of predictions, not me. I just watch the data, and report what I see. I understand the whys of his predictions, like I understand the whys of the hyperinflationists, but there is none – zero – evidence of any hyperinflation in the western world. Even inflation is just barely visible, and that only in the US, and then only because the banks have been able to pretend-away their losses.

    If that changes, I’ll be the first to talk about it. But I refuse to be the prisoner of pre-crash thinking. I refuse to continue fighting the last (inflationary) war, especially when all the monetary evidence I see is to the contrary.

    As for medicare & social security – if we can’t afford it, we won’t do it. The specifics of how that plays out, I have no idea, but that which can’t be done, won’t be. What’s more, imagining that the only possible outcome to that predicament is hyperinflation is simply displaying a lack of imagination as to alternate possible outcomes.

    #9005

    alan2102
    Participant

    ilargi post=8243 wrote:

    Stock market crash by xmas? Maybe. But predicting market crashes is dangerous business …

    So I didn’t. My exact words:

    I’m not saying things will happen in this order and timeframe. Just that they’re going to if central banks and treasury departments don’t up the ante. But they will.

    And may I add to prove my point:

    Enter stage left Janet Yellen ….

    Your exact words, IN THE TITLE (nb: it is hard to feature a thesis more prominently than in a title): “Deflation, A STOCK MARKET CRASH, AND THEN CHRISTMAS

    That seems clear enough. I take the word “then” to mean AFTER the stock market crash. Though, it is true that I am only an idiot who takes words at face value, and who often fails to appreciate the subtleties.

    But in this case, I will appreciate the subtleties, such as what you wrote later: “What can hold off a crash? Probably only more asset purchases by the Fed, and temporarily at that [i.e. it could be postponed, but not for long]…. We may make it to Christmas without a market crash, with lots of happy expectations for record sales and a last bout of happy moodswing. That’s not that interesting. What is, is what’ll happen after that.”

    OK! So, soon after Christmas (right?) everything will implode, the market will crash, etc. That’s clear, too. I say “soon” because, if we’re seriously thinking in terms of a crash BEFORE Christmas (only 7 weeks away), then it could hardly be all that much longer AFTER, right? Stands to reason.

    Bottom line: It will happen before xmas, unless it doesn’t, in which case it will happen shortly after. “Shortly after” might mean, say, a couple or three months, or perhaps even six months, stretching it. Right? Would that not be a reasonable interpretation? If not, please advise as to what is.

    #9006

    alan2102
    Participant

    ilargi post=8244 wrote:

    So here’s my question: would rising consumer prices every year for, say, 10 years in succession, mean anything? Anything at all? That is, they may be a lagging indicator, but still an indicator (after a lag), right? If that is true, then what do they indicate? If anything.

    10 years seems a good time frame, as long as you don’t try arguing the past 10 prove anything towards your notion. See ya in 10.

    So 10 years is long enough to demonstrate something, but only prospectively. Data from previous periods of 10 years must be discarded. Correct?

    I don’t know about that. It seems a strange attitude toward the data.
    Maybe I’m just being an idiot, again.

    #9007

    davefairtex
    Participant

    @alan –

    Pre-pop data is clearly inflationary. Lots of annual credit growth, lots of inflation, the stuff everyone is used to. That’s the old world.

    Post pop, the data looks quite different. Some sort of phase-change occurred. That’s today’s world.

    I know it doesn’t seem fair that people exclude the past 10 years of data, but that’s because if you mix pre-pop data and post-pop data, you can’t look clearly at directionality that way. And that’s our goal. We want to find out where we are headed post bubble pop.

    Averaging pre and post pop together actually ends up hiding information, misleading us as to where we are going.

    For example, it similarly hides information if we were to first put someone in a sauna for 4 hours, and then put him in a freezer for 2 hours, average his temperature over the 6 hour period, and then conclude that he is most likely too hot right now because his average temp is hotter than normal.

    It compounds the problem if we then go to the next step we predict our victim is likely to die of heat stroke if he stays in that freezer…and then we suggest as a remedy that our victim (currently in the freezer) drink ice water in order to help his clearly above-average temperature.

    Make sense?

    Data before pop: irrelevant to figuring out where we’re headed.

    #9008

    jpfi
    Participant

    If it is accepted that never ending growth is not possible, does it not follow that deflation – and the subsequent slowing down of material consumption and money velocity – is a step in the right direction?

    Is deflation not inevitable as the material resources of the planet are depleted? Is the currently increasing degree of deflation an indication of physical reality as well as economic (un)reality?

    Regards, and thanks for this site,

    JPFI

    #29291

    alan2102
    Participant

    The deflationary crisis and stock market collapse continues!
    https://www.google.com/search?q=djia&ie=utf-8&oe=utf-8
    [as of 14 July 2016: DJIA at 18,500+ — an all-time high]

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