June 25, 2013 at 12:15 pm #8374
Russell Lee Family Car February 1939 "White migrant and wife repairing clutch in their car near Harlingen, Texas" Over the past two weeks or
[See the full post at: Deflation By Any Other Name Would Smell As Foul]June 25, 2013 at 7:07 pm #7793
I know you don’t like timelines but with history as a guide where do you see this playing out in the next 3 to 4 years….can the central banks drag this out further to 7 or 8 years and if they can do that how about another 7 or 8? Then is it a problem, because human nature can’t worry that far away?June 25, 2013 at 8:24 pm #7795
“… credit bubbles lead to debt deflation, and the bigger the bubble, the more deflation there will be. It’s inevitable. And it’s not all bad: it cleanses the system, albeit in a painful way. But the longer you try to postpone it, the more painful it becomes.”
I would like to see some discussion of who, when, how, “debt deflation” will cause pain/suffering.
How will “debt deflation” affect someone with no debt?June 25, 2013 at 8:29 pm #7796
Central banks don’t control this. Rising interest rates will squeeze most people sooner rather than later. Perhaps the main problem is most will think rising rates equal inflation. What will really happen is they will further stifle the velocity of money.June 25, 2013 at 8:47 pm #7797
Dorothea Lange has some illustrations of how a smaller debt deflation has affected everyone at a certain point in fairly recent history, including those without debt.
Man, I wish TAE would use some of Lange’s illustrations in their excellent articles. :whistle:June 26, 2013 at 4:54 am #7800
TAE has extensively used Dorothea Lange’s pictures in the past – maybe they have run out of “good” ones:
and many moreJune 26, 2013 at 7:18 am #7801
As with anything else Leviathan does, the fix always exacerbates the problem. Fixes such as price supports kill production and distribution by pricing goods, transportation and labor out of market reach.
Policies which come from people who are, and for the most part always have been, net consumers, not producers, so they don’t have any market experience. Yeah, the same crowd that created this mess will take charge of fixing it 😛
Hell, many of the insane policies put in place in the Great Depression are still with us, like Davis Bacon, Dairy Price Supports etc. Distortions caused by inept policies only spread the suffering.
Think things like hungry people in cities while fruit fell on the ground in Iowa, and government agents dumping milk on the ground and burning wheat to support prices…that couldn’t be paid in the city!
Other stupid things like California officials stopping people who had no money at the Colorado River in Yuma, AZ, in order to hold labor costs up among workers further inside the state.
Best read ever on the subject of Depressions….And it seems, deflation has brought it’s price down to our level, as well 😉 https://mises.org/rothbard/agd.pdf
First half is wonkish, but well worth the read. It presents the “OTHER” side of the story we never were allowed to hear in school.June 26, 2013 at 12:13 pm #7802
So you guys all know I’m a chart guy. I was intrigued by the chart of US M1 and dug into it deeper to figure out what was going on.
Turns out, the issue was Demand Deposits at Commercial Banks.
Then I dug into it a little deeper, and noticed that the 108 billion dollars in demand deposits that vanished, seemed to appear in the savings accounts at commercial banks! It turns out that SAVINGS isn’t just savings, but its also money market deposit accounts, and the like.
Deflation is still happening, I believe – but this chart isn’t the smoking gun. All the commodities dropping, bonds dropping, and equity markets dropping at the same time – that’s the smoking gun.
Likely international capital flows are an important component of this as well. If we chart forex rates in the emerging markets, we can see that money is fleeing there, and running to Japan and the US. But clearly not into US bonds or equity, likely into cash vehicles of some sort.
Although, oddly, its not showing up in demand deposits, as I would expect. Where all that money is going is a bit of a mystery. However, its not a mystery as to where it is coming from, or what effect the capital flight is having on the markets.
I also think emerging market central banks are selling treasury bond holdings in an attempt to limit the change in rates. I’m positive that’s happening in Brazil. These guys have massive US treasury holdings, and their sales are (again likely) swamping Fed QE buying, causing our rates to rise.June 26, 2013 at 1:37 pm #7803
Yeah, M1 is a crude measuring stick, but I thought if Ambrose can use it, why not me? I think the velocity graph is the more interesting one. Even with all the hurrahs for home prices, money ain’t moving.
Since all these asset classes have lost so much ground (gold at $1230 as we speak), a lot of the “where did it go” can be answered with covering losses and – more interesting – covering shorts. I quoted the example 3 weeks ago of Treasuries being used to hedge against MBS risk, with a breaking point (bond vortex) at a 2.2 yield for the 10 year. It’s blown way past that at 2.57 now. The financial world is full of hedges like these, and they must now be covered.June 26, 2013 at 2:36 pm #7804
Armstrong basically agrees with what you just said – at least a version of it. He says there are a large number of dollar short positions out there, and so if we take what you two are saying together, the money fleeing the emerging markets is going to unwind these shorts. That deflation is rapid financial-market deflation rather than the stuff associated with more normal mortgage, business, and consumer loan deflation, so it appears in the market prices (including commodities – including gold) in real time.
It will be particularly interesting to see the NYSE margin data covering this period. Pity it lags by a month. It will help to confirm the hypothesis.
One of the indicators of the start of the 2008 downturn was a downturn in NYSE margin loans.
After watching how various reporters (and even otherwise really smart analysts) use FRED timeseries, I’ve come to the conclusion that sometimes they really don’t know what they’re doing. Or – they look at one particular area without attempting to understand the system as a whole. That’s what I think happened with Ambrose and his M1 chart. If you look at M2, you’ll see that the money supply including savings accounts is actually tracking up.
I agree with you about the velocity. Printed money acts to inflate the bond market, and then goes to sleep in Excess Reserves where it gets 0.25% – beating 3 month treasury yields of 0.06%.
Speaking of which, that’s another FRED chart I object to. The hyperinflationists use the BASE money chart (which includes excess reserves) to suggest hyperinflation is inevitable. Its not saying that at all. Excess Reserves is all about getting 0.25% at the Fed rather than 0.06% at the Treasury or 0.12% by lending it overnight to some other random bank that you probably don’t trust anyway.June 26, 2013 at 4:09 pm #7805
debt deflation means deflation (the lack of money flowing around the system) caused by debt which has to be written off. Since 97% of money is credit then this credit is extinguished when the debt is written off (banks stop lending). This causes a huge lack of money in the system which cannot be replaced by QE measures, etc..
Its serious for everyone, even those who do not have debt because businesses collapse, people lose jobs, etc… without money to lubricate the economy it grinds to a halt. The defensive strategy to make sure you can hang onto some money=cash, while banks are collapsing, see some of the TAE primers for how to do this.
Hope that mostly correct, I’m no expert.June 26, 2013 at 11:13 pm #7806
Price of paper gold is crashing as it is being converted to cash to meet leveraged obligations.
Mother earth is restless.
A flash rain storm put the center of Calgary under water.
A monsoon rain has killed over a 1,000 and destroyed villages in india.
One step forward, two steps backward.
There is no way that life is improving and that budget will get balanced.
There are dozens of excellent websites out there that teach people advanced prepping techniques for free.
The A.E. has done a good job of discussing what the financial manipulators have been doing and explaining some of the possible outcomes.
Even those who don’t read the A.E. are aware of what is coming and what has happened.
Think of a tsunami.
The financial manipulators have only put the tsunami in slow motion. The predictions of Armageddon have been delayed not cancelled.
However, It will affect everyone. Those that are farther up the hill, (preppers), will also find themselves relying on the same luck as those already in the water. The financial manipulators are just as aware of the possible outcomes as are those that are already in the water.
Did you read
The Italians were also cooking the books to get into the E.U. and thereby delaying the tsunami.
In the USA, there are now 3/4 of the population living paycheck to paycheck and growing.
Let’s keep things in prospective. Its a lot worst everywhere else.
Some quotes …
17 Signs That Most Americans Will Be Wiped Out By The Coming Economic Collapse
Those that have not made any preparations for what is coming are going to regret it bitterly. The following are 17 signs that most Americans will be wiped out by the coming economic collapse…
#1 According to a survey that was just released, 76 percent of all Americans are living paycheck to paycheck.
#2 27 percent of all Americans do not have even a single penny saved up.
#9 Today, a higher percentage of Americans are dependent on the government than ever before. In fact, according to the U.S. Census Bureau 49 percent of all Americans live in a home that gets direct monetary benefits from the federal government.
#10 Back in the 1970s, about one out of every 50 Americans was on food stamps. Today, about one out of every 6.5 Americans is on food stamps.
Get prepared while there is still time. If you do not know how to get prepared, my article entitled “25 Things That You Should Do To Get Prepared For The Coming Economic Collapse” has some basic tips, and there are dozens of excellent websites out there that teach people advanced prepping techniques for free.
Here is some similar advise as the A.E..
The Beginning of the End is the first novel by Michael T. Snyder, the publisher of The Economic Collapse Blog.
#1 An Emergency Fund
#2 Don’t Put All Of Your Eggs Into One Basket
#3 Keep Some Cash At Home
#4 Get Out Of Debt
#5 Gold And Silver
#6 Reduce Your Expenses
#7 Start A Side Business
#8 Move Away From The Big Cities If Possible
#9 Store Food
#10 Learn To Grow Your Own Food
#11 Nobody Can Survive Without Water
#12 Have A Plan For When The Grid Goes Down
#13 Have Blankets And Warm Clothing On Hand
#14 Store Personal Hygiene Supplies
#15 Store Medicine And Medical Supplies
#16 Stock Up On Vitamins
#17 Make A List Of Other Supplies That You Will Need
During any crisis, there will be a lot of other things that you will need in addition to food and water. The following are just a few basic things that it would be wise to have on hand…
– an axe
– a can opener
– battery-powered radio
– extra batteries
– lighters or matches
– fire extinguisher
– sewing kit
This list could be much, much longer, but hopefully this will get you started.
#18 Don’t Forget The Special Needs Of Your Babies And Your Pets
#21 Get Your Ammunition While You Still Can
#22 If You Have To Go…
Have a plan for what you and your family will do if you are forced to leave your home. If you do have to go, the following are some items that you will want to have on hand…
– a map of the area
– a compass
– backpacks for every member of the family
– sleeping bags
– warm clothing
comfortable shoes or hiking boots
#24 Have A Back-Up Plan And Be Flexible
#25 Keep Your Prepping To Yourself
The tsunami has been coming for a long time. The web has made it possible for you to see it coming.
Act within your capacity.June 27, 2013 at 8:01 am #7809
Mish lost 25% of his money in 2 weeks.
On June 13th he announced:
“Last week I bought a basket of miners with a significant amount of money.”
Now, after watching a huge fraction of his liquid capital vanish, he states:
“am I selling? Of course not, and it seems silly to even ask.”
Even the smart money is penny wise but pound foolish.
Mish, you didn’t invest. You gambled and you lost.
The only true investments involve people and relationships. Everything else is Vegas.June 27, 2013 at 12:17 pm #7810
Yeah, but stocks are going up again. We’re all saved!June 27, 2013 at 2:14 pm #7812
“Mish, you didn’t invest. You gambled and you lost.”
I’m not sure why you are blessing us with a note clearly addressed to Mish. Perhaps sending it to him directly would be a more effective way to communicate with him?June 27, 2013 at 2:59 pm #7813
It’s a comment on the non-existent distinction between investing and gambling. I recently had a friend tell me that she never gambles, but she loves to invest in the outcomes of horse races. She explained: It’s not vulgar betting because she does a lot of research on the horses’ health and their race histories under varying track conditions.June 27, 2013 at 3:03 pm #7815
For those interested in giving feedback on how the site ‘looks and feels’ please go to this thread:
Sid.June 27, 2013 at 3:23 pm #7820
Mike Snyder has a nice list, though a bit obvious at times. We would agree with most. But not with no. 5 : Gold and Silver. With 30% losses over the past 2 years, it is now official that for most people it’s been a bad advice for a long time. Unless, as we’ve always maintained, you can sit on it for 10-20 years, and that is true only for the seriously wealthy.June 27, 2013 at 5:31 pm #7821
Might gold (and possibly silver) end up having more value in economies which may turn their backs on the USD sooner than other nations?
I’m thinking China/Russia were political tensions to escalate, as well as any nations that are currently non-friendly with the US (Cuba? Iran?).
Also noticed this on ZeroHedge the other day:
To be fair, ZH is a gold bug haven. But had to wonder what would be the impact if many gold miners start going out of business – wouldn’t that eventually drive up gold price due to scarcity (i.e. aggregate prices falling due to deflationary effects – macro – but gold’s value within aggregate prices growing due to less of it being available – micro)? Even as the price of gold falls, demand seems to keep growing…June 27, 2013 at 6:27 pm #7824
I was thinking this today that maybe it will be gold and not silver or the opposite but is there room for both? And won’t it go lower first as people have to sell off their gold holdings to pay for essentials early on?June 27, 2013 at 6:36 pm #7825
“Gold and Silver. With 30% losses over the past 2 years, it is now official that for most people it’s been a bad advice for a long time.”
Calling this “bad advice for a long time” reminds me of how smug those goldbugs acted when silver hit 50. Its probably wise to wait until the full market cycle is complete before taking a victory lap. As we know, two years of downward move (or in the case of SPX, four years of move off the lows of 666) does not a complete cycle make.June 27, 2013 at 6:44 pm #7826
One could just as easily say that any action that has an element of uncertainty to it is gambling. Opening a restaurant, hoping that it will be successful. Paying for your child’s education, hoping they will graduate.
Tomato, tomahto.June 27, 2013 at 8:21 pm #7828
Of course that’s true, full cycles etc. Just saying that the buy buy buy mania hasn’t exactly paid off so far. The gold cycle itself will return to buying a toga in Rome for a gold coin, and a suit in our world 20 years hence. It’s the meantime that’s the killer.June 27, 2013 at 9:04 pm #7829
Since 75% of the USA is living pay check to pay check, I would think that buying gold is far from being an option for most people.
The well-to-do middle class, (next 10%), might consider buying costume jewelry so that they don’t have to barter their gold wedding ring for a loaf of bread.
Gold would have its use, in bartering, by the local warlords.June 28, 2013 at 1:53 am #7831
Jal, might I suggest a jewelers scale for weighing fine particles of Au in smaller transactions?
Just scroll down to the amazon “key words” block here on site and enter “Jewelers Scale” and have $10 bucks ready.
ilargi, ” It’s the meantime that’s the killer. ”
Mean buy high and sell low won’t work?
Dave, you jog my memory back to 2001 when I went “all in” to gold related paper with my modest IRA. Even my tax man thought I had gone over the falls. The long side PM markets were a desert back then! Damn that was a lonely feeling!
But when a mining type feller out in Carlin let it slip he could buy it cheaper and put it back in the mine, than waste the diesel to dig it out, I had to do it.
My el cheapo crystal ball (and a little canary in the bar at Winnemucca 😉 ) has my next trigger set at “around” < $850. My best guess at average production cost, based on average demand, which, as weak hands run for dollars, will likely stabilize. With any luck, I'll trade rising (5 year old) 10 yr paper, now in that IRA, for falling Au? On Ag, well, as soon as a pre 64 quarter gets under the price of a gallon of gas again, the green light will come on. Might need that suit or toga some day, for a trip to the marble orchard, plus a couple gallons of gas for the hearse. Guess I’m just a preservation of wealth( all be it modest) bug at heart. Variable, “Might gold (and possibly silver) end up having more value in economies which may turn their backs on the USD sooner than other nations?”
China and India have already turned their backs on fiat currency. That’s a fair share of world population, maybe? Hear tell a lot of Europeans own it too.
My take is, gold producing/holding nations will support gold, non producing/non holding ones will diss it.
Also, this is too long already, but as for gold miners going under, it won’t matter. The hole in the ground and what’s “rumored” to be in it, will remain. A new “liar” will resume position on top of it when the market is ready. Has a lot to do with the nature of these here “fungible” thangs.”
ps. ZH isn’t so much gold bug. More like “Project Mayhe…..oops, can’t talk about it.
My nickle-ninety-eights worth.June 28, 2013 at 5:22 am #7832
you guys should get a kick out if this
Gold, The Mark Of The Beast And Malcolm XJune 28, 2013 at 7:49 am #7833
Markets, mistaken priorities and misallocated time.
A box full of double eagles will pay the salary of a home health care aide (just as it did 1000 years ago) when you’re too weak to walk to the bathroom and wipe your rear. But unless you’re paying a second inspector to monitor the performance of your aide, chances are you’re not going to get much in the way of tender loving care. The same applies for the guilt of not “being-there” for a loved-one when being-there is required. Sure, the market will provide geriatric facilities to landfill the elderly (out-of-sight and out-of-mind), but that same market has not yet provided a pill to assuage the guilt.
Wall Street/Bloomberg/Zero Hedge/etc. offer little guidance on the appropriate allocation of time and energy. If nothing else, they provide a timeless reminder of the constant struggle to see what is in front of our noses: We’re only here for a short time and we don’t own anything.June 28, 2013 at 10:35 pm #7835
Gold is taking a beating and TAE must be proud that their predictions are coming true.
I remember many gold bugs coming here and arguing that the price will go to 3,000 and up an ounce.
I am tempted to play the market I feel like an expert.
yesterday gold was 1,200 an ounce and When it was higher I was saying that it will go down.
This is what I am saying now.
It has moved up to 1,226 an ounce.
I would bet on a option contract that it will go up to 1,260- 1,290 an ounce
Than it will go back down to 1,100 an ounce
I am trying to persuade others with this idea and get commission.
Online trading company.
Giving a analysis
Nicole never talked about this kind of energy and I think it is a feasible idea.
-overunity electromagnetic motors,
-vortex technologies.June 28, 2013 at 10:53 pm #7836
I know you don’t like timelines but with history as a guide where do you see this playing out in the next 3 to 4 years….can the central banks drag this out further to 7 or 8 years and if they can do that how about another 7 or 8? Then is it a problem, because human nature can’t worry that far away?
– See more at: https://www.theautomaticearth.com/index.php?option=com_kunena&func=view&catid=15&id=7520&Itemid=96#7565
In Canada not everyone is affected by all the bad worldwide economic downturn and many people will argue with you and the argument will turn ugly because they don’t want to hear your depressing words.
However there are many people here suffering from this bad economic situation at the same time.
So what I am trying to say is that the banks seem to have control of the rates and the situation.June 29, 2013 at 8:34 am #7843
ilargi post=7525 wrote: Ted,
Central banks don’t control this. Rising interest rates will squeeze most people sooner rather than later. Perhaps the main problem is most will think rising rates equal inflation. What will really happen is they will further stifle the velocity of money.
Rising interest rates are inflationary. It is falling interest rates that are deflationary. Antal Fekete has covered this at length in various articles. Just look at the 1970’s. When interest rates finally peaked, and started falling, so did prices.
Also inflationary are federal government fiscal deficits. For the fiscal year ended 9/30/12, using GAAP accounting, they ran a deficit of $6.9 trillion. The year ending 9/30/13 will see a larger one, and this will really take off and go exponential in 2014.
One could argue that they will declare everyone’s social security, medicare, and military retirement benefits null and void, but that will FOLLOW the collapse of representative democracy. That would cause the loss of world reserve currency status and hyperinflation.
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