Raúl Ilargi Meijer
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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.
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.
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.
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.
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….
Ted,
I haven’t heard the Puplava thing, and, after reading it several times, I don’t understand this last bit:
” ………Maybe this is pandering to the mainstream. Who would have thought that questioning the economic system after 2008 would have to sugar coat everything so much so that people can absorb the message!?
yassine
looks good
why not write me a proper article on this?
theautomaticearth •at• gmail •dot• com
Ch-Ch-Ch-Ch-Ch-Ch- Changes
Dear all,
We’re about to move to WordPress. Things will change, look different etc. Too much for me to oversee, so do please add your constructive criticism once we arrive in the promised land. I hope the Comments, Forum etc. will be nice and easy to use, and if they’re not, that I’ll be able to find where you’re going to tell me how and why ;_). AND of course that you will support The Automatic Earth in all possible waysm not least of all financially. Because we need that. Badly. We’ll make available Nicole’s World of Change lectures the moment we move over, and there’s more in the pipeline. We very much appreciate your presence here.
Those of us who never expected these promises to be kept got a head start; the rest had better adopt a serious sense of urgency….
Not going to happen, mate, people will stick with what they like to believe, with what looks more promising, what makes them feel better/best, only the outcast village idiots are going to pay attention.
Porkpie,
I see why that could be misconstrued. What I meant to say is simply that while in Holland prices for both houses and energy are falling, in Britain they’re both going up.
Perhaps a good moment to check M2/M3 numbers, or even just household debt.
I am a little confused by your statement that where fuel goes, housing will follow.
Where and when did I say that?
Yo Siddhartha,
Looks scary and all, them graphs, but I dare you to explain both the correlation AND the consequences we can derive from on the one hand those graphs and on the other the population one, which will look pretty similar.
Not sure what you’re saying, quiritus, Box 6 may be small, but it’s still there regardless, word for word. And the idea of the IMF as ideology-driven advocates of the poor, and/or Wall Street babe Christine Lagarde as Mother Teresa, sorry, those don’t swim.
Updated the article, added Shiller quotes from a Reuters interview.
Prof,
The next print will devalue the buck at least 40%
What print? When was the last one? And what is left for the buck to devalue against? Don’t say gold, or else …
“The Grand Reset”? How do you envision that?
Perhaps price inflation is a useless term to you, but not to many others.
It’s useless to everyone, it makes people see things that are not real. Price inflation is really as useless a term as cookie inflation is.
If you can’t tell what makes a price rise or fall, than what use is your data? Scarcity of a product may raise its price, but you’d have to put it down to that: scarcity. A tax increase may raise a price, but that also has to be correctly labeled.
If prices rise across the board, and that’s a consequence of either the money/credit supply going up, or velocity, or both, then you have inflation.
I accept entirely that tax increases are deflationary – that is pretty obvious.
No it’s not. Tax increases raise prices, but they have nothing to do inflation. They can’t, because it would give governments absolute control over inflation/deflation, and they don’t have that.
Sid,
Schiff lost his marbles a few years ago as well. Maybe that’s inevitable when you go into politics. Unless some really far out extremists get to call the shots, and there’s no sign of that, the whole shutdown is as much of an empty sideshow as Syria was (ever wonder what happened to that?). Whenever the media focus on a topic the way they have on these two, it’s time to look beyond the words and wonder what’s really going on.
It is worth keeping in mind that price inflation in the USA has been averaging 5% over the past 10 years – according to ShadowStats
Price inflation is a useless term. It completely ignores any and all different reasons why some prices go up or down, even though it should be obvious that this is crucial information if you really want to know what goes on in an economy. It’s a tool for the analytically challenged. It’s also a mistaken term of course, because it doesn’t describe inflation at all, which is money and credit supply x velocity, not what happens to some random basket of goods, or cookies becoming more expensive because the baker has the flu.
Japan, and I’ve written about this, is a good test case. The idea behind the rise in sales tax there is that it will raise prices, and hence fight deflation. If only things were that simple … Well, if they really were, Japan wouldn’t have deflation, and no government would ever have inflation or deflation problems, they could simply raise or lower taxes. Japan tried the same thing early on in the deflation period (’97?) they’re living through, and it backfired. If you want to project anything useful, you need to exclude taxes from your models. But who does that? John Williams became a hyperinflation guru a few years ago, which is a shame, he had good numbers prior to that. Now it’s all colored by a faulty assumption.
After 5 years of central bank credit pumping (money printing is a misleading term), 90-odd% of which sits in primary dealers’ accounts at the Fed, I think it should be clear that this credit has no – or hardly any, if you will – influence on prices in the supermarket; at most it lifts asset markets a little because banks with such reserves are perceived as less risky.
In the end, to raise inflation, you will always need more people spending more quickly, money/credit will have to start flowing faster, and that’s very obviously not happening.
To me, its not so much about “possible scenarios” as it is my judgement as to the likelihood of them happening, and in what order. Likely – Japan, Europe, then the US. At that point, yeah, the buck could tip over and sink. But only after money fled the Eurozone and Japan first.
Japan owns more T-bills and other assorted bonds than anyone else. Japan has a lot more “domestic discipline” than either EU or US. It’s had 20+ years of deflation and hardly a whimper from the citizenry. For all these reasons, I can’t see it going before Europe – which has a history that provides plenty more reasons-.
There may come a moment when the US outdoes the rest by such a margin it can lead to severe tensions. That’s by no means merely theoretical. The US is the only safe haven available, and it takes only the occurrence of one or two out of a large number of possible events for money from Japan and Europe to start flowing there in – at first controlled – panic.
This is a “likelihood” thing rather than certainty, and an unexpected military issue might well blow a hole in that scenario, as you say.
I’m not ruling out a Fukushima related evacuation of Tokyo, either through a government mandate or sheer hysteria. The Japanese do hysteria well – all together now -, the (closely connected) flipside of the domestic discipline coin.
But for the “regular inflation” scenario, I’m confident I can see that coming by monitoring the various credit metrics. Which right now – point to household deflation (reduction in borrowing), corporate inflation (increase in borrowing), and a reduction in the rate of government borrowing.
All those different inflations and deflations only lead to murkier waters. You can really only have either one or the other. And since government debt is far more secure that corporate debt, it’s hard to see how the former would stop borrowing before the latter (unless these borrow straight from the government). Governments have millions of people who can pay off the debt sometime in the future.
How crazy do you want it? At first you think it looks like the whole thing was set up to be a scam. And then you realize it doesn’t just look that way.
How hedge funds capitalized on obscure General Motors bonds from Nova Scotia
“General Motors Corp.’s bankruptcy, which wiped out shareholders and left taxpayers on the hook for billions of dollars, is generating a new wave of profit for hedge funds that supersized their claim by betting on an obscure pool of GM debt issued in the Canadian province of Nova Scotia.
… Believing the U.S. auto giant was probably bound for bankruptcy, Fortress began in 2006 to buy bonds issued by General Motors Nova Scotia Finance Co., a unit of General Motors of Canada Ltd. Elliott started buying in 2008. By June 2009, the four funds had acquired, for pennies on the dollar, the majority of $1 billion in notes issued by the Nova Scotia unit.
The funds anticipated that in a GM bankruptcy, the Nova Scotia law governing the notes would allow the holders to make multiple claims on the same debt. One Elliott portfolio manager called the strategy a “double-dip litigation play.” A Morgan Stanley analyst likened the deal to sticking “two straws in one milkshake.”
Jal,
I hope that this article goes viral.
More people need to know how their savings have been stolen.
For once, I’ll lend my own voice to that sentiment. Normally, I’m far too critical of myself, but in this case, the lack of perfection is trumped by the strength of the topic itself, and the fact that it’s becoming urgently important.
So yes, send the link around to everyone you know, use all the social media you can think of and so on. Go crazy!
Rune Likvern’s simulation model suggests a hard Red Queen plateau in the Bakken of 700 kbd:
From Is the Typical NDIC Bakken Tight Oil Well a Sales Pitch?
“Just look at the United States: they’ve got more than 10,000 fracking wells opening up each year and their gas prices are three-and-a-half times lower than here.” – David Cameron in the above address
US fuel isn’t cheaper because of fracking; it’s cheaper because the US taxes it less.
Note: Cameron was talking about natural gas prices, not gas – petrol – at the pump.
Hey Snuffy!
Good to see you!
Yes, that’s what I’ve been trying to convey in my last two posts, that shale/fracking is a get rich quick scheme. And given the numbers, I can’t see a viable industry by 2020 (even 2016 is murky). You can pray for no gas near your land, but just imagine all the guys who haven’t been so lucky.
Glad to see you’re keeping up the daily grind, and hope Mrs. Snuffy is doing just fine.
• Rising interest rates equal rising inflation does not apply in a situation where the velocity of money is as low as it is today. What the present velocity reflects is that people have no spending power, and if they don’t spend, inflation cannot rise. Higher interest rates will further shrink spending, not grow it. They will also shrink the small recent increase in borrowing.
• As a further indication of how silly the inflation equals rising prices (cost of living) model is, Abe wants to raise taxes. If you see overall cost of living as determining inflation levels, all a government needs to do to fight deflation is raise taxes. Inflation too high? Lower taxes. In Holland this week official inflation numbers went up allegedly due to a new law that raises home rents. Somewhere down the line it should become obvious that this kind of “modeling” doesn’t yield relevant numbers.
You can’t add tax-induced price movements (including sales taxes) to your model, because it would mean it’s dead simple for any government to end either inflation or deflation, and that is nonsense. Just ask Japan. If rising taxes would really influence inflation numbers, Japan could have raised taxes 20 years ago, and never had deflation. The reason this doesn’t work is velocity of money. Which, like in Japan, is already very low in the US.
• Of the $1 quadrillion+ in derivatives out there, at least half are interest rate swaps. Rising interest rates will cause massive deleveraging in the field. If the derivatives behemoth did not exist, a rising inflation story would at least make some more sense. Then again, without the derivatives behemoth, there’s little reason to assume we would have the financial crisis we have right now. And that renders the story moot to begin with.
I’m wondering if the gas flaring is similar to the depression-era farmers dumping their milk in the ditches.
The milk was ditched primarily because people had no money to pay for it. Gas is flared because there is no infrastructure to bring it to where it can be sold, and building one is not cost effective.
I’m also wondering how bad it is for the energy companies to be taking these write-downs – if they can claim losses for tax purposes, does this preclude the possibility of the companies going back to fracking at some point when the price is right?
The assets Shell is ditching now don’t seem to have any future relevance, or they’d hang on to them. The ones they can gamble on having potential, they do hang on to. And of course they write everything off in “masterful” ways, so the hurt is limited. Big Oil looks more and more like a casino: losing 26% of your output makes you take on risks. They increasingly function like the banks that have the same status they do: too big to fail. Some gambles fail in spectacular fashion, but what choice does Shell have but everything on red?
The Bakken depletion rates point to one thing only really: a short lived bubble. Once it fails as a viable venture, it can’t just be restarted at the flick of a switch, it’s too complex.
As for Shell, just this week, it obtained permission for – more – Arctic drilling, another big wager. They’ll try to get their hands on what they can.
We know the monetary hyperinflation machinery is running at full speed.
I don’t know who “we” are, but I do know I’m not included.
So, on a btu equivalent basis, oil costs more than four times as much as natural gas. This is an indication of current and ongoing intense monetary inflation, bordering on hyperinflation.
No, it isn’t. In this case it’s an indication of more US domestic unconventional natural gas EIA estimates than anybody knows what to do with.
We will not have hyperinflation, we won’t even run a remote risk of doing so, for a long time. We will have massive deflation instead. And just maybe after that some sort of inflation will flare up. Hyperinflation, for now, is nowhere on the horizon. And, as we’ve said lots of times, the deflation will be so destructive to every facet of our societies that everyone will feel silly for ever having thought of hyperinflation. And then scramble to find a bite to eat.
Whether or not everything is measurable, videotaping a teacher so that he or she can watch the video and figure out how to teach better is a good and useful idea.
Depends on what anyone thinks good or better teaching is. I know what it is in Texas, for instance, but in other places, it seems to be up for grabs.
If it means kids have to learn to think like Bill Gates, I don’t agree at all, for one thing, but there’s a world full of Americans out there who see that as teaching nirvana. I’d say teach ’em to think like Thoreau, Twain, Whitman, Gandhi, ML King, but you just try and find a parent or a school board who will support that. Teaching better is so subjective it has no objective meaning. And then where do you go from there?
Nice quotes, BE, but on this topic I think Groucho does you one better:
Well, Art is Art, isn’t it? Still, on the other hand, water is water. And east is east and west is west and if you take cranberries and stew them like applesauce they taste much more like prunes than rhubarb does. Now you tell me what you know.
Just to say that no, I don’t think everything is measurable; I think that’s a very silly concept. Even as I admit that may be because I feel no need to measure everything. I feel much closer to Thoreau’s bewildered admiration for what he saw every time he woke up.
We can’t understand life, and we can’t measure it, or even catch it in words; the best we can do is to stand in awe and be grateful that we get to see it unfold in motion for the few short years we are given.
