Raúl Ilargi Meijer
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The notion that inflation is not going to happen is slowly sinking in, but the reason why is not at all understood yet. Joe Weisenthal quotes the reasons inflation hasn’t come, offered by the incomparably clueless Hale Stewart of Daily Kos fame:
The Most Incorrect Prediction Of The Past 5 Years
• Slack demand from China.
• The US oil boom (abundance produces the opposite of inflation).
• Slow growth (especially in Europe).
• The end of the commodity boom.
• Ongoing reduction of high household debt.Bottom line. The big, ongoing story is the death of inflation all around the world.
It’s all simple nonsense, of course. These fine analysts now tell themselves they were right all along in predicting (hyper)inflation, but something unexpected, unforeseeable got in the way. In reality, the behemoth of debt we built up made deflation inevitable from the get go. It hasn’t hit us full on yet because of the empty credit measures (QE et al) central bankers try on, but it has zero chance of reversing the debt deleveraging. It will just make it worse. I wrote this particular article 7 months a go, buy Nicole and I have been writing about this for 6-7 years now.
Alan, you’re not paying attention, the survey is an empty air chamber devoid of any meaning or substance.
First, there’s no use in gathering info on what anyone MIGHT do by 2018. I might buy a bridge in Brooklyn by then. Or I can at least say I might.
But the essence is of course in this sentence:
In fact, this marked the first time in the survey’s nine-year history central bankers were asked whether they bought or planned to buy stocks.
They may have been buying stocks all along, they may have been buying far more than they’re now “planning” to do. Nobody knows, because nobody ever bothered to ask.
And all this is assuming answers are truthful, which in this world is to put it kindly not guaranteed.
While it’s not the first time central banks have ever bought equities, it is the most aggressive purchasing they’ve done.
This line tops it all off: where does the author, Mr. Fitz-Gerald, get that knowledge from? He doesn’t say. It can’t be from the survey, because central banks were never before asked whether they either bought stocks in the past or planned to do so in the future.
Ergo: Mr. Fitz-Gerald simply makes it up as he goes along, confident his readers won’t scrutinize his words too closely, because they’re too focused on what he suggests, central banks buying stocks, but doesn’t actually say.
You and I don’t know if central banks will buy stocks, and neither does Mr. Fitz-Gerald. He talks his book.
Regarding the ‘QEuriouser’ Article above, it states that loans are are increasing at 4% since 2011(before this, it was negative).
First off, the ‘QEuriouser’ was not a TAE article, but something posted by one of our readers.
I’m confused how this ties in with decreasing money velocity which as I understood is key to the whole deflation argument. If loans are increasing, surely this means money is increasingly being used to ‘buy stuff’ which would increase money velocity?
Skimming thru Lee Adler’s piece, I see he says loans increase, but doesn’t specify which loans he’s referring to. That makes it hard to draw any conclusions at all.
I’m sure you also noticed his repeated remarks on pensioners and consumers cutting back on spending, so how all in all you see money velocity increasing I don’t really know.
The survey reveals that 23% of the 60 central bank respondents are buying stocks or plan to do so in the next five years.
In fact, this marked the first time in the survey’s nine-year history central bankers were asked whether they bought or planned to buy stocks.
While it’s not the first time central banks have ever bought equities, it is the most aggressive purchasing they’ve done.
Hmm. Less than a quarter of respondents say they might buy stocks by 2018. Unless perhaps the world is not the exact same anymore by then, in which case they might decide otherwise. Or their successors. Whichever comes first.
But fear not, Money Morning Chief Investment Strategist Keith Fitz-Gerald will nudge you towards fields of glory and riches. Well, he first, then you.
Just goes to show that in the world of empty statements, too, there are one-eyed kings.
Dave,
None of the above.
I think more than anything Europeans want the Euro(zone) because there hasn’t been anything they’ve read or heard about it that wasn’t single-mindedly in favor. In that sense, euro euro euro equals grow grow grow: it’s a religion. Or a brainwash if you will.
It’s all been the same one dimension all the time. And they had no reason to doubt it, until now, or rather a few years ago. To this day, ALL governments in EU nations are pro-Euro, no questions asked. Nigel Farage’s election win last week in the UK is a good sign, in that at least there’s a discussion available. So was Beppe Grillo’s in Italy of course, but the europhiles (who hate each other in any other respect) have closed ranks there for now.
There’s never been any dialogue on the merits of the euro. It was introduced and declared sacred. We’re 13 years ahead, and only now are there questions, but they’re still not truly tolerated. Both Farage and Grillo are ostracized and labeled dangerous excentrics. To wit: there are no clauses in Euro legislation that allow for any one member nation to get out. That’s no coincidence.
My worry is that this particular scheme makes another inter-European war inevitable. Various interests are simply too different.
A lot of carbon that is on the books of energy producers will be ‘unburnable’, but not for the reasons stated. They will be unburnable due to simple economics.
Didn’t get to read the entire article, pipefit?
Welcome Badlands,
And don’t be a stranger about what you might contribute. We are certainly interested in your story, in what you’ve done and why, in your neck of the woods. I don’t know that we have a lot of Dakota around here. And don’t be shy about asking any questions you think you might want to ask. Plenty of “awake” parents (to an extent, of course).
Cliff,
First, there’s investing in hard goods that you will need down the line, tools, maybe some land (property makes sense only if it will allow you to produce basic needs, food, wood, water, shelter, that sort of thing, and not just one of them). As for “money”, the backyard bank is good for the first batch. One needs to be creative about how to make one’s deposits there water- and fireproof etc., but it can be done. We don’t explain how here, because that alone would make the backyard a less safe bank. T-bills can be good if the backyard becomes too small (the government won’t default on them), but not when kept in custody of a large financial institution: like any and all investments, having them under one’s own control, within arm’s reach, is vital.
To wit: neither Nicole nor I have ever told anyone to lower their carbon footprint.
And we don’t tell people to change their lifestyle in order to save the planet, but to save their own asses.
Roboto et al,
Russell Brand has a great take on Thatcher:
‘I always felt sorry for her children’
The blunt, pathetic reality today is that a little old lady has died, who in the winter of her life had to water roses alone under police supervision. If you behave like there’s no such thing as society, in the end there isn’t.
Her death must be sad for the handful of people she was nice to and the rich people who got richer under her stewardship. It isn’t sad for anyone else. There are pangs of nostalgia, yes, because for me she’s all tied up with Hi-De-Hi and Speak and Spell and Blockbusters and “follow the bear”.
What is more troubling is my inability to ascertain where my own selfishness ends and her neo-liberal inculcation begins. All of us that grew up under Thatcher were taught that it is good to be selfish, that other people’s pain is not your problem, that pain is in fact a weakness and suffering is deserved and shameful.
Perhaps there is resentment because the clemency and respect that are being mawkishly displayed now by some and haughtily demanded of the rest of us at the impending, solemn ceremonial funeral, are values that her government and policies sought to annihilate.
How d’ya like that DJIA, hitting record high after record high, week in, week out, for months? That 85 billion per month that Benny and the Ink Jets been puttin out ain’t fer nuthin’, ya know!
It’s called zombie money, and there’s no better way to put it then caveat emptor.
Cypriot archbishop urges finance minister to quit
Archbishop Chrysostomos II, who had urged for eurozone exit over an onerous bail-out, declared on Sunday that finance minister Michalis Sarris and central bank governor Panicos Demetriades should step down after allowing the EU-IMF lenders to devastate the island’s banking sector in return for a €10bn (£8.4bn) loan.
The missive is the latest public criticism to come from the island’s religious leader since his failed bid to avert a raid on Cypriot savings by offering the church’s entire wealth to shore up the struggling economy.[..]
“If I was satisfied, I would not have called on them the other day to resign and leave, because they have the same views as the troika [of international lenders],” said the archbishop.
Jack,
What I’ve seen so far is “confiscation plans” from New Zealand, UK and Canada. Disconcerting, for sure, but no need to go all out – just yet -. I see no reason to doubt that all rich enough nations have similar plans on the shelf. Cyprus is just one more reason to not trust the solidity of a bankrupt banking system; and they all are bankrupt, wherever you live.
Hmm Armstrong. Little paranoid for my taste. Leads to strange ideas.
This is about keeping the banks alive to service the debt of government.
I think maybe that should be the other way around.
Government is digging in its heels and will not relinquish power nor will they reform.
There’s no such thing as “The Government”. Other than in Martin’s head. The banking world is much better organized.
BTW, what is that about the world moving into gold? $20,000 an ounce? Are there really still people touting that line? Yawn.
People taking money out of banks to buy hard assets does not increase the velocity of money. That doesn’t make sense, since it doesn’t cause money to flow through the economy. You can’t measure the velocity of money in just one step. That step is more than zero, but it falls straight back to zero too.
To raise the velocity of money you’d need people taking their money, buying gold, buying land with that gold, selling the land to buy real estate, selling that to buy gold, etc etc. You need money changing hands multiple times, not only once. If any of the sellers in the sequence above use their share to spend on basic need goods bought from people who need their income to buy more basic need goods, you’d have something, but what are the chances that they’ll all go down that route?
After all, people who have money in bank accounts in general don’t need to it right away. They will therefore in general use it only for that one step, if that: they can sit on it, or put it into something else. Where they will, in general, leave it.
And once they do need it, for their basic needs, they will of course be very careful about spending it.
Oilo,
I suggest you read through the articles in our Primers section (see menubar). That should answer a lot of questions, and help you along towards finding ways to improve your prospects.
Wow! He has really shaken things up with his 5 star party coming third in the election. Well done!
Actually, Cinque Stelle is the largest “party”. Both Bersani and Berlusconi ran with coalitions of multiple parties.
Then again, Cinque Stelle isn’t really a party, it’s a movement.
In fact, since Monti didn’t have a party either, none of the 4 biggest vote-getters were political parties.
Well, Moody’s did it: The UK lost its AAA status.
Good time to go back to the link I posted earlier in this thread, Losing Our AAA Rating Could Mean Bank Collapse And Deflation. From that link:
Banks in this country are doubly exposed, because regulators have forced them to hold vast amounts of UK government debt.
If that is true in the UK, it is even more so in Spain, which had/has a shadow policy to have its banks apply for EU money in order to buy sovereign bonds; a nice topic for Dave to run with.
Well, deflation’s a popular topic all of a sudden. Not that the pundits seem to have a grip on the topic.
Losing our AAA rating could mean bank collapse and deflation
The one thing worse than a downgrade leading to yields dropping is a downgrade leading to them spiking, and there is no guarantee that for the UK the reaction would be the former. UK growth prospects are already terrible, and our banks are much more extended than US ones, while British households are more indebted than those in France. Furthermore, the AAA rating is central to the UK’s international reputation as a finance centre.
If our growth prospects deteriorate even further, then without even higher inflation, UK households will default on their mortgages, bankrupting British banks and thereby bankrupting the Government if it stands behind the banks. We have already seen that happen in Ireland and Spain. It could happen here, too.
Banks in this country are doubly exposed, because regulators have forced them to hold vast amounts of UK government debt. Even relatively modest rises in government bond yields, implying some fall in government bond prices, would impose huge losses on UK banks. The Bank of England has suggested that UK banks already need £60bn of extra capital. Taking large losses on UK government bonds could push them over the edge.
Bulgaria succumbs to euro deflation curse
Another euro-pegged government defending an overvalued exchange rate bites the dust, a reminder that the underlying economic and social disaster across the Europe’s Arc of Depression is still getting worse.
Bulgarian prime minister Boiko Borisov resigned this morning after days of mass protests against austerity across the country.
“I will not participate in a government under which police are beating people. Every drop of blood is a shame for us,” he said. “Our power was handed to us by the people, today we are handing it back to them.”
What we see happen with insurance is the exact same as what happens to pensions. Both are exposed as mere Ponzi schemes. Which work fine for a while, until there are no longer enough new buyers. An added factor in the case of pensions and insurance (and certainly for swaps and other derivatives) is the declining economy.
I updated the Beppe Grillo article by inserting a Wall Street Journal video interview. Maybe that makes his positions clearer. In my view, no matter what anyone may think of him, his ideas are very interesting. He’s the first person in a position near to power who’s ever said what he does. And by next weekend we’ll know just how much influence those ideas will have on Italy, which means Europe, which means the whole world.
I must say, I’m surprised the article gets so little attention. Italy is not located on the other side of the world or the dark side of the moon.
I’d say anyone who thinks what drives today’s economies is some sort of inflation megatrend has some catching up to do. Of course, if they were, sitting on cash might indeed be that guaranteed loser. But they’re not, and that’s why it isn’t. History is replete with bursting bubbles, and we found ourselves the biggest one in that history, leveraged all the way up into the wild blue yonder. If you would care to look back through prior bubbles, you might just find that those sitting on cash ended up quite a bit better off than those sitting on tulip bulbs.
Ted,
There are many aspects to the pension question; the 15 years is more or less a “safe” estimate. I think what we’ll see happen is that as we go forward, payouts will be cut more and more. I see in Holland all sorts of funds are cutting by 5-6%, and overall those dependent on fixed income will lose 9-10% in purchasing power just in 2013. That would seem to be(come) the overall trend globally. The speed at which this progresses can be influenced by factors such as bad investments by the funds, declining stock markets and economies in general etc. Also, it seems obvious that young people will at some point refuse to pay in once they understand they’re unlikely to ever get a penny- and that is if they even have jobs: Spain’s 60% youth unemployment must of course devastate its pension funds. How it will all work out will vary across the world, even if the trend direction is clear and inevitable. All pension plans are ultimately Ponzi schemes, and those never end happily.
XYZ,
Here are some points the Daily Mail (first link) claims it got from Le Figaro:
WHY FRANCE IS ON COURSE FOR FINANCIAL DISASTER
• Public debt has risen to 90% of GDP, compared to 21.1% in 1974. If trends continue, the figure will reach 91.3% by 2014. The European Union target is 60%.
• Two key ratings agencies, Moody’s and Standard & Poor, depriving France of its triple AAA rating.
• France’s reliance on tax increases, including a proposed 75% haul on incomes over 1 million euros
• Mr Hollande’s decision to reverse pensions reform, meaning that most French people will retire at 60, and many at an even younger age.
• The figure for long-term unemployed increasing by more than 18% to well over half-a-million.
• More than a million people over 50 now unemployed – a figure which has jumped 15% in a year.
• A record trade deficit of 73 billion euros in 2011.
• Public expenditure of 56.3% of GDP, the highest of all western countries except Sweden.
• France employs 2 million public officials and Mr Hollande plans to create more, including 65,000 teachers and 5,000 court and police officials.
Hey Scott,
Good to see you here.
I’m not sure I’m any good at doing lists and bullet points, I think once I start, I’d want to subdivide each bullet with ten more etc. And I don’t know that you best fight bullets with bullets in this field to begin with. I don’t try to write finished all-encompassing things, that’s not something I have faith in, I’d like to think I take people on a journey, perhaps bumping them slightly left-right, up-down, back-forth from time to time, providing food for their own personal thought.
I’ll try to think in bullets. But I can still explain quite well without why recovery is fantasy.
“Moreover, the side effects of quantitative easing are significant. Many worry about an upsurge in inflation, though, given the outsize slack in the global economy—and the likelihood that it will persist for years to come—that is not high on my watch list.”
Sir, This is an error in your analysis in my opinion…
That’s Stephen Roach speaking, not me. I would tend to agree with what he says here, but I think he defines inflation as rising prices, and I do not.
No worries, Viscount, we’re not going to vanish into the night. It’s just that there are times when you can’t do 14 hours a day 7 days a week, simply because life happens. Obviously, it would be good to have more writers, and barring that, it’s inevitable that we can’t always do 3-4 posts a week. Nicole is set to go on another large Oz tour in March, and it’ll be just me again for a while as things stand. We’ll switch platform first soon and take it from there.
May we assume Ilargi, that Obama has forfeited his last chance to become a great president with the appointment of Lew?
Yes, he sealed his own fate. It will bring him down, and the country.
Yeah, that’s pretty much it, Gravity.
I was giving him the benefit of the doubt one last time here, so for me it’s a little too early still to call him “a serial drone-killing treasoner”.
If he names another bunch of yoyo’s to his finance team, we’ll know.
And he’ll go down in history as the man who blew up the country. The US can’t take another four years of fake recovery.
A handful of user accounts were accidentally deleted. Apologies. Please reinstate your account if you notice it’s gone.
Babble,
If Obama does not tackle the financial issues head-on in his second term, if he continues the way he has in his first (he did not pull the US out of a depression, he merely set it up for a worse one down the road), he will be known to history as the president who led the nation into chaos, bankruptcy and worse.
istt,
I don’t know how specific you would like the “answers” to be, I hope it’s obvious that we’re entering chaos, and that makes it impossible to predict all too specific things, other than enormous losses in wealth and purchasing power, as well as availability of products that can (no longer) be bought.
In general, the larger the scale of the system you depend upon for your work and your basic necessities, the worse off you will be. The closer you keep your control over your energy, shelter and food, the better it is.
But that doesn’t guarantee much of anything in a chaos; we can only do the best we can.
“There is a 90% chance that we get hyper inflation within a year”
Try 0%. You know, check in the mirror how it suits you, see how it makes you feel, does it go well with your eyes, your skin tone, do you have any shoes that would do it justice.
“Clearly, we’re well into the hyper inflationary phase.”
Clearly we’re not. With the levels of leveraged debt where they were and where they still are after 5 years, hyperinflation in not an option. John Williams has religion, and that is never good for analysis.
“There is a 90% chance that we get hyper inflation within a year”
Not even in Serbia you won’t.
Nicole, what do you make of S&P raising Greece’s credit level, for its sovereign debt, by 6 levels?
1) That ratings are now evidently based no longer on numbers but on faith; in this case, the faith that austerity hit Germans and Dutch will gladly give up their benefits going forward to bail out those of their banks that are neck deep in Greek debt.
2) That S&P fails/forgets to explain why they lowered the rating as much as they did. Those reasons are all gone now?
3) That S&P et al. are less relevant today than they ever were before. Given their performance in rating MBS and related derivatives, that is a remarkable feat. S&P is part of the financial system that closes ranks on the back of its continued and expanding access to public funds.
