Raúl Ilargi Meijer
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Dave, Nassim,
I think maybe we risk going overboard here a little. It seems obvious to me from looking at the graph that it is no more than 15-16 months old, certainly not 36. It stops around Sep 2011. Anyway, it’s not that dated.
In that time the Greek 10-year yield has fallen to 12.7 from below 15, with Italy at 4.59, from about 5.6 (hard to see), and Spain at 5.35, from about 6.
But also down are France at 1.97 and Germany at 1.35. And they were at 3.2 and 2.5, respectively, as far as I can make out.
That means that in absolute numbers the spread may have narrowed, but also that yields for the bonds that are – perceived as – safer have come down at much higher percentages.
This is not too surprising given the promises of endless fodder for the beast, no matter how impotent. It still does paint a different picture from what Dave implies, though.
Even with the endless fodder, have yield spreads really narrowed? When seen in percentages? It doesn’t look that way.
Let’s see where this goes and not rush to conclusions.
GO,
I think maybe the best sign we have that we are absolutely spot on is that Nouriel Roubini is now talking about a housing recovery and other positives for the US. If we see for instance David Rosenberg say similar things as well soon, it’s probably time. For the opposite to happen.
The link to the Store page that the ad picture is supposed to have was missing for a while. Sorry for that. Now we’re open for business again!
I don’t think DVDs are as antiquated as some seem to believe, there are plenty people who do still want them. That said, we will certainly look at making things available as downloads, though perhaps not all content on the DVD set. But that may take a while, and for now we’ll focus on selling the DVDs. 2012 has been a bit of a crazy year for us, with even more travel than the year before, and we first need to make sure we get our funding in order going forward, and to move back to a regular publishing schedule (impossible to maintain when you’re on the road all the time).
“That is, an economic recovery in the US is not possible when households still have to deleverage to the tune of $2-3 trillion.”
I don’t see too much mention of interest rates. With mortgage interest rates still dropping, I think you are a bit early with your call.
There’s no timeline anywhere in that call, so how can I be early?
I agree that the economy isn’t growing, but the main reason for that is that CPI and PPI is much higher than stated by the govt.
No, the reason there’s no growth is that the debt levels, both public and private, don’t allow for it.
If we don’t get way above average rain/snow over much of the eastern half of the nation within five months, you are going to see food price inflation on a terrifying scale.
There’s no such thing as “food price inflation”. Which doesn’t mean prices can’t go up. Calling it inflation keeps you from understanding why, though.
That desperate US hyperinflation call of yours is what’s early, way early. It’s typical for those who see the US only, not the world it’s part of. A pretty general affliction; but that still doesn’t make it right.
“The article takes the stance that households MUST deleverage by $2 to $3 trillion (back to the 2003 level), end of story, no alternative.
That’s correct, mostly. Only thing is it doesn’t stop there.
“What’s the economic argument for 2003 debt levels? Why not 2005, or 2001, or any other year for that matter?”
It seems obvious to me that the 2003 levels are but an example. We could go back further in time, and that would mean more deleveraging. For most people mentally getting used to 2003 levels is bad enough.
“The article also says that the massive deleveraging is inevitable, but is it not possible that the economy could fluctuate for decades between moderate further deleveraging and minuscule growth?”
Where, in that hypothetical case, would people find the money, for decades, to pay off their debt?
“I don’t believe the market pumpers who say we’re “getting back to normal” (what the heck is “normal” after all), but I also have trouble with the idea that total collapse is the only alternative.”
Hey, what the heck is “total collapse” after all?
Amen to all that, Ghung.
And kudos for getting there.
Wish many more people would have the foresight to follow suit.
We’re grateful we could play our little part in it.
compound f,
I’m not quite sure what you would like to hear. It’s not as if Newberry’s ideas are all that unique or novel, in my view. His insistence on phrasing his issue in terms of American party politics strikes me as making that same issue unnecessarily shaky; just another ideologist, that sort of thing. And perhaps he can be forgiven for missing out on the consequences of for instance the housing bubble, since his piece is 7.5 years old. But that doesn’t change our perception that financial bubbles have their own internal dynamics, even though Newberry completely ignores this. I also have my doubts about his phrasing the issues in a US-centered format; that not only seems awfully naive by now, it already wasn’t very smart in 2005, even if to this day there’s plenty misconceived talk of decoupling. We are in a global bubble, not a local one.
In short, Nicole and I have always rejected the notion that peak oil caused the bubble we’re in, and we see no way whatsoever to change that. That doesn’t mean that energy and finance won’t or can’t interfere with each other in the future of course, just that a causal relationship here and now doesn’t exist in the way many people claim. Which seems to stem from an overly one-sided focus on energy issues, if anything: hammer meet nail. Going forward, we do see financial issues exacerbating energy issues, when money, credit, simply won’t be available to maintain existing energy infrastructures, let alone allow for a shift towards alternative sources if oil were to be less available.
“Why Freud? Why not Jung, instead? I think choosing one psychoanalyst over another is quite arbitrary. Was the selection of Freud made because he happens to fit your preconceived ideas about how humans work? “
You have me wondering who has preconceived ideas here, and about what. I’m not choosing anything, and I would never suggest studying Freud without Jung (or Marcuse), anymore than I would the other way around. For all his failures, though, Freud was the pioneer that others reacted to, even if often in very constructive ways. And for all his failures, Freud can help people better understand their inner beings, certainly when it comes to topics like optimism bias. Not that they would need psycho analysis for it.
“Just because AE has been accurate with how the financial sector works doesn’t mean you automatically have intellectual purchase in the realm of human psychology.”
That may be why nobody has suggested anything of the kind.
“Optimism without bias isn’t pessimism, Dave, it’s just optimism…”
It goes a step further of course: a lack of optimism is not – necessarily – the same as pessimism.
“I find a mixed message within autoearth. One article deflation and devalue. Next comments about collapse and inflating prices.”
That’s new to me.
“I lost my optimism in the 1970s”
You didn’t really, just part of it.
“I hope there’s time.”
The very words you’ll find when you look up “Optimism Bias” in the dictionary.
Martin,
Very simply: no way.
Without going through the entire works, the main one that stands out is that all fuel rods on the premises, both active and “spent”, will need to be cooled for many years after shutdown. Obviously, that takes energy. Lots of it. You raise an important point, one of many that remain hidden for “the greater good”. Our great grand children will have to devote a huge amount of energy throughout their entire lives, and then pass the responsibility to their children, just to try and keep the 400+ active plants we have now in the world, more or less stable. Or else.
“If that is the case, why is the fed engaged in unsterilized money printing? As you must know, it is because they have run out of savings to borrow. “
You argue here that the US must “print”.
Because, you argue, it cannot borrow in international bond markets.
That is so far off the truth, it’s not funny. Nor is it a challenge.
I rest my case.
If that is the case, then deflation is probably in store for Europe. And if they get deflation, the USA gets hyper inflation.
When we get these things after explaining it 100 times, the possibility looms large that you will never understand. But that doesn’t mean hyperinflation is any closer in the US. Not that EU deflation leads to US hyperinflation in any rational sense, mind you, but that by now is beyond the point.
One more time: the US borrows heavily in international markets. That borrowing cannot exist simultaneously with hyperinflation. It won’t turn its back on those markets anytime soon; why should it when it can borrow dead cheap?
Anyway, it’s all as much a lack of comprehension of the present situation itself as it is a failure to properly define hyperinflation. Off by at least ten years.
“Some people are enjoying a rising money supply and can modify their action to keep the money flowing to their coffers.
The majority of the people are helpless and are facing a falling money supply and rising prices. “
Money supply is not a term used for individuals and/or groups of people. It applies only to entire nations/societies. Hence, yours is not a valid picture.
The blunt definition of inflation as meaning only rising prices is not “conventional”. It’s a recent development. Prior to more modern times, devaluation and depreciation were used for what inflation is now used for. And for good reason.
The way inflation is presently defined serves simply to make and keep people stupid. That may not have been the intention behind the change in definition, but it certainly fits a purpose.
Using the term inflation without a direct connection to the size of the money supply makes zero sense. We can all understand that rising prices in a rising money supply will both originate in, and lead to, a completely different situation than rising prices in a falling money supply. Yet, the “stupid definition” makes it impossible to see this. Which is exactly what makes it stupid.
Likewise, talking about inflation without establishing an immediate link to the velocity of money makes no sense. It doesn’t mean anything, and therefore keeps you ignorant. Again, we can all get that price rises in a slowing velocity of money are not identical to those in an accelerating one.
That is why both the money supply and the velocity of money must necessarily be part of any serious definition of inflation and deflation. Without them, no such definition serves any purpose. Other than keeping people stupid, that is.
Of course it would be much easier for Nicole and I to go along with what too many others say. The fact that what they say is so nonsensical, however, makes that impossible for us. Because we’re not here to keep our readers stupid; we’re here to add to their understanding, not to subtract from it.
I’ve written about this topic a hundred times if I wrote about it once, and there’s simply not enough time to keep on regurgitating it. That’s why we have Archives and Primers sections. But I’ll give you one example that I noticed this week (I’ve addressed it before) and that stands out:
The press here in Holland, where I’m staying for a few months, reported that inflation was up, and that was largely because VAT had been raised, I think from 19% to 21%. That is blatant nonsense for a simple reason: It would mean that any government that is worried about inflation can solve the problem with one simple action: lowering taxes. Even if it would double the money supply at the same time. And spend it at breakneck speed into the real economy. If that is not clear enough as an explanation for the folly of the definition of inflation as rising prices only, I don’t know what is.
I’d say there’s plenty material today in the Primers section (accessible from the Front Page, in the Menu bar) to explain how and why we define inflation the way we do.
“In my opinion, biflation is not at all a useful concept. It just muddies the waters.”
My thoughts exactly, Nicole.
Biflation is nothing but another way for people who don’t understand what inflation/deflation is, to make sense of what they see but can’t explain. It doesn’t help them, they need to go back to the real definitions. Moreover, terms such as these, simply because they are so wrong, make interpreting events harder, not easier. If you don’t get that the largest credit bubble in history cannot be followed by anything but the largest debt deflation in that same history, it’s back to zero, and again, until you do. Inflation and deflation cannot exist simultaneously. Deflation, put simply, is the contraction of the money supply and velocity of money (which has plunged not unlike that Baumgartner guy) already.
I would add to what you write that prices of a substantial group of goods is high(er) today because a lot of zombie money (money that is not real, but “exists” by the grace of Soprano accounting standards that temporarily hold deflation at bay) has moved into them away from very poorly performing bond and stock markets (the latter still trade on very low volume).
And interestingly, that is in perfect line with what we always say, namely that down the line real goods have real value (not reflected in a particular price level, but in affordability). That’s why many investors move into food, energy etc., and that – obviously – raises prices. And that is not inflation or biflation or anything like that, it’s deflation that makes people move their “money” from one “asset class” (the one deflation hits first, i.e. Treasuries) to another (oil, corn). I would add gold to that, in the sense that it is simply another way that far too many people at the same time think they have at their disposal to protect their money.
John,
I know it looks funny. I based my number on this FT line:
In a white paper earlier this year, it said that it cost the financial industry almost $300 million to replace $16 billion of certificates that disappeared in the collapse of the World Trade Center in 2001.
And that leads you to $248 billion once you substitute $16 billion with $13.2 trillion.
It all depends on what certificates are concerned, obviously, but since we don’t know that, it’s not possible to go for different numbers and still be logical. Along the same lines, it’s weird that DTCC’s total of 3.6 million certificates represent a $36.5 trillion “value”, which gives every certificate a $10+ million value on average (which makes $200,000 per doc in replacement costs look much more acceptable).
I hope and trust that my readers understand that I only have the numbers I have, and that any conclusions from there come, as I said, with a caveat or two.
I guess what irks me most is that there is no way to find out much of anything solid about this, and all we can do is play around with numbers.
“Apologies, Ilargi, for responding to the snake oil trolls. “
No problem, though it gets a bit out of hand, it sort of feeds the illusion that what they say actually has something to do with Nicole’s words. Or, for that matter, that they actually read the article.
What I think is crucial when it comes to renewables is that they should NOT be connected to the grid. It’s the same tug of war as the one that plays out in Europe: the haves plead for more centralization, and thereby kill what good there is in the limited union as it exists. The have-nots, on the other hand, should be shouting much harder against that. Thing is, they would first need to understand what is at stake here. The fact that people focus on promising gizmo no. 63584163 makes me think that isn’t happening.
… I’m sorry, did I miss your factual response to what I said, which was that rooftop solar seems to have a payback period now of about 10-12 years?
My response was a question. Which you entirely ignore.
So we have almost an entire thread devoted not to what Nicole writes, but to the pros and cons of snake oil, a discussion that seemingly originates in a persistent inability to understand the laws of thermodynamics. One would think Homer Simpson made that already very simple topic accessible to just about anyone, but the probably archetypical dream of free, clean and virtually unlimited energy proves too much for many people’s critical thinking.
Who would do much better paying attention to what the original article has to say.
PS: When in a thread there’s one mention of the next one in an endless line in brilliant inventions that upset the status quo and can save the planet, that’s one thing. When there’s more than one and they pretend to be independent from each other, I get suspicious.
Unsubsidized rooftop solar right now seems like it has a reasonable payback period at about 12 years, with expected equipment lifespan of 20-25 years.
Then why are all those companies, GE, Siemens etc., closing their solar divisions?
Pipefit,
I think you’re too focused on the US alone. And the US is so dependent on and addicted to international debt markets that hyperinflation is not possible for that reason alone. That’s also why what Japan goes through is not a good example, not in the way you bring it up. There’ll be no long slug for America, like Japan’s had over the past 20 years. Japan has been able to sell its products and debt into a thriving world economy (thriving on debt, but still), and cushion its deflationary fall that way.
For the US, that’s – obviously – not in the cards. But what the US can still do is sell its debt, and with ease (look at those yields!). The bond markets, however, will keep a very tight watch on that; too much and rates will skyrocket. As for why that hasn’t happened yet – a question many people will ask -, look at the graph depicting the gap between monetary base and money supply in my article.
(Hyper) inflation requires both 1) a strong and rapid increase in the money supply and 2) a strong and rapid increase in the velocity of money. Neither of these requirements are in the cards in the US today. Not at all. Something would have to trigger both, and there’s nothing out there that looks like a candidate.
In my view, this line from Puru Saxena says a lot: “As long as expectations in the real economy are not affected, increases in Fed-supplied money will simply be a swap of one zero-interest asset for another”. The whole financial world is gasping for breath, not about to jump up and go all ADHD on us. The opposite is happening. Less and less money is in motion. Injecting more credit is not about to change that overnight, there’s far too much inertia.
“Clouding the issue of unabashed fiat creation with economic mumbo jumbo only serves to muddy the waters. “
Labeling this article and the quotes in it ‘mumbo jumbo’ is not conducive to a good discussion. If you have to resort to that, you’ve already lost most of the argument right there.
The velocity of money, which is at its lowest point since 1959 at the very least, is a decisive indicator. As is the – closely connected – huge gap between the monetary base and the money supply.
How one would arrive at (hyper-)inflation in view of these indicators is, to put it mildly, not obvious.
Have you considered the possibility of Romney’s and Obama’s backers being the same group of people? They really can’t lose in this election.
Of course. It’s in between the backers and the candidates where I think you find the people who do care who wins. For some reason that casino guy, Adelson(?!), springs to mind. He’s betting big, tens of millions of dollars, on Romney. There’s a lot of deep dislike in America for Obama. And for Romney too, of course. And there are many people in the grey shadowy area around the candidates who do care who wins, either for monetary reasons or for purely personal ones.
Glennda,
Curious that IBTimes/Natural News carry that story this week. Reuters reported it on February 13 this year.
It’s also curious, I think, that there has been no follow-up anywhere that I can see over the past 8 months.
Bassaterre, Prof L’nL,
I did indeed use Daumier’s Don Quixote and two pics from Zorba. The bottom one is the face of Irene Papas in the film.
I must disagree with that one, Ilargi. Americans will keep their leader in a time of crisis. FDR comes to mind here.
Right. So does Jimmy Carter.
Everyone ditches what they have for promises of better days. Nothing American about it.
US brands Assange an ‘enemy of the state’ – just like al-Quaeda
Even paranoids have enemies – and it seems that Julian Assange may have strong grounds after all for believing he’ll be mistreated or even killed if he’s extradited to the US.
Declassified Air Force documents show that the US military has designated him as an enemy of the state, putting him in the same legal category as members of al-Qaeda and the Taliban.
The documents even suggest that military staff who contact Wikileaks could also face the death penalty.
They relate to an investigation of a US Air Force analyst, who was based in the UK at the time, and who attended Assange’s court hearings. They describe her meetings with pro-WikiLeaks activists in London as ‘communicating with the enemy’, an offense which can carry the death penalty.
“The term ‘Communicating with the Enemy’ would appear to show that the US government term Mr Assange and WikiLeaks the ‘enemy’. By deeming them the ‘enemy’, they can be treated under the laws of war which could include killing, capturing, detaining without trial etc,” says Wikileaks.
There’s some ambiguity, in that it’s possible that the military doesn’t in fact regard Assange and Wikileaks as the enemy, but merely as a conduit.
But, says Wikileaks, “This too opens up an array of possible attacks on WikiLeaks by the US government and means that all media organizations now risk having suspected sources being executed because communicating with media would mean communicating with the public, which is communicating with the enemy in this interpretation.”
Yesterday, Assange spoke to the UN via a satellite link from the Ecuadorian embassy in London where he’s currently holed up. He called on the US to call a halt to its ‘persecution’ of WikiLeaks and its sources.
Skip et al
I think we need to consider much, nay MUCH, more seriously that Bernanke is not trying to fix the economy. That that’s nothing but a very persuasive fairy tale. The QEs and other bailouts are ways to minimize losses for banks and their shareholders, at the expense of the man in the street. They are mass wealth transfers. And they have been very successful to date. What’s even more successful is the propaganda machine that ensures very few people to this day question the very fact that QEs are meant to strengthen the economy of the little man, whereas they do the exact opposite. We can’t continue to talk about failed bailouts, we must consider alternative viewpoints. From which they’re anything but failures.
As for graphs on civil unrest: don’t count on it. It must be a year or so since I first said the only thing that’s certain is chaos, and I think that still stands upright very much. And chaos in graphs doesn’t work very well. Unless your samples are huge, like in the Hadron Collider or something, but that doesn’t tell you anything about what will happen if and when the first Spanish demonstrator is killed by a police bullet.
Ilargi, you have been more than willing to talk about the movements of the markets (yes, the S&P) as long as it moved in the direction you thought it should move.
You’ve quoted the downward movement of bank stocks or overall markets countless times.
But when they move up? We get silence or anger.
Just because I say the S&P isn’t our primary focus doesn’t mean I can’t talk about it. That’s just weird, and I don’t understand why you try to bring that up.
As for where I think it should move, look, you have 15% unemployment in the States, more in large parts of Europe, China is crumbling, yada yada. In short: the S&P is hugely overvalued in all but name. You can pretend that I’m biased there, but is it really me who’s got the bias? Bernanke may claim his latest money grab is meant to counter unemployment, but that’s of course a load of testicles. Central banks are interested only in propping up markets while bank debts are transferred to the public. Which is much easier, probably possible only, here’s looking at you kid, when everyone is fixated on the S&P.
And I do talk about the markets when they move up in my articles, I do that all the time. No silence, no anger. I simply explain that the S&P still is where it is, as are gold and real estate, because everyone’s money is being doled out with every single reiteration of QE and the rest of the alphabet soup. That I do occasionally tire of addressing the same issues time and again in the comments is another story. But even then, you can’t say I don’t try.
You do in fact have no problem disparaging gold purchase and caution punishment for those who do so in the short term. What would you call that? My feeling is that clearly it is a forecast of a lower future price. You could quite possibly be correct, but others, including myself, have a different forecast.
GO,
My position, our position, often stated, is that the depression will be so severe that anyone who presently owns less than $1 million (complete ballpark number, but certainly no less that that) in real wealth (not stocks, pensions, real estate etc.), will have no use for gold. It will plummet with everything else once credit ceases to be available.
Gold is presently being held up by zombie money like the rest of the economy. I’ve talked about a conversation with a young man in Tasmania earlier this year who said he asked his grandpa about gold, and got the answer that gold is not the way to go, because in 1930s Hobart a gold coin would buy a man no more than a half dozen eggs.
Why anyone would think it will be different this time, I can only guess. Inborn blind optimism? As for what I would call that: truth, a warning, blowing a bubble?
The webosphere is overloaded with sites that promote gold, and most of them make money off of that position. Are they all wrong? Yes they are, not because they’re all stupid, but because they don’t include a truly severe depression in their thinking and their models. They’re biased towards blind optimism, a common human trait.
They follow markets etc. to a fault, but have no underlying full historical analysis available that facilitates for possible outcomes that would threaten their own positions and lifestyles. In short, they think they can beat the markets. In this case, by holding gold.
We do not, and we certainly don’t want to fool our readers into thinking they can. The age of the investor is over, and the investor will be the last to know.
I come here, to get the “deflationary take” on things. I figure between TAE, Mish, and Martenson we’ll get effectively complete coverage on what is really going down.
What, Martenson has done a 180? Whaddaya know?
ilargi wrote:
Sir, I would just like to point out that Mr Dalio is strongly recommending the purchase of gold. He claims it is a must to own.If you’re as rich as he is, you can’t go wrong with that advice.
If you’re not, he thinks your purchases will raise the value of his holdings.
How do you still find the patience, Ilargi?
It’s not so much the patience, there’s some of that here and there from time to time every day. What I do find worrisome is this Groundhog Day theater where we need to explain the most basic things again and again. We should be working and looking forward, not backward, and these sorts of questions make that hard.
No matter how many times we say that timelines are not our primary focus, sure enough people, who on the surface seem to be intelligent enough, ask for timelines. We can say 1000 times that we don’t see gold as a good investment from our “very long time very deep depression” point of view, but there’s always someone who ignores the fact that that is our point of view and still wants to know what we think of gold tomorrow morning.
There’s no shortage either of folks who want to time the precise point to shift from gold, or stocks, or you name it, to hoes and heritage seeds, but we’ve already said 1000 and one times that from where we’re sitting, every single day they lose on the purchasing hard goods front is one that will someday hurt something ugly.
People approach us with their points of view, completely ignore and disregard ours, and still expect answers that fit into theirs. It has a certain comedy quality, granted, but it also has these “gold is higher today than it was yesterday, so you are wrong when you say it will have lost value in 5 years” qualities. Slapstick more than comedy.
Nicole and I are here to talk to anyone who will listen about what we see, and we’ve been here for years now. Our overall ideas haven’t changed a bit, if only because everything we’ve said would happen, did. Not from the POV of the short attention span crowd perhaps, but then, they’re not the crowd we’re addressing.
And we’re not about the S&P, or the price of gold, those are just little thingies in the grand scheme of the biggest credit bubble in history deflating, de-bubbling, in the face of which there’s still people, believe it or not, who talk about hyperinflation. That, I find strange.
We can discuss why we see what we see, but we can’t continue to discuss daily changes in the S&P or gold prices (for the simple reason that TAE is not about those things), accuse us of being wrong in things we’ve said would happen in the longer term future because of these daily changes, and still pretend we have a serious discussion.
