Raúl Ilargi Meijer
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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.
I find this statement quite objectionable. It seems to me that they think that what cannot be measured is of no value or utility.
Nassim, that’s my point exactly. Bill Gates wants to clone himself in American classrooms, since he sees himself, consciously or not, as the alpha male. No, he really does. Just look at the feathers waving from his asscrack.
So, let’s take an example: how much fun does Bill have in his life? Well, you can’t really measure fun, so Bill doesn’t care. He thinks he has lots, but compared to who? What he does know about fun is only his own experience, which no matter how you look at it, is limited. Does that make fun some sort of side issue? No. It’s just hard to measure.
F**ing bleeping videotaping teachers to see if they do well? Do what well? Raising kids to be like Gates? Might as well turn ’em over to Catholic priests.
Now we need to wonder what the difference is between raising kids to Gates’ standards, and raising them to be the next Mark Twain, Walt Whitman, Rembrandt. Who the f**ing bleeping frozen-over-hell is Bill Gates to decide that? From my point of view, he seems to have very little, if any, affinity with how Samuel Langhorne Clemens became Mark Twain, so maybe the very last person on the planet we should want to have any influence on US education is Bill Gates. Looking at the world today, I’m pretty confident that one single Mark Twain would do us a lot more good than 1000 Bill Gates the Second’s.
The only things that make life worth while are the ones you can NOT measure. That’s the secret, that’s the whole idea: love, sorrow, a just plain happy moment, music that brings back a memory of a long lost loved one, a sunset that evokes eternity.
For that matter, Twain might have been talking about Gates when he said:
To succeed in life, you need two things: ignorance and confidence.
rcg,
You’re right of course on many counts, but something can be said for more successful species in evolution living longer. From memory, the croc and turtle families have what, 300 million years, while we’re at 100,0000? Not that there’s anything wrong with approaching and defining what success consists of from a more philosophical angle, but most evolutionary accidents don’t have long lives on the grand scale of things, while the better adapted – even if purely accidental – survive.
Capitalism self-destructs when children are born into it as consumers, not when the money runs out.
Eh, sorry, no. Capitalism self-destructs when growth runs out. And since growth is its most essential element, there’s nothing about it than can be tweaked to localize or moderate it sufficiently.
Declining velocity of money in action:
Richmond Fed Index Shows Mammoth Fall In Retail Sales
Retail sales contracted this month, leaving the index at −22, twenty-three points below last month’s reading. Sales of big-ticket items declined slightly, while shopper traffic dwindled. The index for big-ticket sales slipped to −5, a point lower than the June reading, while the index for shopper traffic tumbled twenty-two points to −16. Inventories declined more slowly than last month, with that index settling at −12 compared to −22. Retailers were doubtful about sales in the next six months; the expectations index dropped to −29 from June’s reading of 11.
OldE,
The money supply is not rapidly expanding (M1, or narrow money, is plunging, M2 rises somewhat). The monetary base is. They’re not the same. A useful table to tell M1 from M2, MZM etc. is available here at Wikipedia.
As I wrote in QE, The Velocity of Money And Dislocated Gold (see graphs there):
“The monetary base is the sum of currency circulating in the public and commercial banks’ reserves with the central bank. The money supply – money stock -, on the other hand, is the sum of currency circulating in the public and non-bank deposits with commercial banks”
In other words, the monetary base includes a lot of “money” that doesn’t count towards money supply, since it is not available for circulation.
The ratio used for the velocity of money is, simplefied, GDP/money supply. This is very crude, though, I would specifically include aggregrate transactions, for something like this:
V = ( P * Q ) / M
V = money velocity,
P = aggregate price level,
Q = aggregate quantity of goods and services,
M = money supplyOr you can say:
M * V = P * Q;
Note: P * Q equals nominal GDP.
That makes it much clearer that the aggregate quantity of goods and services (Q) is a determining factor.
We have long since conceded that we underestimated the extent to which people would take abuse lying down, so why should we address that yet another time? I think we have made clear enough we’re not here to help people make money, but to prevent them from losing even more.
As for advice for the next decade – and beyond -, it hasn’t changed. The only sensible thing to do still is to try to get out of the way of the storm, and certainly not to think that you can now feel safe to play the game a bit longer.
What’s positive about the prolonged Wile E. moment (and it isn’t anything else) is that it allows a few more people a bit more time to get out of the way with grace. I say a few more people because the majority will not listen no matter what we say.
If you understand to what extent Bernanke et al. are driving your children into debt, how can you not do all you can to make sure they will be able to take care of themselves, that they will have access to basic necessities? You’re not going to do that with gold or silver or stocks, it’s going to take a whole different sort of investment.
Sid et al,
In the end, I think Hazel Henderson defined economics best (and religion in the same vein, since economics is religion):
The problem is, of course, that not only is economics bankrupt but it has always been nothing more than politics in disguise … economics is a form of brain damage.
No, not all religion is economics, true. But all religion very much IS politics. Not in its purest core, perhaps, but certainly as soon as it gets organized.
GO,
I’m not sure which “sir” you’re addressing, but it’s entirely possible that the author of the piece may not read this comment section.
As for John Williams, I followed him for years, and stopped doing that when he outed himself as a hyperinflationist. That in itself may not make his stats entirely irrelevant, but his interpretation of them certainly is.
And that’s still without even mentioning the fact that equating inflation with (any and all) rising prices is a fundamental flaw that turns any and all stats derived from it into meaningless gibberish.
If the US economic recovery keeps its present pace, goldbugs and miners can expect bad news
Since 2000, core inflation in the USA has averaged just 2.5pc per annum (an increase of 38pc) while gold (measured in US dollars) has returned 12.4pc per annum (an increase of 356pc), nearly five times the loss of purchasing power in the dollar.
This fundamental disconnect between inflation and the price of gold cannot be sustained indefinitely: either inflation has to rise dramatically or gold has to fall.
In 1968, gold became freely tradable, having previously been fixed by the US government to the price of the dollar at $35 an ounce. Since 1968, the most credible measure of US inflation – the core consumer price index – has risen by 578pc, an average of 4.4pc per annum, suggesting a loss of purchasing power in the dollar of 85pc. This shows clearly why investors should be concerned about their wealth being eroded by inflation.
However, if we multiply the price of gold in 1968 of $35 per ounce, every year since, by the annual US rate of inflation, then we can calculate a fundamental value of gold based on purchasing power.
Such a calculation results in a fair value for gold today of just $240 an ounce, only a fifth of its current price of $1,280 an ounce. On any fundamental analysis, gold is a grossly overvalued asset.
PL&L
That comment on 2 trillion in reserves manifesting into 20 trillion in potential credit/loans sent chills. What we could have here is one of the most tightly compressed monetary springs in all of history.
The real chills come when you realize that their hidden losses are far greater than any of these numbers. That’s what these reserves are really for, survival in the face of debt deleveraging. That and highly leveraged bets: you got to make your $100 million a year somewhere, and it won’t come from consumer loans.
The attraction to believe in cultural, financial, or ecological Armageddon is deeply compelling. One can even find data to support these beliefs from commentators or scientists that share one’s outlook. However, in over 2,000 years this has never turned out to be the case.
Huh? What?
… they have an article saying how much oil is flooding the market because of these plays.
Well, actually, they don’t really. They suggest a lot though. The actual numbers are North American, they could largely be Canadian oil. The only thing that does say something sort of numberwise about the US is the little graph to the left, but without actual numbers. Hard to know what to make of that article.
For those who don’t have a WSJ subscription, “Rising U.S. Oil Output Gives Policy Makers More Options” is accessible through Google News.
UN Charts ‘Unprecedented’ Global Warming Since 2000
The planet has warmed faster since the turn of the century than ever recorded, almost doubling the pace of sea-level increase and causing a 20-fold jump in heat-related deaths, the United Nations said.
The decade through 2010 was the warmest for both hemispheres and for land and sea, the UN’s World Meteorological Organization said today in an e-mailed report examining climate trends for the beginning of the millennium. Almost 94% of countries logged their warmest 10 years on record, it said. [..]
The average global temperature for 2001-2010 was 14.47 degrees Celsius, according to the report. That’s 0.21 degree warmer than 1991-2000 and 0.79 degree warmer than 1881-1890. The increase was recorded even without any “major El Nino” event during the decade, the WMO said.
Sea levels rose at 3 millimeters (0.12 inch) a year, almost double the 20th-century rate of 1.6 millimeters a year.
There was a graph there that didn’t show properly (diminishing marginal debt returns). Apologies for that. I had to leave for a few hours. Fixed now. Interesting to note that in the numbers on projected future credit needs, diminishing debt productivity is not yet included. VK sent a few links to numbers as well, will put those in.
