Raúl Ilargi Meijer
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“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.
rapier,
So I am suggesting that AE’s analysts should be a little more granular.
In what regard, pray tell?
We have always said that there would be a huge capital flight into the US. But also that it won’t buy it that much extra time.
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.
