pipefit
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Steve quoted Evans as, “The agencies underestimated the probability of default by more than a factor of 10.”
Perhaps there was some under estimation, or maybe it was fraud? The information we have to work with is not very good. This is why it is so critical for every human, optimist or otherwise, to load up tangible items, held in your own possesion. We really don’t know how many claims there are on financial assets. Think rehypothecation.
People, being generally honest, have this naive hope that the folks running the financial system share the same moral values, such as the respect for private property. Misplaced optimism?
The biggest lie of all is the extent to which the USA Dept. of Labor understates consumer price inflation. If they used the same methodology they used in 1990, the reported CPI inflation number would double the reported number (6% instead of 3%), and if they used the 1980 methodology, it would more than triple!!!
You can see the consequences of this plainly in the collapse of Hostess Brands, the baker of Twinkies and other snack cakes. The workers went on strike, refusing to take a big pay cut, even as the company was bankrupt, forcing the company into insolvency. The workers have seen the buying power of their pay eroded by the outlandish inflation of the last decade, and felt like they couldn’t take any more loss of buying power.
This is the just a taste of what is to come as we get deeper and deeper into this hyper inflationary depression.
“It won’t turn its back on those markets anytime soon; why should it when it can borrow dead cheap?”
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.
And you didn’t address the point I made about the chart. The dollar can’t make any traction against the comatose Euro, but it is going to INCREASE in buying power versus stuff that requires actual work to produce, such as gold, food, etc.? Puhleeeeze.
I get the theory. If money is destroyed by default, faster than the masters can create more of it, you have deflation. But we are on a pure fiat standard. They are never going to allow that to happen. That is why TMS, CPI, and most other indicators are showing inflation.
When will inflation morph into hyper inflation? Don’t know, but it will within a couple of years. They have run out of savings to pilfer, so they print. In Europe, they are trying their hand at imposed austerity. That is the deflation solution. There is no talk of that here. Just the opposite.
“By then you have a sharply shrinking GDP and not even a thought of paying for anyone else’s debt.”
If that is the case, then deflation is probably in store for Europe. And if they get deflation, the USA gets hyper inflation.
This is consistent with the charts. The USA dollar looks to be in the home stretch of printing a head and shoulders pattern on the daily price chart. Once the 78 neckline gets taken out to the downside, the implied target would be 72, a new multi year low.
Nassim post=5936 wrote: Pipefit,
It looks like you misunderstand the message Stoneleigh and Ilargi are making.
If money (i.e. credit) disappears at a faster rate than stuff does and its speed continues to drop, that does not lead to hyperinflation.
Hyperinflation is always a political choice and right now the guys and gals with all the dough do not want hyperinflation – only those with massive debts could ever wish for such and event.
Hi Nassim. You really hit the nail on the head with your last half sentence. The USA Govt. has debts and unfunded liabilities of about $100 trillion (present worth), so they are quite bankrupt. They are running deficits (GAAP) of $5 trillion per year, and on any sort of economic weakness that increases greatly.
As Nicole stated so correctly, these governments are quickly losing legitimacy, and the currencies they issue are too. That is text book hyper inflation. Also, the rest of the world has $12 trillion in liquid dollar assets. The flight to quality is butting up against the massive fiscal deficits as well as the fact that the dollar is already overowned.
Nicole said, “What we’re seeing is that the pie is shrinking; there’s not enough to go around. When the pie shrinks, when you have economic contraction, you also have a contraction of the trust horizon. What that means is that national and international institutions become stranded assets from a trust perspective. They lose political legitimacy;….”
That is a good argument for hyper inflation!!! If the population grows, and there is less stuff, there is less stuff per person, hence it is more valuable.
As confidence in institutions shrinks, it also damages their fiat currencies. This why you are seeing so much in the news lately about gold repatriation: Germany, Romania, Turkey, etc.
Prof Lock-“We can bite the deflationary bullet now, and begin the healing, or we can multiply the monster 10 fold, all the way down, and bite the really big shew later.”
I think the last chance of going the ‘deflation’ route was around 2000, when Shrub took office. We had an accounting surplus, so they could have began the process of converting social security to private accounts.
Obviously W. thought it made more sense to give the $2 trillion (2003 constant dollars) to Iraq.
Regarding the comments on the a stock market selloff, to the untrained eye, the S&P 500 appears to be right back near the 2000 market top. But that would be ignoring 12.5 years of CPI and monetary inflation. Adjusted for inflation, the stock market is less than half of the all time high. And measured against real money, gold and silver, it is off 80% to 90%.
This is why central bankers and their bosses, whoever they are, love inflation so much. They can steal a massive chunk of everyone’s money, over and and above taxes, and most people have hardly a clue as to what is happening.
“The only thing that I ever really broke even on has been the coffee can of pre 65 coins I filtered out of the laundry mat change machines back in the late 60’s.”
Uh, you would mean ‘silver’, lol.
Put your savings, from your hard work, in cash? As in the dollars? Why? Those dollars are being systematically inflated into a state of worthlessness
by the Department of Inflation, oops, I mean the Federal Reserve Bank. And the Dept. of Inflation just announced they are going to speed up the inflation process by an order of magnitude.Yeah, it is possible we have a fascist coup, and they confiscate everybody’s wealth and lock everyone up in a gulag. Dollars won’t do you any good in that situation either.
I think you need to start with a premise that allows you to live a decent, if not spectacular, life, and proceed on that basis. Democracy will not survive a deflation more severe than we had in 2009, neither here nor in Canada. Anyone that is that sure about it should not be here. Maybe Yukon or Alaska? South America, near the Amazon? Not sure about that.
Far more likely, they run the dollar into the tarmac, then roll out the new 1-world currency, appointing themselves and their associates a huge bankroll of the new stuff, and giving us 99% ers and tiny bankroll to get started, or perhaps nothing but the clothes on our backs, as long as they don’t have any fancy designer labels on them, lol.
Stoneleigh-I have a bit of a disagreement with a few of your statements.
“We have been in a counter-trend reflation since 2009,…”
The great reflation started before the S&P 500 double bottomed in late 2002/early 2003. The housing bubble is part of the great reflation. So the great reflation is at least 10 years old. These guys are going to continue to reflate until we get hyper inflation.“The rollover in the markets will drag the real economy down with it….”
Agreed. And this is inflationary, because it will lead to an INCREASE in our federal deficit, already at 30% of GDP on a GAAP basis.You’re thinking that IF we had a hard money system, a big drop in federal revenue would be deflationary, and it would, since there are hard constraints on deficit size in such a system. Obviously, at 30% of GDP and poised to go to 40% in short order, there are currently no constraints.
“… they [Japan] were an exporting powerhouse exporting into the biggest consumption boom the world has ever seen…”
Exactly. And we are an importer. But we aren’t paying cash for our imports. Our trade deficit dollars are recycled by our suppliers, to pay for our fiscal deficits. But our fiscal deficit has grown too big, compared to the available trade deficit dollars available for recycling, so outright debt monetization has already started.So, if Stoneleigh’s theory plays out, beginning stages, what happens? The fiscal deficit gets even bigger, and the trade deficit pool shrinks, meaning the debt monetization process goes into an even higher gear. Obviously, a declining pool of consumer spending weakens the dollar’s role in world reserve currency matters as well, further increasing the odds of hyper inflation.
Stoneleigh,
I actually agree with most of your points, and I think that a deflation of the type you discuss is a possibility. I think, in the fairly near future, say within six months, we should have a lot more clear cut idea where this is going. For example, by February or March we will be near the end of the annual favorable period for gold. Obviously, last year’s gold performance supported your argument. Two years in a row would give it a lot more credence. By February we should know how the ‘fiscal cliff’ will be managed as well.
As the USA economy contracts, the GAAP (and cash) deficit will continue to increase wildly. The two things supporting the USA dollar as world reserve currency are USA consumer consumption and the USA military presence worldwide. So military spending cannot be cut. But with imports dropping, the consumer side of the equasion will weaken. So we will be in the awkward situation of having to maintain military spending for a smaller and smaller role for the international dollar. The consequence, then, with fewer trade dollars to recycle, the QE-x process will be an increasingly bigger part of US Treasury sales.
We are really in new territory with our GAAP deficit at $5 trillion, or over 30% of GDP per year, and rising rapidly. There is a limit out there, and it is approaching rapidly. I think this is what forces the end game. Again, we have to wait and see what the policy response is. It could be deflationary of inflationary. In terms of social security, it has been a mixture: cutting social security taxes-inflationary, and lowballing COLA increases-deflationary.
ilargi,
If you look at worldwide debt as one big block, it is obviously still growing wildly, with USA federal (GAAP) debt increasing $5 trillion/yr alone. We know this debt will not get paid in today’s dollars.
I see three possible outcomes. The one you seem to be arguing is that bits and pieces get defaulted upon, one by one, in a positive feedback loop of economic contraction. Perhaps social security might be defaulted upon by increasing to the retirement age to absurd levels (85 years old?), as one example.
The textbook hyper inflation argument would be that the nanny state would bail just about everybody out, certainly itself and all the big players. They are already at this stage in Europe, and I agree with you that it isn’t proceeding very well.
The most likely outcome, I think, is some sort of debt jubilee. I don’t know the exact form(s) it could take, or even what would trigger the end game. I think it would be in conjunction with a one world currency being imposed on the planet by whoever it is that is in charge. It is quite apparent that no one is leaving the Euro, that is one clue we have to work with.
This would not be a text book hyper inflation, but close enough. You wake up one Sunday morning, and the news is that your paper money must be exchanged for the new currency, and bank accounts are frozen until they are converted. In effect, if you are a creditor, you get 10% of what you had, and if you are a debtor, most (if not all) of your debt is forgiven. If you are a saver, you get to keep 10% of your buying power.
The advantage of this ‘solution’ to the folks in charge is that it solves the problem of unpayable debt in a manner that enhances their power greatly. The other two solutions will lead to anarchy.
You’re missing the point, Jack. When you have an asset bubble the size of the NasDAQ tech wreck, or the USA housing bubble, you are going to get a devastating deflation OR hyper inflation. It just depends on the govt. policy response. The fact that they have been able to kick the can down the road this far shows you the power of having the world’s reserve currency. But this only delays the inevitable.
jal post=5777 wrote: Here is a fix.
It matters only if you can finish the month with some money left in your pocket after having obtained the necessities of life.
What on Earth are you talking about, Jal? In both deflationary (e.g. USA 1933) and hyper inflationary (Germany 1923) outcomes, people have nothing left over after obtaining necessities of life. In fact, in both outcomes a lot of folks starve to death, since they don’t get enough to eat.
When economies are distorted by government or quasi govt. actions, capital gets misallocated and the economy experiences booms and busts that more extreme than if the economy were allowed to self correct without govt. interference.
Once the asset bubble reaches a certain size, deflation OR hyper inflation is inevitable. (read Ludwick von Mises) The one you get depends on the government response. In the present case, we are headed full steam for hyper inflation. Of course there could be a fascist or communist coup, and the new leaders may opt for deflation. It is naive to think a democratically elected regime would do so, though.
It is USA deflation that is the myth. We don’t need theory to tell us what deflation looks like in the modern, post Breton Woods, pure fiat era, since we have a real world example, Japan. So what does a ‘real’ deflation look like?
For starters, the currency of the deflating country STRENGTENS, by 100%, over its main rival over the 6 year period from the point of bubble collapse. Then it meanders sideways for at least another 17 years, with any loss in buying power quickly regained.
The primary stock market index puts in wave after wave of new lows, and after 23 years finds itself still over 75% down from the top. Similar real estate behavior.
That is not even close to what we have in the USA. Whether you call the top of the bubble as being March 2000, or some time in 2007 or 2008, it doesn’t matter, our indicators are much closer to the ‘hyper inflation’ set up, not deflation.
Is it possible we could get the deflation outcome? Certainly. But very unlikely. The USA is slowly losing World Reserve Currency status, and this is inflationary.
We’re running a GAAP deficit of $5 trillion at the federal govt. level. Within two or three years it will be well over $7 trillion, approaching 50% of GDP!!! I think John Williams is rushing it a bit with his 2013 call for hyper inflation. I would say 2014 or 2015.
Stoneleigh,
Thanks for the response. I think that when our perception is challenged by facts to the contrary, it is better to look at things through a different lens, to make sure we have it right. In the present case, we know the USA economy is contracting. Also, the USA dollar is slowly losing World Reserve Currency status, as nations stop using the dollar for bilateral trade.
What are the implications of this? First of all, since the USA’s population is still growing, but the amount of stuff we produce is declining, there is less stuff per person. And since the dollar is SLOWLY losing World Reserve status, our ability to mooch off the rest of the world (ROW) is SLOWLY declining. So our total intake of stuff is declining on BOTH fronts, foreign and domestic.
So to make the ‘deflation’ argument, you have to argue that available ‘money’ will decline faster than the supply of goods available for purchase. I just don’t see this happening. For example, food stamps are certainly a money substitute, at least as long as food stores accept them. Do you see this supply of money declining? Obviously not. It is increasing sharply. This is one of several factors in the rise in food prices.
I agree, in theory, that with the USA govt. running a GAAP deficit of $5 trillion per year, the fact that we don’t have $25/gal gasoline is odd, and indicates that there are a lot of deflationary forces. But with Ron Paul’s elimination from the Presidential field last Spring, it is pretty much set in stone that the federal GAAP deficit is headed to $10 trillion, per YEAR, within a few years.
This is where I think you are making your mistake. They will not be able renege on social security and medicare claims, without declaring martial law and instituting currency controls, effectively ending the dollar’s reign as world reserve currency, which is, of course, hyper inflationary. So these $100’s of trillions in claims will be paid with ‘out of thin air’ money.
The Bain Capital folks, along with the rest of the top 1%, think they are being clever, but they actually hold basically nothing, same as every one else.
In the coming hyperinflation, their dollar denominated assets will be worth zero, same as my dollar denominated assets. A billion times zero is the same as 100 times zero, lol.
I suppose that some of them are all set up on small tropical islands, but they could have done that with $25 million. Twenty five billion buys no extra benefit, for an individual. And how are they going to feed their small armies, when their dollars are worthless?
Shorting the market would make sense if we’re headed for deflation. However, hyper inflation is what’s coming. They have the option of defaulting on social security, or creating the money for the ss checks out of thin air. So hyperinflation it will be.
You want to load up on tangible items. Gold is o.k., but with the ever present risk of confiscation, I would suggest a basket of as many different tangible items as you can store. Gold, iron, pipe fittings, copper, lumber, seeds, propane tanks (filled), etc.
When the DOW is at 32,000, you won’t want to answer the phone, it will be a margin call, lol. Yeah, I know the economy sucks. Do you think that will stop the Fed from buying stocks?
Great points, William. My point was that there is a finite amount of wealth in the world. There are claims on this wealth, called ‘money’, and ‘money substitutes’. All the combined ‘money’ in the world, can buy all the wealth in the world, except for a small portion that will never (or almost never) be put up for sale (religious shrines, park land, etc.).
In order to grow this pile of wealth, to at least keep up with population growth, there has to be capital investment, over and above replacement levels. This isn’t happening. You can especially see this in the USA where the non government (wealth creating) portion of the economy is shrinking, even as the population continues to grow.
There are multiple levels of competing claims for the world’s wealth. One example is the rehypothecation of client funds. Another is central bank leasing for sovereign gold. They might have a receipt for the gold, but there is counter party risk.
There are many theories to explain how these competing claims will be resolved, e.g. deflation, hyperinflation, etc. However, the weak CapEx spending is just making the problem worse, because there is less stuff to claim.
william said, “As long as the real cost of obtaining cheap energy/resources goes higher, which will occur in the event of peak resources until exhausted, we have real inflation. The über-rich have to prevent this from being realized otherwise we have a collapse. This is the co-ordinated efforts of the über-rich Bilderberg and governments around the world.”
Easier said than done. Even with falling consumption, gasoline is near the all time (sustained) high dollar price in the USA. Obviously this is due to the end of cheap oil.
I find your theory a bit flawed, since the easiest way to mask the end of cheap oil (cheap everything?) would be to scale back on the non stop wars they promote. The military is a huge consumer of oil and other goods. This leads to a lot of jobs, but a lot of the ‘investment’ ends up in silos or as exploded ordnance. Contrast this with miners that blow up hillsides for the purpose of producing goods that are in demand.
You might find the following linked article interesting. It really destroys the ‘deflation’ theory, when you think about it!!! If you don’t have much time for extra reading just ponder this:
“Precious Metals in the Rehypothecation Era
The Samsung/Cluff Gold deal also comes in the era of rehypothecation, which involves a broker pledging as collateral for a bank loan the securities in customer margin accounts.
Basically, the rehypothecation of assets, which infinitely dilutes claims on real assets, can and will ultimately lead to total losses even for investors who thought that they had strong collateral backing.
Furthermore, the inventory of the world’s credible assets is literally evaporating in absence of CapEx spending, which is also one of the reasons behind the ECB’s seemingly endless lowering of its collateral requirements.”
https://www.kitco.com/ind/Lewis/20121004.htmlilargi said, “And all that is going to run off the tracks in spectacular fashion, be it tomorrow or the day after, because you can’t run an economy forever on money that no-one has worked for.
Bernanke is willing to throw in another trillion or so – or two- dollars in taxpayer money,…”
LOLOL!!! You contradicted yourself in consecutive sentences. You had it right in the first sentence quoted above, when you correctly pointed out the USA dollar is garbage, created out of nothing. You can stack a house of cards only so high.
They aren’t using ‘taxpayer money’ for QE3. They are running a cash deficit of $1.3 trillion per year, and GAAP deficit of over $5 trillion per year. ‘Taxpayer money’ is gone the instant it hits the government coffer.
You are probably right about the ‘run off the tracks’ comment, but it reminds me of the dot-com bubble. The nasdaq bottomed at 1250, I think, a few years before the boom. I thought for sure it had topped out at 3000 in late 1999. But I was flexible enough to buy some tech stocks at nasdaq 4000 for that last 1000 plus point ride. Good luck.
ilargi said-“The deleveraging – re: deflation – will take place while the currency, i.e. the USD, is intact. It already is.”
Actually, a lot of charts show credit market debt is still expanding, not contracting.
It is quite apparent that Obama will win by a big margin. The folks that run things behind the scenes absolutely love him. Once the election is over, you are going to see an escalation of the money printing on a world wide scale that will make QE3 look like child’s play.
They have already demonstrated, in spades, that the only rule is that their are no rules. I’m not sure where they will take us. I think they want to establish a one world socialist government, but a United States of Europe might be an intermediate step.
In any event, money is, and will be, what they say it is. Who are ‘they’? You tell me who got all that Washington Agreement gold, dirt cheap, and you have the answer to that. The guys in charge are acquiring gold. That is good enough for me.
You’re saying you can successfully fight the fed. Do you have any idea what the batting average is for your type, in the pure fiat, post 1971 era? Zero.
ilargi said, “the debt MUST be deleveraged, there is no other option. Hence, deflation MUST ensue.”
Actually, that is not quite correct. You need a boolean statement at the end of your sentence. Let me finish it for you.
‘Hence, deflation MUST ensue, IF the currency remains intact.’
What are the odds of that? Slim and none. Far more likely we get anarchy, which is barter for a few and death for most, or the dollar is declared null and void and we start over with new money, commodity based or not.
The USA federal govt. has a negative net worth of way over $100 trillion, and I think there is another $50 trillion in credit market debt, much of it suspect. This exceeds the size of the non-govt., non financial sector part of the economy (the goods producing portion of the economy by an order of magnitude, then multiply by 3!!!!
You’re thinking of a scenario like an agrarian economy where people lose a 30% of their wealth and start over, having almost enough to eat all along. That bears no resemblance to the present case. The dollar cannot possibly be saved. Half the population is armed. The dollar will have no value in a barter/gang/criminal society.
Once we default on our treasury debt, imports get cheaper? That is not how it works in the real world. Once you default, you pay cash money, in the form demanded by the seller, and it won’t be paper. You’re confusing the USA with a net exporter. Yeah, for them there will likely be a hideous deflation. No way around it, just like here in the 1930’s.
Hi Jack,
I would argue that with wages being flat, and the cost of basic necessities rising rapidly, people are squeezed and cannot afford a major purchase like a home.
Here’s my main problem with the ‘deflation’ argument. As you must know, government stats are highly manipulated and seasonally adjusted, hedonically messaged, etc. So the real unemployment rate is 23%, not 8.1%, which you can read for yourself at shadowstats.com.
Also at the same site is a graph showing the year over year increase (decrease) in the main monetary measuring sticks, m1, m2, and m3 (as continued by shadowstats). They are up 10%, y o y, 10%, 6%, and 3% respectively.
So what do you think would happen to unemployment rate if money supply growth went to zero, the cusp of deflation? Way over 30%, that’s for sure. And if we had outright deflation, like a 5% y o y drop in the money supply? 40% unemployment, maybe 50%.
How long would society hold together and not experience a complete breakdown in the present order? A matter of weeks or months? I think weeks? Our jails are already near capacity, and states and local governments are broke. How are they going to lock up any more folks desperate to feed themselves by any method, legal or not?
So you can see, and deflation would be rapidly self extinguishing, resulting in anarchy or a helicopter drop of paper money. Actually, they would probably just mail out prefunded credit cards to everyone with $10,000 on them for free, unless you are an undocumented alien, then you only get $2000.
Hi Jack-The USA federal government is running a GAAP deficit of AT LEAST 35% of GDP per YEAR!!!!! That is hyper inflation. Period. It is money creation on a grand and pervasive scale, unless you are predicting that social security and medicare obligations will be straight up defaulted upon. But that is an anarchy prediction, not deflation. To go from a functioning paper money system to barter is the equivalent of hyper inflation in outcome, as paper money loses all value. Of course it will be a moot point for most people, as few would survive.
BTW, you are not towing the TAE party line with that ‘hyperinflation’ link of yours. It refers to the general price level. TAE folks say (correctly) that inflation, deflation, or hyper inflation, are a function monetary aggregates, not the consumer/producer price level.
GDP = $16 trillion. (probably overstated, due to the under counting of consumer price inflation and producer price inflation, but let’s go with it.) GAAP deficit is over $5 trillion, per YEAR!!!
Regarding gold/silver. They have been going up sharply vs. the usa dollar for over a decade. If you want to make a call as to when and where they will peak against the dollar, you could really make a fortune with the right call.
Hi Ilargi, you said, “There are a score of articles on deflation in our Primers section. Why don’t you read those and then come back?”
Are any of them better than Prechter’s ‘Conquer the Crash’? I paid 7 or 8 ounces of silver for it 10 years ago (hard cover) and I see you can now get it for less than one ounce. Read it cover to cover a few times. Great reading. I’m sure you’ve read it.
Prechter says in that book that there will come a day when every penny in every retirement account MUST be invested in USA Treasury Bonds. As a talking point, let’s say Robert is at least part way right. Then they are going to FORCE people to buy some thing that is going to go a lot higher in value? Logically, that just doesn’t make sense. Why would they need force?
Far more likely, they will eventually dupe people into treasuries with some sort of favorable tax code treatment, then devalue violently, just like they devalued paper money in 1933.
Are you guys following today’s market action? To the average economic illiterate, it looks like the DOW is up almost exactly 1%, at plus 130 points (as of 1:30 PM)
But real money, gold and silver, is up 2.5 to 3.5 %, so, as measured in REAL MONEY, the DOW is actually DOWN, by a very significant amount, around 2% DOWN.
So you see, hyperinflation is getting started in a big way. But they are doing it in a way that the average rube doesn’t even know what is happening. If you are going to hyper inflate away a huge pile of debt, this is the way to it.
Hi Skip–I’m not regurgitating anything. But I would argue that a higher gold price is a signal of inflation, not deflation. Maybe even coming hyper inflation.
Here’s where I think you are making your mistake, if, in fact I’m right, lol. (see, I’m not one of those chest pounding morons, lol)
You deflationists seem to think that once you have established a linear or even exponential equation, you can extrapolate it far into the future or far along the ‘x’ or ‘y’ axis.
Look at this way. A company plots the height from which a worker falls vs. health care and workers’ comp. costs. From 3′, there is frequently no injury and an average cost of $100. From 6′ there are sometimes broken bones, so the average cost is $1000. From 9′, multiple injuries, so $5000 average. From 15′, avg. $20k. 18′ we’re getting into head injuries, and long hospital stays, so $100,000. Finally, at some height, the average cost is in the millions because of comas and other expensive surgery.
But what happens at some key inflection point, maybe 50′? Everybody dies and health care and workers’ comp. costs go to zero per person. Sure there are death and dismemberment costs, but that is paid out of a separate fund, and they are fixed, never rising with a change in height from where the worker falls. (let’s assume no company negligence, only worker stupidity).
So my argument is that in terms of the debt pile, we long ago passed this inflection point. There won’t be any deflation, because when it collapses, if it collapses, we get a complete melt down followed by anarchy or a Stalinist type controlled economy with a new money, maybe gold. So what if your dollars are worth more for a few days or weeks. That won’t save you. Think how fast everything will unravel.
skip said, “I am a commenter here because there are relatively few places to speak intelligibly about deflation.”
Gold only needs a 10% advance from here to take out the all time high dollar price for the yellow metal. The only intelligent comment to make at that point (in a few months) will be ‘I was hopelessly wrong, and pipefit and G. Oxen were right’, lol.
Of course there is free speech in this land, for now, so you will have the option to say something not so intelligent, regurgitated from the broken clocks around here. Why not think for yourself? Are you going to follow them off the dollar collapse cliff, come what may?
skip–You guys should not lean too heavily on Pretcher. Yeah, he’s a deflationist, a perma deflationist at that, so you all love him. But he’s mainly a technical analysis kind of guy, while TAE is mainly fundamental analysis. Pick your poison and stick to, or you’ll get hopelessly muddled.
E-wave works in some situations and doesn’t in others. The S&P 500 just broke north, nullifying a potential double top, and sending E-wave deflatioinists into their chart rewriting caves. However, if you realize that gold and silver are real money, and you enter the following charts at stockcharts.com ($spx:$gold and $spx:$silver) (3 full years of chart data), you can see what you deflationists already know. Namely, that the markets are in huge trouble, currently down almost 45% over the last 2.5 years, in silver terms.
So yes, from the vantage point of real money, there is a horrible deflation ravaging the country, and the stock market is in free fall, even though in dollar terms it looks healthy. Analysis is so much easier when you what is real money and who is pretending to be money, lol.
Hi Steve–Your guess is as good as mine, I suppose, lol. But we’re 5.5 years into the credit bust, and consumer prices are still rising at a fast clip, certainly faster than interest rates. It is awfully hard to argue ‘deflation’ in a negative interest rate environment.
So I think you are engaging in more wishful thinking than using concrete analysis. Social Security hit an important inflection point a couple of years ago. Instead of s.s. tax receipts exceeding benefit payouts to retirees, we have now flip flopped, and money must now be pulled out of the general fund to cover past borrowings from the s.s. trust fund. That sounds a heck of a lot more like hyper inflation than deflation to me, BWTFDIK, lol.
Again, as I said in a prior post, you deflationists can argue that the fed. govt. does a straight up default on the entitlement trust funds, but I’m 99% certain that we would get a fascist coup first. That, in turn, would mean the loss of reserve status for the buck.
Following a fascist coup, I’ll concede that there could be a small window of deflationary action, quickly followed by loss of reserve status for the dollar, then hyperinflation. You’re kind of nitpicking with these small windows of time, though. I think it is pretty obvious that the preponderance of the evidence points to dollar collapse, regardless of whether it strengthens for a year or two along the way.
Hi Ken, you said, “If the TAE theory is correct, Draghi will fail to stop deflation.”
Hard to say which way the house of cards will collapse. However, let’s step back and look at the whole forest, not just the saplings that have sprung up in recent years.
The problems of Europe precede the Euro. The idea that everyone gets 6 weeks of Summer vacation, cradle to grave health (and other) benefits, extra pay at Christmas, etc. are all an example borrowing from the future. They create a specific amount of wealth over there, but their lifestyle is not tied to that specific pile of wealth. It is much higher.
So the question is, ‘how do we reduce peoples’ standard of living to match economic output’? Well, the first problem one faces in solving this question is that they aren’t even to the point of asking this question. They are still at the very beginning of the problem solving exercise, trying to figure out what is the right question to ask!!!
So I think it is pretty obvious that a huge bout of money printing and can kicking will come first (aka hyper inflation). As it becomes obvious that they are living beyond their means, they will start to ask the right questions.
Hi Henrik, you said, “There is but one factor, and that is the hard to define concept of “wealth”.”
What is so hard about defining ‘wealth’. Wikipedia says, “Wealth is the abundance of valuable resources or material possessions.” Close enough.
The problem is that there are frequently competing claims against ‘wealth’, especially in times of shortage. You grow corn, and you forward sell half your crop, for expense money. But you get a bad harvest and it is half the normal size. And you are hungry. In theory, none of that corn is yours, even though you grew it and you are starving to death. Competing claims.
On a larger scale, the USA has forward sold the economic output of the next generation. Maybe we should have asked them (you, lol) if they/you wanted us to forward sell half your output over your lifespan and give it to Iraq, Afghanistan, drug dealers, makers of flat screen t.v.’s, etc.
So you see, your calculator will be of no use to you in your attempt to determine your retirement situation. It is dependent on political, socio-economic, and moral value questions and answers. Like, ‘should we feed the old farts or kick them to the curb, lol?’………..
Hi Steve. He addressed my point in a very incomplete way. The ANNUAL federal budget deficit, using GAAP accounting in $5 or $6 TRILLION. Sure, some of that is to create jobs and stimulate the economy. Some for the military industrial complex.
But the vast majority is accounting entries that exist because the government is defaulting on its legal obligations toward the huge entitlement programs. Got that, ‘entitlement’, lol. That means that the American people are ENTITLED to their social security and medicare benefits, and the government is short many trillions, and adding to the shortfall by several more trillion every year.
There is no way in heck that this deflationary. There are two possible outcomes. The obvious one is that the money to pay these REQUIRED benefits is created out of thin air, which is hyper inflationary.
The other is to default. This will quickly lead to anarchy and the failure of the state, and its currency, another form of hyper inflation. You cannot terminate the largest pension plan and health care plan and maintain the present order. The economy is too dependent on them. Also, it would be politically impossible to do so anyway. They will chip away at the military industrial complex before they touch ss or medicare in any significant way.
Hi Skip, you wrote “A hyper-inflation is the result of a political decision of a government to throw in the towel on the currency, leading to worldwide rejection.”
The USA government HAS thrown in the towel. Don’t you get it? What else would you call an ANNUAL budget deficit of 35% to 40% of GDP? About $5.5 or $6 TRILLION?!!!
They HAVE thrown in the towel. So, you might ask, ‘why don’t we have hyper inflation, yet’? Simple, because our trade partners would prefer to kick the can down the road via vendor financing, rather than face a deflationary collapse.
See, Skip, I’m not afraid to predict ‘deflation’ when and where it is likely to happen!!! And it will happen to the trade surplus countries. It couldn’t be simpler. Trade deficit countries will devalue, or default (leading to loss of reserve status), and surplus countries will have currencies that strengthen (deflationary).
You’re saying, in essence, that the dollars that China, Japan, etc. hold will INCREASE in buying power (USA dollar centric deflation) the bigger their piles get. That is absurd, to use your favorite word. The bigger their piles of dollars get, the more certain their buying power goes to zero.
What will be the tipping point? That I don’t know. It might be related to the size of their growing piles of gold and silver, or it might be a financial accident of some sort.
Hi Skip,
I have quite a few problems with your post. Let’s start with this line from you: “Hyper-inflations are triggered by collapsed economies that throw in the towel on the people in an effort to repay debts in a currency which the world has rejected.”
A big part of your argument is that we’re close to deflation because the economy is collapsing. But in the quoted line above, you admit that the exact same thing can lead to hyper inflation.
This is why the deflation argument is so weak. As long as the economy is doing fair, and we keep buying junk from our creditors, there is no reason for them to reject the dollar. Its a rickety situation whenever vendor financing is in play, be it at the corporate or national level, but it works until it doesn’t. When it quits working, we’re gonna pay our debts in a devalued currency, or default and lose reserve currency status, which will have the same effect as hyper inflation.
You go on to say “Again, “the prices of things” don’t even tell us anything definitive about whether we’re in a deflation or inflation,…”.
They tell us absolutely nothing? That’s absurd, to use your favorite word, ha ha. If we were in deflation, EVENTUALLY this would manifest itself in the form of lower consumer prices. But, low and behold, five and half years into this credit bust, consumer prices are still rising.“Despite the repeated calls for hyper-inflation, it has not happened.”
O.k., I’ll admit I should have chosen my words a little more carefully. We’re not in hyper inflation YET, of course, but well on the way.Look at it this way. Using GAAP accounting, the federal govt. is running a deficit of $6 trillion per YEAR. That’s almost 40% of GDP. It is only going to go higher. How high does it have to go before you’ll admit defeat for your ‘deflation’ prayers? 100% of GDP. 300%? There must be some line where you will admit you are wrong, lol.
I’ve read quite a bit over the years about what a special guy Richard Duncan is, in terms of monetary analysis, but he seems rather ordinary after listening to that 28 minute discussion with Lauren.
For one thing, he seems to be stuck in the same box as everyone else in terms of dollar devaluation. None of the major currencies can devalue against each other, for the reasons given by Duncan, but they can all be devalued simultaneously against gold/silver.
In fact, this devaluation is well under way. This is why gasoline, food, health care, and just about everything else is up, in dollar terms, so much. As with most other bubbles, this one will be unwound in a hyper inflationary orgy of money printing.
On the one hand, Duncan correctly grasps that at this late stage of credit expansion, the USA can’t continue to spend a third or more of tax revenue on the military without dire fiscal consequences. But then he fails to draw a fairly obvious inference from this. He thinks we will muddle along for another 5 or 10 years, like Japan, perhaps forgetting that Japan spends only a pittance on defense.
He also mentions that trade protectionism is a strong possibility, and that it would gut the Chinese economy. He fails, however, to mention an intermediate step. Very early in this trade barrier building process, trillions of trade deficit dollars now locked up in foreign held treasuries/agency debt would be repatriated in a tidal wave of hyper inflation.
I’d give him ‘B-‘, for above average, but no more.
Adam said, “In real terms, it assumes that the policeman who enforces state decree doesn’t have a mortgage, will always be paid and well fed, and won’t have any compunction about ‘making’ people pay their debts or confiscating their property.”
Exactly!! There won’t be a problem of this nature, because there won’t be any deflation.
Here’s all you need to know. Silver is money. That’s it. The dollar is going to 1/10 of its present buying power, and then 1/10 of that, rinse and repeat. Where did all this ‘deflation’ gobbledy goop come from? What has real money (silver) done in the last decade? Gone from $4/oz to $33/oz.
Gold won’t save you. In the last month or two the gold:silver ratio has collapsed from 60:1 to 51:1. It is headed to 8:1. Stick with gold and you will lose 85% of your buying power. That is better than paper, where you lose 99.9%, lol.
The policeman will have his house, free and clear, but no savings, and lots of real estate taxes. A little good and a little bad.
@Bodhi–Agree on nuke bombs. They are in hardened silos, I believe.
Nuke power plants are another matter. And, that is sort of a metaphor for technology in general.
You said, “Humans are quite good at surviving in the safety of the cracks.” That’s possible. Maybe there will be a remote island where the air and water aren’t too badly contaminated with disease or other pollutants. Seems kind of far fetched given the million year half lives of plutonium, cesium, etc. Also, any modern technology that is present will slowly devolve in ‘myth and legend’, possibly as part of some pagan-type religion.
A far better strategy for the survival of the species is avoid a meltdown (pun intended) of civilization below the previously mentioned threshold. Once modern medicine breaks down, the species will be extremely vulnerable to disease epidemics, especially those groups that are currently the most heavily vaccinated. As you know, those are also the most educated and technologically advanced.
I could see an Amazon tribe as the sole survivors. But in that case, the meltdown better happen while there is still an Amazon Forest. So you can see, your argument is fraught with risk at every conceivable turn. Better if some sort of prevention manifests itself.
“Firstly, at what point in decline do we stabilize,…”
That is the key. With all the nuclear power, nuclear bombs, and similar material, I think you need some sort of Boolean Expression. ‘IF we decline below the threshold that guarantees the continual monitoring of nuclear material, we’re done for tens of millions of years, else (as you properly stated)…..
You can see this playing out in Japan right now. It is going to take 20 years or more to clean up a plant that isn’t producing any electricity or revenue.
If we start building some super secure storage place and dismantling the nuclear bombs and decommissioning the nuke plants NOW, we might have enough progress under our belts to avert an ELE (extinction level event). What are the odds of that? One tenth of 1%?
So I would say the analysis is fairly easy. Either the decline phase of which you speak is avoided entirely, or all it’s all over for the species.
Your are quite funny, Babble. You chastise others for inaccuracy, then turn around and call Reagan a ‘conservative’. That is utterly preposterous. At the time, 19881 to 1988, he was the biggest ultra liberal, budget busting, fiscal communist in the history of the world, by almost an order of magnitude. To be fair, he did take some conservative positions of social issues, but those pale in comparison to his fiscal treason against the constitution of the USA.
This is part of what is wrong with America. People such as yourself don’t know what simple words mean, and this makes it simple for the masters to befuddle the people with season adjustments and other propaganda.
