Deflation-stealth in '08 shows face in '10
- Thread starter deadbroke
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As a follow-up, you seem to be dwelling on monetary policy, but what about Federal leveraging-up as a compensation for private sector leveraging-down? (Personally, I don't think Federal leveraging up can work in the long run, but can certainly avoid deflation in the short run. It's the same really as saying: Deflation is absolutely avoidable all the way up to hyperinflation and total collapse of the monetary system. Which I guess summarizes my state of mind at present. I suppose I am a prisoner of the thought that human nature is more important than equations when it comes to economics.)
Frankly, these inflation vs. deflation discussions are getting a bit boring. It would be far more interesting from my perspective to explore the question of whether the U.S. can right its economy, and if so, how.
Frankly, these inflation vs. deflation discussions are getting a bit boring. It would be far more interesting from my perspective to explore the question of whether the U.S. can right its economy, and if so, how.
I agree, but you see the vast majority of economists and the gen. public are still expecting Inflation/Hyperinflation. There are very, very few people in the Deflation camp.
As for the 2nd part, "explore the question of whether the U.S. can right its economy, and if so, how" .... just MO ... Deflation cannot be stopped now; it has to run its course.
Trader Vic, a famous trader who was on CNBC recently and stated clearly that he expects HYPERINFLATION
I posted this elsewhere in the Economics forum; repeated here as it sums up the overall scenario quite nicely ...
some things for Trader Vic .....
one leading indicator should give Trader Vic pause. According to Trade-Futures' Daily Sentiment Index, the percentage of bulls among traders of gold futures in May hit 98%. This record-high reading suggests inflation has been widely anticipated and is therefore not likely to be the next big event.
Real-estate prices crashed in 2005. The stock market crashed in 2007. Commodities crashed in 2008. Despite bailouts and huge spending, these HIGHS are still in place.
ROC = Rates of change on the Producer and Consumer Price Indexes have been hovering near zero.
Despite the Fed's monetization of $1.5 trillion of debt since 2008, imputed M3 -- a key measure of the money supply (actually credit supply) -- has turned down.
In hyperinflationary times, people are desperate to get rid of their wheelbarrows full of money. In deflationary times, people are desperate to obtain money. Today, it is difficult to get anyone to part with a dollar. Homeowners can't make mortgage payments. Employees are taking pay cuts. Retailers are cutting prices. And jobs are scarce.
I posted this elsewhere in the Economics forum; repeated here as it sums up the overall scenario quite nicely ...
some things for Trader Vic .....
one leading indicator should give Trader Vic pause. According to Trade-Futures' Daily Sentiment Index, the percentage of bulls among traders of gold futures in May hit 98%. This record-high reading suggests inflation has been widely anticipated and is therefore not likely to be the next big event.
Real-estate prices crashed in 2005. The stock market crashed in 2007. Commodities crashed in 2008. Despite bailouts and huge spending, these HIGHS are still in place.
ROC = Rates of change on the Producer and Consumer Price Indexes have been hovering near zero.
Despite the Fed's monetization of $1.5 trillion of debt since 2008, imputed M3 -- a key measure of the money supply (actually credit supply) -- has turned down.
In hyperinflationary times, people are desperate to get rid of their wheelbarrows full of money. In deflationary times, people are desperate to obtain money. Today, it is difficult to get anyone to part with a dollar. Homeowners can't make mortgage payments. Employees are taking pay cuts. Retailers are cutting prices. And jobs are scarce.
Piezoe, all those government actions you described, cash for clunkers, cash for appliances, tax rebates, cash for homebuyers and helicopter bills...do not make any lasting positive change. The cash for stuff is simply market distorting in that it brings transactions forward at a great cost that must be paid for later and it hurts production outside the temporally targeted industries. Unless you think government can default with impunity you must consider that borrowing to fund selected markets must be paid back by increased tax collection from all private markets. Tax rebates and helicopter bills are keynesian prescriptions that also must be paid for with higher taxes on the private sector so they are counter productive in that they may increase the sale of cheetos for a while but they will lead to lay offs and lower production in the long run. These desperate pathetic economically destructive political moves do prop up some of the flawed price change and gdp, and other consumption demand and sentiment measures, for a short while, but they don't reverse the underlying disinflationary tide that, like rust, does not sleep. To make matters worse these moves are wasting credit resources and government credit that is already stretched and needs to be preserved for real solutions.
Hyperinflation is not related to inflation; it is a misnomer. Hyperinflation is a result of the insolvency of the sovereign sponser of debt, including currency. It occurs when an overleveraged sovereign cannot roll over old debt or borrow new debt in the international market. It is a realization that the sovereigns debt, including the currency debt, is no good.
In contrast inflation assumes that sovereign debt and private debt are both good and, the process of inflation as reflected in rising prices actually requires an aggregate expansion of private credit to facilitage the transfer of capital from financial assets to tangible assets...which is what makes price indexes rise. Inflation does not lead to hyperinflation any more than deflation does...the trigger for hyperinflation is sovereign insolvency...more likely to arise in a context of deflation.
Fed leverage cannot replace private leverage becuase Fed borrowing is not leveraged. When the Fed borrows and increases deficit in order to spend the money it borrows against sovereign credit. For the most part this increased sovereign debt is spent on consumption that has no future derivative income...sustaining the salaries of union government workers. The debt increases with no increase in the ability to pay the debt in the future so the expectation of private sector tax increase rises. In contrast when the private sector invests money, the investment is targeted at creating a future income stream to pay the debt back, and the investment is actually leveraged with bank financing on a project basis...gov't pays cash to pay cops and teachers....private sector invests savings of, say, 20%, and borrows 80% to build a building. Money has a multiplier in the private investment. If the private venture fails the private venture equity is lost and the lenders lose money, but the deficit that has to paid with higher taxes does not increase. You see the difference?
The solution is fiscal incentives, creating an expectation of a realisable retained after tax profit for risk takers. At this point that would mean a complete restructuring of our tax code and method of funding entitlements. Nothing else will work.
Oh, that definintion of self liquidating debt...."Self-liquidating credit is a loan that is paid back, with interest, in a moderately short time from production. This means that production facilitated by the loan generates the financial return that makes repayment possible. The full transaction adds value to the econmy"... is way too tortured and full of extraneous crap...a self liquidating debt is simply a debt that amortizes over the term of the loan. Self liquidating debts can be as badly invested or properly invested as any other way of amortizing or paying off debt...after all traditional mortages are self liquidating...that doesn't make them all good.
Hyperinflation is not related to inflation; it is a misnomer. Hyperinflation is a result of the insolvency of the sovereign sponser of debt, including currency. It occurs when an overleveraged sovereign cannot roll over old debt or borrow new debt in the international market. It is a realization that the sovereigns debt, including the currency debt, is no good.
In contrast inflation assumes that sovereign debt and private debt are both good and, the process of inflation as reflected in rising prices actually requires an aggregate expansion of private credit to facilitage the transfer of capital from financial assets to tangible assets...which is what makes price indexes rise. Inflation does not lead to hyperinflation any more than deflation does...the trigger for hyperinflation is sovereign insolvency...more likely to arise in a context of deflation.
Fed leverage cannot replace private leverage becuase Fed borrowing is not leveraged. When the Fed borrows and increases deficit in order to spend the money it borrows against sovereign credit. For the most part this increased sovereign debt is spent on consumption that has no future derivative income...sustaining the salaries of union government workers. The debt increases with no increase in the ability to pay the debt in the future so the expectation of private sector tax increase rises. In contrast when the private sector invests money, the investment is targeted at creating a future income stream to pay the debt back, and the investment is actually leveraged with bank financing on a project basis...gov't pays cash to pay cops and teachers....private sector invests savings of, say, 20%, and borrows 80% to build a building. Money has a multiplier in the private investment. If the private venture fails the private venture equity is lost and the lenders lose money, but the deficit that has to paid with higher taxes does not increase. You see the difference?
The solution is fiscal incentives, creating an expectation of a realisable retained after tax profit for risk takers. At this point that would mean a complete restructuring of our tax code and method of funding entitlements. Nothing else will work.
Oh, that definintion of self liquidating debt...."Self-liquidating credit is a loan that is paid back, with interest, in a moderately short time from production. This means that production facilitated by the loan generates the financial return that makes repayment possible. The full transaction adds value to the econmy"... is way too tortured and full of extraneous crap...a self liquidating debt is simply a debt that amortizes over the term of the loan. Self liquidating debts can be as badly invested or properly invested as any other way of amortizing or paying off debt...after all traditional mortages are self liquidating...that doesn't make them all good.
Deflation is not a problem for those who are employed, those who have disposable income, ...it is not a problem for those who are manufactures as the cost of energy and raw materials will fall, thus increase their profit margin, even while their prices decline.
A problem would be 10 years of deflation. I do not see any such thing. Sure, we could have oil drop back to the 30s, market head to 5k, consumer goods fall in price.
Look at the basic Cell phone, Computer, and Flat Screen TV. There has been deflation in those areas for years. Prices continue to drop until the Consumer deems it worth buying.
DEFLATION is a scare tactic. That is all. The real problem is if Deflation sets in for years and years.
This is a depression, right now but its not our grandparents or great grandparents Depression. This is softer and there are more "Global" tools being used.
So, get ready for a hell of a horriable end to this year and probably into the end of 2011. But things will work out.
NOV elections are a key gridlock move.....if the DEMS loose control. If they keep control, more damage will be done and we could prolong the Depression for decades.
A problem would be 10 years of deflation. I do not see any such thing. Sure, we could have oil drop back to the 30s, market head to 5k, consumer goods fall in price.
Look at the basic Cell phone, Computer, and Flat Screen TV. There has been deflation in those areas for years. Prices continue to drop until the Consumer deems it worth buying.
DEFLATION is a scare tactic. That is all. The real problem is if Deflation sets in for years and years.
This is a depression, right now but its not our grandparents or great grandparents Depression. This is softer and there are more "Global" tools being used.
So, get ready for a hell of a horriable end to this year and probably into the end of 2011. But things will work out.
NOV elections are a key gridlock move.....if the DEMS loose control. If they keep control, more damage will be done and we could prolong the Depression for decades.
some excerpts from bulletin posted yesterday by you don't want to know who .... 
The Administrative Office of the U.S. Courts reports:
¡over 422,000 bankruptcy filings between April and June -- up 9 percent from the prior three months
¡highest quarterly filings number since 2005.
On Aug 11, "Los Angeles will be bankrupt by 2014, former LA Mayor Richard Riordan told CNBC."
The Administrative Office of the U.S. Courts reports:
¡over 422,000 bankruptcy filings between April and June -- up 9 percent from the prior three months
¡highest quarterly filings number since 2005.
On Aug 11, "Los Angeles will be bankrupt by 2014, former LA Mayor Richard Riordan told CNBC."