Faber: Nations Will Print Money, Go Bust, Go to War…We Are Doomed

Quote from dhpar:

this is nuts and only nutters believe this. i just do not see how these conclusions followed from theory of endogenous money (which i agree with btw).

but it is funny to see that many pseudo-economists (a la hugh hendry who even can't trade/invest) still think that they have much to preach to others.


debt does not drive inflation/deflation! it is a supply vs demand that matters. full stop.

as long as supply is accommodative of demand (think China's cheap stuff in the past 15 years) the inflation does not reign (and vice versa). did we have inflation during years of huge private debt creation? NO. we had asset inflation. the two thinks are not independent but they are not the same!

now think about 20% decline in asset value - well that is bad but that does not mean people have to pay 20% of debt. on average everybody still have much more assets than liabilities anyway.
what do you do after a year of the initial "asset reduction" shock? after a year you do not recall how many assets you had a year ago - and you chime along with your comfortable consumer behavior.

ok - people will likely pay off some debt to maintain the household leverage acceptable (which we saw happening in the data) but this is more a psychology driven ("look, I am doing something about the changed circumstances"), i.e. temporary redirection of disposable income.
note that they will do debt repayments also from freed cash flow due to lowered interest rate cost. in turn low interest are increasing disposable income as soon as people say "fuck reducing my debt, we live only once after all - and i saw my neighbor buying a new car just yesterday"...

now comes the argument of sending cheques to people (or government spending if you wish). if you do this faster than you can adjust supply you get a price pressure. this is first visible in commodities sector because it is the first factor in the supply chain - that's why you watch commodities. nobody knows how fast is "not too fast".

i do not know if we have inflation or deflation going forward. it depends on US unemployment, chinese price level and chinese domestic demand among many. but the debt argument is a bullshit.
More...

The thrust of the argument is that banks create money, private banks, not central banks.
The proof is very simple, if you have eyes to see: before there were central banks, there were private banks issuing bank notes, and before that merchants drawing and redrawing bills of exchange (a process Adam Smith went over in detail). These days, you have banks issuing commercial paper, which is near-money (mutual funds routinely refer to their money market holdings as cash, and the Commercial Code recognizes it as having characteristics of cash), and of course the late great phenomenon of securitization of debt, whereby banks finally arrived at the true nirvana of being able to issue debt, and therefore create money, without limit.
So, you can either go with the dead theory of neoclassical and Lib economists, which describe a fairy-tale world that no one lives in, where markets are always in equilibrium (!!!!), and central banks can control the supply of money via the monetary base and the reserve requirement, or a real world where banks do all of the things I just described, while central banks scramble to keep up and stay relevant.
We're on the other side, the debt-destruction side, of the cycle. Sans Keynesian pump-priming, you will have deflation.
 
Quote from trefoil:

The thrust of the argument is that banks create money, private banks, not central banks.
The proof is very simple, if you have eyes to see: before there were central banks, there were private banks issuing bank notes, and before that merchants drawing and redrawing bills of exchange (a process Adam Smith went over in detail). These days, you have banks issuing commercial paper, which is near-money (mutual funds routinely refer to their money market holdings as cash, and the Commercial Code recognizes it as having characteristics of cash), and of course the late great phenomenon of securitization of debt, whereby banks finally arrived at the true nirvana of being able to issue debt, and therefore create money, without limit.
So, you can either go with the dead theory of neoclassical and Lib economists, which describe a fairy-tale world that no one lives in, where markets are always in equilibrium (!!!!), and central banks can control the supply of money via the monetary base and the reserve requirement, or a real world where banks do all of the things I just described, while central banks scramble to keep up and stay relevant.
We're on the other side, the debt-destruction side, of the cycle. Sans Keynesian pump-priming, you will have deflation.
More...

can you read? i said i agree with theory of endogenous money...
but you are certainly clueless....re-read my previous post 10x and you will maybe get it.

can you answer just a simple question like "why there was no inflation during the dramatic expansion of debt?" (because your argument is there should have been plenty of non-asset inflation...)
 
No inflation during the boom?
Look, and notice that this measure has been flat since the crisis and is curling down: CPI

Specific examples:
1 - House prices count as consumer inflation, especially as they also cause rents to rise as well. You do know that they were up?
2 - Gasoline shot up in price, at least here in the US. In other parts of the world,
3 - inflation got expressed as a sudden shortage or spike in price for rice in Asia or
4 - corn in Mexico (because it was being used for ethanol in the US). There were riots over these shortages/price spikes, in some cases.
That was unheard-of inflation in food staples that hadn't seen increases like what was happening in 2007/8, just prior to the debt crisis, in anyone's living memory.
Even
5 - chocolate managed to surge, and Hershey, for instance, responded with price increases.
All that counts as consumer inflation, over here in the real world. Just because you don't remember it or didn't experience it personally doesn't mean it didn't happen.
So yes, prices rose during the boom. All those prices (except chocolate) listed above are now falling. No more food riots.
The CPI itself is, as noted, flat and may be beginning to fall.
Wages are of course stuck if not falling.
Those are the real-world observations.
 
Quote from trefoil:

No inflation during the boom?
Look, and notice that this measure has been flat since the crisis and is curling down: CPI

Specific examples:
1 - House prices count as consumer inflation, especially as they also cause rents to rise as well. You do know that they were up?
2 - Gasoline shot up in price, at least here in the US. In other parts of the world,
3 - inflation got expressed as a sudden shortage or spike in price for rice in Asia or
4 - corn in Mexico (because it was being used for ethanol in the US). There were riots over these shortages/price spikes, in some cases.
That was unheard-of inflation in food staples that hadn't seen increases like what was happening in 2007/8, just prior to the debt crisis, in anyone's living memory.
Even
5 - chocolate managed to surge, and Hershey, for instance, responded with price increases.
All that counts as consumer inflation, over here in the real world. Just because you don't remember it or didn't experience it personally doesn't mean it didn't happen.
So yes, prices rose during the boom. All those prices (except chocolate) listed above are now falling. No more food riots.
The CPI itself is, as noted, flat and may be beginning to fall.
Wages are of course stuck if not falling.
Those are the real-world observations.
More...


you just proved my point.

of course prices spike (rice, corn etc) - but as i mentioned previously this is an effect of supply/demand dynamics. it has nothing to do with debt.
just to make sure - please note that I am EXPLICITLY in all my posts distinguishing between asset inflation and inflation. it is very likely that we have a period of asset deflation (like we had in the past 2 years in houses/equities/etc). this is largely a result of deleveraging process I was talking about. please read my original post (below) again once again.

as soon as demand for goods starts to catch up with supply the asset deflation will stop. (unless of course US is in such a deep shit that people will be selling houses to by a loaf of bread :))


OLD POST
this is nuts and only nutters believe this. i just do not see how these conclusions followed from theory of endogenous money (which i agree with btw).

but it is funny to see that many pseudo-economists (a la hugh hendry who even can't trade/invest) still think that they have much to preach to others.


debt does not drive inflation/deflation! it is a supply vs demand that matters. full stop.

as long as supply is accommodative of demand (think China's cheap stuff in the past 15 years) the inflation does not reign (and vice versa). did we have inflation during years of huge private debt creation? NO. we had asset inflation. the two thinks are not independent but they are not the same!

now think about 20% decline in asset value - well that is bad but that does not mean people have to pay 20% of debt. on average everybody still have much more assets than liabilities anyway.
what do you do after a year of the initial "asset reduction" shock? after a year you do not recall how many assets you had a year ago - and you chime along with your comfortable consumer behavior.

ok - people will likely pay off some debt to maintain the household leverage acceptable (which we saw happening in the data) but this is more a psychology driven ("look, I am doing something about the changed circumstances"), i.e. temporary redirection of disposable income.
note that they will do debt repayments also from freed cash flow due to lowered interest rate cost. in turn low interest are increasing disposable income as soon as people say "fuck reducing my debt, we live only once after all - and i saw my neighbor buying a new car just yesterday"...

now comes the argument of sending cheques to people (or government spending if you wish). if you do this faster than you can adjust supply you get a price pressure. this is first visible in commodities sector because it is the first factor in the supply chain - that's why you watch commodities. nobody knows how fast is "not too fast".

i do not know if we have inflation or deflation going forward. it depends on US unemployment, chinese price level and chinese domestic demand among many. but the debt argument is a bullshit.
 
Quote from dhpar:

you just proved my point.

of course prices spike (rice, corn etc) - but as i mentioned previously this is an effect of supply/demand dynamics. it has nothing to do with debt.
just to make sure - please note that I am EXPLICITLY in all my posts distinguishing between asset inflation and inflation.
More...


Debt increases the amount of money in circulation, which then raises the price of everything. To be sure, to make sure this point isn't missed, increases in debt are direct responses to increases in the demand for that debt from the real economy.
We had such an epic increase in debt, and therefore money, that mere food staples that hadn't seen such price rises in peacetime absent a massive crop failure, ever, as far as I know, increased 50 or 60% and caused rioting.
Please explain how either rice (which is a food staple for the majority of the people on the planet, not including you, obviously) or corn has anything whatever to do with asset prices.
 
I think Faber needs a real job where you do some real work and not yap whole day. He is himself a parasite and then he complains about everyone else.
 
Quote from ashatet:

I think Faber needs a real job where you do some real work and not yap whole day. He is himself a parasite and then he complains about everyone else.
More...

Faber has a real job.

Telling people how to become rich.

Look at gold...:)
 
Quote from ashatet:

I think Faber needs a real job where you do some real work and not yap whole day. He is himself a parasite and then he complains about everyone else.
More...

Faber has worked in Wall Street and witnessed Asia's ascension onto the world stage over 30 yrs ago. He graduated with a Phd in Economics in Switzerland, worked in Wall Street in NYC, then to Hong Kong when few others would want to go. He witnessed firsthand the historical economic rise of Asia while working in Finance.

In my view, he has a great combination of real world experience and academic theoretical background that few possess. He draws from both for his analysis.

Does Faber "yap all day?" Yes. But he has more than earned his right to yap all day. You don't need to listen to him - but you can't ignore the fact that his life experiences are rare. It's good to see an Austrian Economist, with real world experience, get center stage.

How many other Economist talking heads have his real world experiences, globally, over a 40 year period? Not many. Most his age are Keynesians or Monetarists.
 
When Faber speaks, I listen. Very astute, and often right. Even the timing of his short-term macro calls (very hard to do), are usually on the mark, within a week or two. I emailed him once. He responded. Not that he hasn't already stated it, but his medium-term outlook on the US is very much shared by Mithos. Debt-to-GDP, unfunded liabilities, FIRE, deficit = stimulus, the helicopter Ben endgame. A great resource.
 
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