Sorry, Jim Rogers, You Were Wrong About Inflation
- Thread starter ByLoSellHi
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I agree with this as well. I also think BLSH's analysis is spot on too. But for the FED, they aren't going to stop quantitative easing. It won't matter what the public desires, the FED will act on its own to prevent widespread deflation. The FED greatly learned this lesson from the great depression and Bernanke is very well versed in how the FED acted at that time. They started to flood the economy with liquidity but then stopped due to public pressure. If they had kept going, I gaurantee that there wouldn't have been a 10 year depression. Bernanke knows this and won't cave into public pressure.
We have 2 very massive and opposite forces working against each other right now. The money supply is shrinking due to massive defaults. On the other hand, the FED will do whatever it needs to do to prevent a catastrophic depression. Thus, I don't see either side "winning" in the short term.
This is what I predict. Deflation won't be that bad. It started to "win" the battle with -6% GDP growth over the last 2 quarters. But, right now the fed is starting to win the battle back and speculators started to "jump on the inflation bandwagon". The speculators were premature though I believe. I think that we will have another deflationary pressure coming up sometime around the end of the year and the FED will act again. Again, the inflation bandwagoners will jump on the hyperinflation boat again. Inflation will then start to win the battle and perhaps we have high inflation for a year or so.
But again, with massive deleveraging, the hyperinflation speculators won't win either. I think we will settle into a very slow growth economy for 5-6 years with perhaps 1-2% growth being the norm and inflation staying very modest at around 2-3% during that time as the American consumer doesn't buy all the world's goods in massive quantities anymore.
As for the Dollar? Overblown there in terms of currency devaluation. The devaluation argument would only be valid if the US was a net exporter. Since we are a net importer, PPP will play a greater role in stabilizing its value. A cheap dollar means cheap American goods and will mitigate any devaluation.
So basically what do I see over the next 6-7 years? After a year or two more of overreactions by both inflationary and deflationary pressures, a very boring economy that kind of limps along neither looking great nor horrible either. Basically, what the great depression should have been if the FED had actually continued to pump liquidity.
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What is not happening....and not even in consideration is a proper downsizing in govt....
What has not been placed into consideration are true structural changes which would radically change the business landscape....
The orchard has been largely chopped down and needs to be replanted....
ie 10% State 5% Fed C tax
Yeah....one needs $X from a sustainable source....so far....one just needs $X....and does not care to clearly identify the sustainability nor capability of the sources....
One needs to mandate structural change .....
The chips fall where they may....
Anybody can wish upon a star....
http://www.ft.com/cms/s/0/e8bcc516-5c33-11de-aea3-00144feabdc0.html
Another deflation real world example....
http://globaleconomicanalysis.blogspot.com/2009/06/trucks-sit-idle-rail-traffic-horrific.html
Another deflation real world example....
http://globaleconomicanalysis.blogspot.com/2009/06/trucks-sit-idle-rail-traffic-horrific.html
Bad, but better then what we have now.
Why a need to create money/inflate?
I recall 2 core arguments:
a) to better manage economy and give it boost when needed. They forget about a bust and that whenever you introduce additional variable (management) into the system (currency) you run a chance of that variable misbehaving (poor or evil management)
b) population growth - this is the funniest one. Say family has 2 newborn children, more money is created to accommodate for that. But who has that newly created money? The one who has just created it! NOTHING is changed in balance sheet of this family. They brainwashed people into looking normally into 3% inflation - WTF is normal with that?
If I am wrong please correct.
Those are very good points and one's which I agree 100% with. You're right, the orchard has been chopped down and does need to be replanted. This is something that I don't think can even be looked at right now. First thing's first....we need to build confidence back into the American economy and Americans as a whole. Once the potential for complete economic collapse is alleviated, then we can start looking at these other problems that you've mentioned.
Working in software development myself, my entire existence revolves around "fixing" problems or meeting unrealistic deadlines for parallel projects. I have two choices. I can either fret about every single problem or the potential for out of control cascading of problems. Or I can decide to focus on the most pressing issue or deadline I have and decide to tackle that one and let the other's fall in line afterwards. I've found that "starving" other issues to tackle the most critical one always works out for the best for me.
One of the great things about our political system is that we do have 2 competing parties. Hopefully the Republicans can come back into power and actually tackle these issues in 8 years, which I imagine will be the perfect time to fix any messes we are currently creating to avoid and even larger disaster.
But of course, this requires the Republican party to actually get some damn conservatives that are more concerned about the economy as opposed to what guy is marrying what other guy or what church I go to. But that's a whole other topic. :eek:
Or I can dream about the Libertarians coming into power...
Rebuilding confidence is actually destructive if its built on a bed of lies or fabrications.
The last thing American Consumers or Businesses need to do is get back into leveraged positions of indebtedness, assuming the capital were even available to them, if they can't make productive use of that debt (i.e. someone needs a car for work, and the net benefits of the wages from the job exceed the costs of purchase/maintenance of the car; a business needs equipment tor supplies or a makeover - assume it's a restaurant or hotel - and taking on debt will bring a tangible return or put the business back into profit territory), given that the economy is extremely weak and likely to remain so for a long time (this isn't just my opinion, whether it turns out to be true, as I believe it will).
What the government needs to do is get back to sound fiscal and trade policy, and lay a strong foundation for job growth and lasting economic growth, before they recklessly talk up confidence, and create the same kinds of problems (assuming people bite and banks and credit card companies lend) that led to the financial crisis in the first place - people and businesses living beyond their means, businesses expanding capacity beyond what true demand would absorb, etc., people and businesses acquiring assets with extremely flawed models and expectations about appreciation, ROI, etc.
If the government is just going to try and artificially reflate asset values, I think this is extremely reckless, and in fact, given the dour mood of the consumer and the caution of businesses, I don't think it will even work - people and businesses are still in deleveraging mode.
Don't be surprised if you see wealthy people who could easily afford to drive a Lexus in a Hyundai - used at that.
The last thing American Consumers or Businesses need to do is get back into leveraged positions of indebtedness, assuming the capital were even available to them, if they can't make productive use of that debt (i.e. someone needs a car for work, and the net benefits of the wages from the job exceed the costs of purchase/maintenance of the car; a business needs equipment tor supplies or a makeover - assume it's a restaurant or hotel - and taking on debt will bring a tangible return or put the business back into profit territory), given that the economy is extremely weak and likely to remain so for a long time (this isn't just my opinion, whether it turns out to be true, as I believe it will).
What the government needs to do is get back to sound fiscal and trade policy, and lay a strong foundation for job growth and lasting economic growth, before they recklessly talk up confidence, and create the same kinds of problems (assuming people bite and banks and credit card companies lend) that led to the financial crisis in the first place - people and businesses living beyond their means, businesses expanding capacity beyond what true demand would absorb, etc., people and businesses acquiring assets with extremely flawed models and expectations about appreciation, ROI, etc.
If the government is just going to try and artificially reflate asset values, I think this is extremely reckless, and in fact, given the dour mood of the consumer and the caution of businesses, I don't think it will even work - people and businesses are still in deleveraging mode.
Don't be surprised if you see wealthy people who could easily afford to drive a Lexus in a Hyundai - used at that.
The only real stimulant for the US economy would be to revert to a more protectionist stance for the foreseeable future, as our lack of competitive advantage in many industries has been exploited by free (and not always fair) trade. The Fed simply has not printed enough $ right now to counter the deflationary effects of the current crisis. GD references of credit and wealth destruction are an apples to oranges comparison as the US constituency was not nearly as levered as today.
One other step the geniuses in Washington could do is enact term limits. It's important to know when you're needed, but it's more important to realize when you're not. This would shift the focus back to serving one's country...
One other step the geniuses in Washington could do is enact term limits. It's important to know when you're needed, but it's more important to realize when you're not. This would shift the focus back to serving one's country...