INFLATIONISTS vs. DEFLATIONISTS -- a compendium in progress

[graveday]

I assume there was no pun intended in "reverts to the mean"?   I actually heard a line in some song that mentioned saving Kennedy half dollars and selling to Europeans, primarily the French I suppose.  I wonder if anyone has tried that?   
Well, guess I'll go drive a few more nails into the end of the baseball bat.

[d00gie]

I assume there was no pun intended in "reverts to the mean"?   I actually heard a line in some song that mentioned saving Kennedy half dollars and selling to Europeans, primarily the French I suppose.  I wonder if anyone has tried that?   
Well, guess I'll go drive a few more nails into the end of the baseball bat.

Definitely no pun.  In that sense, it is our current monetary system which is already "mean" to the individual citizen.

I may not like the French, but they actually "get it" about this better than most, having suffered the dubious distinction of undergoing *two* hyperinflations in one century.  It was also the French who demanded payment (i.e. in actual *money*) on their Federal Reserve Coupons in the late 60's before the U.S. defaulted on its promises to pay in 1971.

Why do people have such an antagonism toward honest (real) money, when it's so to their benefit?  People have been brainwashed and dumbed down.

[DoomandGloom]

I assume there was no pun intended in "reverts to the mean"?   I actually heard a line in some song that mentioned saving Kennedy half dollars and selling to Europeans, primarily the French I suppose.  I wonder if anyone has tried that?   
Well, guess I'll go drive a few more nails into the end of the baseball bat.

Definitely no pun.  In that sense, it is our current monetary system which is already "mean" to the individual citizen.

I may not like the French, but they actually "get it" about this better than most, having suffered the dubious distinction of undergoing *two* hyperinflations in one century.  It was also the French who demanded payment (i.e. in actual *money*) on their Federal Reserve Coupons in the late 60's before the U.S. defaulted on its promises to pay in 1971.

Why do people have such an antagonism toward honest (real) money, when it's so to their benefit?  People have been brainwashed and dumbed down.

25 points to rule the world and brainwash the masses:

http://www.doomers.us/forum2/index.php/topic,60057.msg906511.html#msg906511

[Avoidthedieoff]

There may be inflation (even significant inflation) in purely financial assets, i.e. gold and silver, government debt, etc.  But you will see continuing deflation in markets that depend in a fundamental way on end-user consumption, i.e. food, real estate, and, yes, oil. 

The reason for this is that the traditional pathways through which money printed by the fed and delivered to banks is transformed into consumer wages, and therefore demand, are fundamentally dysfunctional.  No wage inflation for the poor and middle classes means no long-term inflation in food, real estate, and oil. 

By all means buy gold and silver, but the paradigm has shifted, and the inflation that makes it easier to pay off wage-earner debt simply cannot happen in this type of environment. 

We're all screwed. 

[ninakat]

There's a thread too, with discussion of this article.

The Crisis Is Not Over

By Paul Craig Roberts

February 03, 2010 "Information Clearing House" -- Readers ask if the financial crisis is over, if the recovery is for real and, if not, what are Americans’ prospects. The short answer is that the financial crisis is not over, the recovery is not real, and the U.S. faces a far worse crisis than the financial one.

(...)

To conclude: the initial crisis has planted seeds for two new crises: rising government debt and inflation.

A third crisis is also in place. This crisis will occur when confidence is lost in the U.S. dollar as world reserve currency. This crisis will disrupt the international payments mechanism. It will be especially difficult for the U.S. as the country will lose the ability to pay for its imports with its own currency. U.S. living standards will decline as the ability to import declines.

The financial crisis is essentially a U.S. crisis, spread abroad by the sale of toxic financial instruments. The rest of the world got into trouble by trusting Wall Street. The real American crisis is much worse than the financial crisis. The real American crisis is the offshoring of U.S. manufacturing, industrial, and professional service jobs such as software engineering and information technology.

(...)

The policy of jobs offshoring is insane. It is shifting U.S. GDP growth to the offshored locations, such as China, thus halting growth in U.S. consumer incomes. For the past decade, U.S. households substituted an increase in indebtedness for the lack of growth in income in order to continue increasing their consumption. With their home equity refinanced and spent, real estate values down, and credit card debt at unsustainable levels, it is no longer possible for the U.S. economy to base its growth on a rise in consumer debt. This fact is a brake on U.S. economic recovery.

Stimulus packages cannot substitute for the growth in real income. As so many high value-added, high productivity U.S. jobs have been offshored, there is no way to achieve real growth in U.S. personal incomes. Stimulus spending simply adds to government debt and pressure on the dollar, and sows seeds for high inflation.

(...)

The threats to the U.S. economy are extreme. Yet, neither the Obama administration, the Republican opposition, economists, Wall Street, nor the media show any awareness. Instead, the public is provided with spin about recovery and with higher spending on pointless wars that are hastening America’s economic and financial ruin.

[graveday]

The deflation drum seems to be beating a tad louder lately.

[Arraya]

Declining prices will bring that out.   Deflation should reassert itself as the dominate force in 2010 with the much despised dollar being the beneficiary.  Gold bugs will call foul.

[d00gie]

*Yawn*

[ninakat]

FOFOA: Greece is the Word
(also posted as a separate thread)

Friday, February 12, 2010

The situation with Greece and the euro presents us with a fresh opportunity to explore what is really wrong within the system from a macro perspective. And I am not talking about the euro system. I am talking about our global system of savings that are value-fixed directly to a transactional currency unit whose value doesn't even matter in the context of its primary function.

This problem is what we call a Catch-22, or a no-win situation for the system as a whole. This means that because of its fatal flaw and current precarious position, the global financial system faces threats from too many fronts, any one of which can bring it down like a house of cards. And attempts to shore up the system on one side are kneecapping the legs supporting it on the other. Our global monetary/financial/economic system today lies in a "critical state", barely surviving on a "knife-edge of instability".

In order to understand the greater systemic problem that is presenting today as a boiling pustule in Greece, we must first understand the flow of capital and the growth of debt. With debt growth as the deadly tumor in the cycle, it is easiest to visualize the flow of money as a circular feedback loop, where the debt cycle feeds back on itself in a sustained growth pattern.



The denouement or final shakeout of this systemic crisis will include two separate events, no matter what decisions are made along the way. In this statement I have full confidence. For semantic simplicity I call these two events freegold and hyperinflation. But these terms seem to cause consternation and confusion in many readers, so you can think of them simply as the dramatic devaluation of paper gold and the catastrophic devaluation of the dollar. Two inevitable devaluations. Two unavoidable outcomes.

(...)

Gold

This is where physical gold comes in. I have shown you what is wrong with the system when viewed from outer space. And I have shown you what is missing, and what will be found. And I have shown you how the really big money with really big foresight has prepared.

Notice that Greece and the ECB do not have palladium in their reserves. Just sayin'.

Of course you should also make other preparations to ensure that your bare necessities of food, clothing and shelter are taken care of. Some silver and even some dollar currency makes sense in this regard. This whole "gold thing" is really just for those people that have more money than they will need to live on for about a year. And it is for those that would like to store that excess wealth in the most universally liquid vehicle since they don't know exactly what they will be needing a year from now.

Perhaps they will need a generator. Or maybe a cow. Or maybe a gun. Maybe a new Ford F150. This is where gold comes in handy. You can store your wealth securely now in a universal package that should be convertible into the most needed things later. It can cost a pretty penny to be totally prepared now for every possible eventuality. Instead, it is best to prepare for the most probable events and keep a universal reserve for the unexpected!

(...)

[graveday]

Whoa, you can see gold from outer space?

[ninakat]

<a href="http://www.youtube.com/v/rgQFzEUBADg&amp;ap=%2526fmt%3D18&amp;rel=0" target="_blank">http://www.youtube.com/v/rgQFzEUBADg&amp;ap=%2526fmt%3D18&amp;rel=0</a>

<a href="http://www.youtube.com/v/dnKQdvPvGX4&amp;ap=%2526fmt%3D18&amp;rel=0" target="_blank">http://www.youtube.com/v/dnKQdvPvGX4&amp;ap=%2526fmt%3D18&amp;rel=0</a>

[ninakat]

The Future of the Dollar
by futureofdollar.com
2010-02-17

The World is concerned that the dollar cannot play the role of the main reserve currency any longer after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since the 1930s. The Government’s stimulus packages, financial bailouts, the need to support liquidity in Treasuries, keeping interest rates at the lowest level under the circumstances of low economic growth, high unemployment and low tax collection make it print more dollars. This leads to a high risk of substantial inflation, or hyperinflation in a long-run.

With a $12.3 trillion national debt and $55 trillion in unfunded obligations for programs such as Social Security, Medicare and Medicaid, with total Federal Reserve and Treasury bailout commitments now at $11.8 trillion, of which $3.6 trillion has already been spent the U.S. need to take steps immediately to protect themselves from the potential loss of the purchasing power of their U.S. Dollars, inflation.us warns.

Although there is still no significant inflation data in the United States international stock and commodity markets grew abnormally within the last eleven months. Analysts called it the “flight from the dollar” or “diversifying risks.”

There are many factors evidencing against the future of the dollar as a global reserve currency. In the present article futureofdollar.com pays attention to the crucial points of analysis after conducting an extensive research on the topic.

(more)

[ninakat]

“Mr. Bernanke has acknowledged the allure of a higher inflation goal”
by John Rubino on February 22, 2010

Major policy shifts usually start out as trial balloons, ideas placed with sympathetic reporters that float around and draw reactions from the affected parties. This comment period gives policymakers a sense of how an idea will fare if they take credit for it. So an article that appears in today’s Wall Street Journal under the headline Low Inflation Always Best? Some Urge a Policy Rethink Low-Inflation Doctrine Gets a Rethink, but Shift Is Unlikely is pretty much what you’d expect to see as the U.S. searches for a way out of History’s Biggest Credit Collapse. Still, it’s so amazing that it deserves a closer look:

(...)

A few thoughts:

-- The hubris of economists and policymakers who think they actually have the power to tether a system as complex as a modern economy to a specific inflation rate would be hilarious if it wasn’t so terrifying. Presumably they’ve been targeting an inflation rate all along, and the results have deviated just a bit, in both directions, in the past decade. Raising the target rate would simply raise the amplitude of the fluctuations.

-- It’s interesting that the writer recognizes the risks the U.S. runs by financing its deficit with short term borrowing, even making the quite accurate comparison with a homeowner who takes out an adjustable rate mortgage. Yes, we are a subprime nation.

-- This is a dance with very predictable steps. A few semi-obscure economists toss out the idea that we need to inflate aggressively, not just as a reaction to a crisis but as a matter of ongoing policy. The U.S., in the person of Ben Bernanke, demurs, citing the potential problems and in the process appearing to care about the value of the dollar.  Then, as events deteriorate a growing chorus of legislators and economists (look for Paul Krugman to weigh in soon) starts making panicky noises. And finally, Bernanke and the Fed  allow themselves, ever reluctant, to be convinced of the painful necessity of further debasing the dollar. Which is, of course, what they’ve wanted to do since they aced their first college economics class.

-- Now all that’s left is the timing. When will things get so bad that the consummate inflation fighters at the Fed are forced to swallow their reservations and really go for it? That’s unknowable, of course, because it depends on when the next black swan lands. But it probably won’t be long.

[graveday]

http://lolfed.com/wp-content/uploads/roubini-party.jpg

doomin ain't easy

[ninakat]

Rising Interest Rates Won't Stop Inflation
National Inflation Association, Preparing Americans for Hyperinflation

February 19, 2010

The Federal Reserve announced yesterday that it raised the "discount rate" by 25 basis points to 0.75%. This move was meaningless because very few institutions use the Fed's discount window, in comparison to more widely used overnight lending. The current balance of discount window borrowing is only $14 billion, compared to the $1.1 trillion in excess reserves currently being hoarded by banks.

By the Fed raising the discount rate but not the overnight federal funds rate, they are clearly trying to talk up the U.S. dollar and push down gold and silver prices, without reducing the supply of cheap credit. Considering that gold and silver prices rose slightly yesterday following the Fed's announcement and held strong today, it is our belief that the market is calling the Fed's bluff and beginning to realize that artificially low interest rates are here to stay.

Many people forget that gold's bull run from $35 to $850 per ounce during the 1970s came during a time of rising interest rates. Historically, one of the best performing periods for precious metals has been when the Fed starts to raise artificially low rates. When the Fed raises exceptionally low rates, traders often initially make the mistake of believing that inflation will no longer be a concern. They erroneously believe that with the Fed focused on bringing interest rates back to "normal" levels, it will be easy for them to contain inflation. They don't realize that the excess liquidity from artificially low rates will remain in the system until the Fed raises rates to artificially high levels and keeps them there for an extended period of time.

With the Fed having held the federal funds rate at 0%-0.25% for the past 14 months, we may need to see interest rates of 15% or higher for 14 months straight, in order for inflation to no longer be a concern. With 1 in 5 mortgages in the U.S. currently underwater with low interest rates, it will be impossible for the Fed to raise rates dramatically without causing the mother of all Great Depressions. Therefore, we believe the Fed has chosen to risk hyperinflation in the name of fighting a depression.

(more)