Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

[ThePythonicCow]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

The drawing board future is continuously erased by the present, and all you have to show for it is what you learned from the exercise of drawing, which is at least some advantage.

That's what life is -- the exercise of drawing.

[Supercilious]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

I've returned from a trip to find a development that troubles me. I understand that you received less than respectful treatment here. Please accept my apology.

I have run several companies. One thing I have learned from it is that if you do not encourage dissent among the group, you wind up with a weak organization. By the same token if you allow disrespect among the group and of yourself, everything goes to hell.

Members of iTulip will treat each other with respect, and the standard applies doubly in iTulip administration's treatment of members. The rule also applies to members' treatment of iTulip management.

To answer your question, after dozens of interviews in 2006 and 2007 before the debt crisis, the terms "deflation" and "inflation" were generally interpreted by readers as meaning a deflation spiral as occurred in the U.S. in the 1930s and hyperinflation as occurred in Argentina in 2001 and in many nations throughout the 20th century.

To distinguish between this generally accepted meaning of the term deflation and the kind of deflation we expected, we adopted the term "disinflation" here to mean a falling rate of inflation managed by aggressive government intervention but not a self-reinforcing deflation spiral as occurred in the 1930s.

To distinguish between hyperinflation and the kind of inflation we expected, not hyperinflation but more as in the U.S. in the 1970s, albeit more severe, we use the term "high inflation" here.

Disinflation is a brief period of deflation limited to goods and services prices in the Production/Consumption Economy but not reinforced by forced liquidation of the same items purchased with credit as occurred in the 1930s. High inflation is inflation that does not exceed 100% in any one year.

The economics textbooks are not much help here. They do not even distinguish between the kind of rare deflation spiral that the U.S. experienced in the 1930s and the brief periods of deflation that Japan has experienced off and on since 1992 that we call disinflation.

Adding to the confusion, we forecast asset price deflation in the FIRE Economy which tends to occur as a self-reinforcing downward price spiral during debt deflations, except here again we expected radical government intervention.

The term "debt deflation" adds even further confusion, even though the definition is clear and simple. The confusion arises because debt can be deflated by defaults but also by rising nominal cash flows. Creditors do not win in either case and prefer a managed version of the former over a runaway version of either.

We will not see the deflation spiral that Mike Shedlock, Karl Denniger, Paul Krugman, Steve Keen, and other forecasters predicted in 2006 and 2007. In fact, commentators are already talking about inflation not more than a few months after "deflation" was widely feared. Soon enough the inflationists will be the majority again, after the fact of inflation is further confirmed by commodity prices, but not interest rates.

As contrarians we grow even more critical of our theories when we see large numbers of previously antagonistic economics commentators adopt in the moment forecasts that were no more than a theory of ours two or three years ago.

Unfortunately for those of us in the prognostication business, the fact of broad adoption confirms only what we knew then; it says nothing about the next two or three years. The drawing board future is continuously erased by the present, and all you have to show for it is what you learned from the exercise of drawing, which is at least some advantage.

Thanks EJ! This is exactly the professional and clear reply I was waiting for. I got all my answers.

[vinoveri]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Unfortunately for those of us in the prognostication business, the fact of broad adoption confirms only what we knew then; it says nothing about the next two or three years. The drawing board future is continuously erased by the present, and all you have to show for it is what you learned from the exercise of drawing, which is at least some advantage.

EJ, would you please qualify this metaphor, i.e., is the drawing board blank now, or just modified with more ambiguity? What are we less sure of than we were before?

If we will see commodity inflation w/o concommitant increase in bond yields, doesn't that augur for a return to FIRE, cheap limitless money which will chase up asset prices (it appears it's already heading into stocks). Could this be a confirmation of your next bubble theory?


this timely item just popped up on bloomberg by the way:

http://www.bloomberg.com/apps/news?p..._ss&refer=home
Wall Street Firms Will Revert to Pre-Crisis Model, Cohen Says

Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed, said H. Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP.
...

[EJ]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

EJ, would you please qualify this metaphor, i.e., is the drawing board blank now, or just modified with more ambiguity? What are we less sure of than we were before?

A more accurate analogy is a stack of blackboards. The lower ones fall off the bottom as new ones are added to the top.

If we will see commodity inflation w/o concommitant increase in bond yields, doesn't that augur for a return to FIRE, cheap limitless money which will chase up asset prices (it appears it's already heading into stocks). Could this be a confirmation of your next bubble theory?

The FIRE Economy is over. It's remnants are on government spending support. A new system is evolving.

this timely item just popped up on bloomberg by the way:

http://www.bloomberg.com/apps/news?p..._ss&refer=home
Wall Street Firms Will Revert to Pre-Crisis Model, Cohen Says

Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed, said H. Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP.
...

It's a tough environment for law firms.

[Fiat Currency]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

I want to study macro-economics in depth, where do I start? Thanks.

A friend of mine asked me the same question. I gave him a copy of ...

New Ideas from Dead Economists: An Introduction to Modern Economic Thought
http://www.amazon.com/New-Ideas-Dead.../dp/0452280524

... and he liked it as an intro to various macro-economic concepts. The rest you can pick up from reading around here. New articles on any of these sites (and others) will do the rest.

www.dollarcollapse.com
www.prudentbear.com
www.safehaven.com
www.financialsense.com
www.ml-implode.com
www.jsmineset.com
www.321gold.com
www.goldseek.com
www.nakedcapitalism.com
www.zerohedge.blogspot.com

[phirang]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Read anything written by Carroll Quigley: he's the (dead) philosopher to presidents.

[nero3]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

I like this article. the dollar peaked around 6 months ago, when gold hit around 712, our exchange hit 189, (now around 265), and the USD NOK was around 7,3, now 6,55.

However, I won't rule out that the dollar can rally like after 1981, what have happened so far, is suggesting the dollar could be in a bull, not bear. I am not decided on this yet. In many ways, the CRB top, and the oil top in june last year, had some similarities to the top in 1980.

[vinoveri]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

A more accurate analogy is a stack of blackboards. The lower ones fall off the bottom as new ones are added to the top.



The FIRE Economy is over. It's remnants are on government spending support. A new system is evolving.



It's a tough environment for law firms.

Thanks for the clarification and especially for the humor ... it helps remind me of the need to lighten up a bit; a chuckle or two can sure do wonders.

[rchdenton]

Re: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

Excellent article. Thank you EJ.

I'm trying to apply this to my own situation. My understanding is that the recession ends when house building resumes. This is because house building can be turned off when times are tough. When I move house a lot of deferred purchases are precipitated (new sofa, drapes, household stuff) so retail follows house building.

As I see it we have a competitive devaluation going on with the US persuing its own interests with vigour. There doesn't seem to me to be a functional system for setting exchange rates, if there was then a surplus or deficit could not persist for more than a few months.

Do you have any insights on how these major currents will impact down under? Our NZD seems to track the Dow Jones, presumably because of fund asset allocation policies.