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

[johngaltfla]

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

IMHO, the traditional measurements used by the deflationistas for "wage inflation" are somewhat skewed by their bias. If one uses the BEA Wage Cost analysis we have consistently experienced wage inflation for well over 15 years and using the government's own data, it is reflected in a persistent move upwards, much like our monetary base has been. Total compensation is a much more accurate measure and indicates that no matter the screams of "you can't have inflation without wage inflation" the numbers tell the tale.

I will be updating the data on these charts this weekend to keep it current.


Wages, minus additional benefits and compensation:


Eric, you're spot on again and I'm amazed that there is still a debate about monetary inflation versus a temporary credit contraction. The failure that the deflatioinistas fail to address is that government created credit will eventually impact velocity and the borrower of first resort will soon emerge at the lender of massive resort to the general economy.

[johngaltfla]

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

One more thing; if the Federal Reserve does not re-engage into buying the 10 and 30 year bonds within the next 30 days and allows the yields to accelerate to the upside the ARM reset disaster will accelerate into the fall and any pretense of a recovery will fail in 2009. Thus I think they will execute a dual course of action with a massive bond purchase program once yields approach 3.50% on the 10 and a devaluation, stealth as it might seem, of the USD to fire up the export sector again.

Failure to do so will only magnify the unemployment situation and exponentially expand the bankruptcies we are soon to experiencing in all aspects of the construction and construction supply sectors of the economy.

It is truly, inflate or die.

[jk]

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

IMHO, the traditional measurements used by the deflationistas for "wage inflation" are somewhat skewed by their bias. If one uses the BEA Wage Cost analysis we have consistently experienced wage inflation for well over 15 years and using the government's own data, it is reflected in a persistent move upwards, much like our monetary base has been. Total compensation is a much more accurate measure and indicates that no matter the screams of "you can't have inflation without wage inflation" the numbers tell the tale.

I will be updating the data on these charts this weekend to keep it current.


Wages, minus additional benefits and compensation:


Eric, you're spot on again and I'm amazed that there is still a debate about monetary inflation versus a temporary credit contraction. The failure that the deflatioinistas fail to address is that government created credit will eventually impact velocity and the borrower of first resort will soon emerge at the lender of massive resort to the general economy.

wage increases are not prima facie inflationary. you have to account for productivity changes.

[ThePythonicCow]

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

wage increases are not prima facie inflationary. you have to account for productivity changes.

Yup - the productivity of our government employees has increased dramatically. More red tape, regulations, propaganda, taxes, and bureaucratic nonsense :rolleyes::rolleyes:.

You are correct of course in some cases. The wages of the Chinese worker went up some, but their productivity went up more, and even better, their productivity was displacing higher cost manufacturing in the more "advanced" economies.

[vinoveri]

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

...The failure that the deflatioinistas fail to address is that government created credit will eventually impact velocity and the borrower of first resort will soon emerge at the lender of massive resort to the general economy.

And the borrower of first resort will also be the investor/speculator of massive resort:
1. Goldman et al borrow "free money" from Uncle Sam and the other global fiat uncles
2. These various broker-dealer and preferred borrowers then, buy equities, commodities and any asset class they wish - causing rising stock markets, commodity inflation etc.
3. Consumers see their 401ks going back up as well as their purchasing power going back down - so with a combination of confidence (wealth effect and rising stock market) and fear (of inflation) AND renewed access to credit - the consumption and mild leveraging returns.

While I agree in theory with the austrians that only real capital can build real wealth, I'm not so sure that the world can't run a long long time on fictitious fiat capital and wealth. Unfortunate and unjust as it is, most don't recognize the unfairness or worse don't care. The "monopoly money" system can continue to run as long as that greenback continues to be accepted for labor.

[goadam1]

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

And the borrower of first resort will also be the investor/speculator of massive resort:
1. Goldman et al borrow "free money" from Uncle Sam and the other global fiat uncles
2. These various broker-dealer and preferred borrowers then, buy equities, commodities and any asset class they wish - causing rising stock markets, commodity inflation etc.
3. Consumers see their 401ks going back up as well as their purchasing power going back down - so with a combination of confidence (wealth effect and rising stock market) and fear (of inflation) AND renewed access to credit - the consumption and mild leveraging returns.

While I agree in theory with the austrians that only real capital can build real wealth, I'm not so sure that the world can't run a long long time on fictitious fiat capital and wealth. Unfortunate and unjust as it is, most don't recognize the unfairness or worse don't care. The "monopoly money" system can continue to run as long as that greenback continues to be accepted for labor.

It can run as long as there is someone to exploit in the scheme. Plenty of cheap labor. But we are running out of some important stuff like fisheries. Kill the pirates. Keep enough rice in bellies. Keep Idol on here.

[johngaltfla]

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

wage increases are not prima facie inflationary. you have to account for productivity changes.

According to the argument presented by the deflationist side, it is.

And please, tell me, where in government wage structure does productivity come into account? I'd love to hear that one as their percentage share of GDP increases month over month...

[johngaltfla]

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

And the borrower of first resort will also be the investor/speculator of massive resort:
1. Goldman et al borrow "free money" from Uncle Sam and the other global fiat uncles
2. These various broker-dealer and preferred borrowers then, buy equities, commodities and any asset class they wish - causing rising stock markets, commodity inflation etc.
3. Consumers see their 401ks going back up as well as their purchasing power going back down - so with a combination of confidence (wealth effect and rising stock market) and fear (of inflation) AND renewed access to credit - the consumption and mild leveraging returns.

While I agree in theory with the austrians that only real capital can build real wealth, I'm not so sure that the world can't run a long long time on fictitious fiat capital and wealth. Unfortunate and unjust as it is, most don't recognize the unfairness or worse don't care. The "monopoly money" system can continue to run as long as that greenback continues to be accepted for labor.

I side strongly with the Austrian theory that capital seeks open markets to exploit for the purpose of increased economic efficiency to maximize profits. Thus the system outlined by the Keynesians and deflationists regarding a perpetual government increase in their share of economic activity pushes the good capital out of the market thus forcing them to double down or increase the government share or zombie capital to keep the status quo. The only growth created is a statistically flawed analysis concocted to create the illusion of growth. Once you start dissecting the government's methodology, you realize quickly that when GDP is expressed in real money, we have basically experienced very little real growth since the gold standard was removed in the 70's. Inflation looks like growth to the ignorant and foolhardy but the truth is that your returns have to increase exponentially to keep ahead of the true inflation rate to insure an adequate return.

That is why so many real capitalists are fleeing to Singapore, Hong Kong and hard as this is to say, Shanghai to seek real returns on their investments.

[photoncounter]

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

Thank you, but the percentage change showing relative CPI change doesn't really help as I'm trying to determine whether actual significant inflation (7%-15%) will kick in quickly (ie within a year), by looking at whether it has ever historically kicked in quickly. It doesn't appear to me as if it has. Fred posted some graphs that show CPI on a monthly basis instead of an annual basis, which shows it might have jumped for a month or so, but never for long enough to really pay down my house. EJs graph on an annual basis shows CPI measured by the year and I think is a better measure of prolonged inflation... and I still don't see that inflation has ever kicked in within a year of a deflationary/disinflationary period. Almost always it takes several years...

I remember reading it on these pages and something you may want to consider -- deleveraging that took about 2-3 years during the great depression only took about 6 months this time (for the same amount).

[WildspitzE]

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

One more thing; if the Federal Reserve does not re-engage into buying the 10 and 30 year bonds within the next 30 days and allows the yields to accelerate to the upside the ARM reset disaster will accelerate into the fall and any pretense of a recovery will fail in 2009. Thus I think they will execute a dual course of action with a massive bond purchase program once yields approach 3.50% on the 10 and a devaluation, stealth as it might seem, of the USD to fire up the export sector again.

Failure to do so will only magnify the unemployment situation and exponentially expand the bankruptcies we are soon to experiencing in all aspects of the construction and construction supply sectors of the economy.

It is truly, inflate or die.

A large part of the Fed game is expectation management. The current rally on risk, whether it's based on perception and/or actual stimulus, if it goes unchecked, may potentially create enough momentum to override the Fed's limits for QE (alone) in the QE poker game.

The more effective means of curtailing Rf yields would be to re-instill a little fear into any weak sisters, whether through perception (negative or continued bleak commentary) or by diminishing the stimulus to pull back on the reigns of risk taking.

Perhaps, this is why the stress tests are being delayed, and why "what will be released" is still being debated. It also gives the institutions enough time to complete any capital raising efforts, as well as position themselves to profit from any expected results. Have you also noticed how it's being beaten into the public consciousness that unemployment will continue to be ugly way past the recession?

[ThePythonicCow]

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

Have you also noticed how it's being beaten into the public consciousness that unemployment will continue to be ugly way past the recession?

What are you suggesting here? Why would the Powers That Be want to frighten us with expectations of high unemployment?

I'm not doubting that they would do this ... I'm just missing the motivation in this case.

[WildspitzE]

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

What are you suggesting here? Why would the Powers That Be want to frighten us with expectations of high unemployment?

I'm not doubting that they would do this ... I'm just missing the motivation in this case.

I should erase that sentence as it is rather out of place in the stream of consciousness that I had while writing, I was trying to highlight an example of the massive amount of expectations management that is going on - one way or the other.

[ThePythonicCow]

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

I should erase that sentence as it is rather out of place in the stream of consciousness that I had while writing, I was trying to highlight an example of the massive amount of expectations management that is going on - one way or the other.

Drat. Yeah, I suppose that sentence was out of place. But it was still intriguing. I was still hoping you could explain why you thought "they" might want to manage our unemployment expectations upward (more jobless for longer).

[WildspitzE]

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

Drat. Yeah, I suppose that sentence was out of place. But it was still intriguing. I was still hoping you could explain why you thought "they" might want to manage our unemployment expectations upward (more jobless for longer).

Well, let's throw some ideas against the wall.

(A) If one wants to temper the size of the inflation premium that is a component of bond yields (particularly corporate debt that isn't helped by QE), one may want to keep hammering at the existence of continued deflationary loops, e.g. unemployment.

(B) If one wants [to continue] to promote inflation, and temper the possibility that people completely lose faith in the currency [after massive intervention], one may want to make everybody believe that deflation is alive and well. Conversely, if one wants to promote deflation, one may want to make everybody believe that inflation is a problem.

(C) If one is trying to make a bullish case for the stock market, and one wants people to ignore that pesky economic reality, I can think of a few examples:

(1) under promise and over deliver - the end of employment in america is around the corner! hey, look, we "only lost" 630K. Whew, I expected 800K; or

(2) the market has accurate foresight, and in the past unemployment doesn't recover until the economy has recovered, and way past the stock market bottom -- ignore the unemployment figures, focus on this other data over here, the bottom is in baby.

[ThePythonicCow]

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

Ok - that makes more sense. Thanks.

Perhaps "they" did the same thing with the stock market over the last few months. First cram it down so that they could (1) steal a couple trillion of freshly minted money without upsetting us too much, and (2) then be able to start pushing it up and get us believing that "the bottom is in baby."