August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

[MarkL]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

i'm a probabilist, and thus think it's foolish to invest on only one scenario.

I would agree. But inflation and deflation over the next 12 months would require investing in opposing directions. If inflation is coming shortly, long commodities, shorting the dollar, shorting the long end of treasuries is the thing to do. If deflation has another leg down, then you either do the opposite of those things... or simply wait to only catch the upside.

[jk]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

jk invests by the "Feynman path integral" method. Money travels by every possible path to reach his pocket, but the superposition of the losses and gains is such that only the path that "minimizes action" results in any appreciable change in net worth.

exactly!;)

[ASH]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

i'm a probabilist, and thus think it's foolish to invest on only one scenario.

jk invests by the "Feynman path integral" method. Money travels by every possible path to reach his pocket, but the superposition of the losses and gains is such that only the path that "minimizes action" results in any appreciable change in net worth.

[jk]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

You may be waiting for the other shoe to drop!

So far, I'm investing on EJ/Fred's predictions of inflation to come soon. This is why I'm posting the question!!! If you're right Heisenberg, and I'm wrong, I'm going to lose a bucket of bucks.

For a 12 month horizon, these are opposing theories.

i'm a probabilist, and thus think it's foolish to invest on only one scenario.

[MarkL]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

You may be waiting for the other shoe to drop!

So far, I'm investing on EJ/Fred's predictions of inflation to come soon. This is why I'm posting the question!!! If you're right Heisenberg, and I'm wrong, I'm going to lose a bucket of bucks.

For a 12 month horizon, these are opposing theories.

[MarkL]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Makes sense to me.

[jk]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

We pumped it up indeed!

But I'm concerned that the CDS/CDR debacle may not be behind us, and as another poster here on iTulip put it (roughly), "we've shoved all of the CDR/CDS 'mail' in the drawer and hummed loudly."

At some point the banks of the world will open up that mail.

Won't that have a significantly deflationary effect upon the economy, just as the "first wave" of these revelations did last year? Some here on iTulip have said that despite the fact that a lot of these CDS/CDRs are "owed to each other" they should still be considered "money" because they are a medium of exchange, and we've already seen that they can definitely affect the "real" economy. I've seen figures here on iTulip that claim between $60T to $600T are floating around out there! If this is true, the Fed's 2T or the Fed+Gov's 8T looks puny... particularly as the banks won't be able to easily relend while this occurs and achieve the normal 6x-9x velocity of money multiplier affect.

Finally, the CDS/CDR ponzi scheme appears to continue to delever at the individual mortgage level. I've read that 25% of all mortages may go into default. This is certainly enough to cause a second wave banking crisis which could potentially cause a return of the deflationary forces that have just alleviated.

I do believe that EJ is right and the Fed will ultimately outspend this problem and inflation will go nuts. But perhaps there's another deflationary leg to come first and while the spending done to-date is sufficient to meet the crisis-to-date, it may be insufficient for the magnitude of a potential second wave to come.

Thus if we were to revisit the cycle we've just completed, we could see another crash, another deflationary cycle, another bailout, and THEN Crazflation....

(Hey... I like that word. "Crazflation." )

we're all waiting for the markets to see that 2nd leg come over the horizon, so we can sell our tbonds and buy more gold and oil.

[MarkL]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Just as we told everyone way back in 2006, we "pumped it up!" and got this:

We pumped it up indeed!

But I'm concerned that the CDS/CDR debacle may not be behind us, and as another poster here on iTulip put it (roughly), "we've shoved all of the CDR/CDS 'mail' in the drawer and hummed loudly."

At some point the banks of the world will open up that mail.

Won't that have a significantly deflationary effect upon the economy, just as the "first wave" of these revelations did last year? Some here on iTulip have said that despite the fact that a lot of these CDS/CDRs are "owed to each other" they should still be considered "money" because they are a medium of exchange, and we've already seen that they can definitely affect the "real" economy. I've seen figures here on iTulip that claim between $60T to $600T are floating around out there! If this is true, the Fed's 2T or the Fed+Gov's 8T looks puny... particularly as the banks won't be able to easily relend while this occurs and achieve the normal 6x-9x velocity of money multiplier affect.

Finally, the CDS/CDR ponzi scheme appears to continue to delever at the individual mortgage level. I've read that 25% of all mortages may go into default. This is certainly enough to cause a second wave banking crisis which could potentially cause a return of the deflationary forces that have just alleviated. Oh, and there's the commercial crisis....

I do believe that EJ is right and the Fed will ultimately outspend this problem and inflation will go nuts. But perhaps there's another deflationary leg to come first and while the spending done to-date is sufficient to meet the crisis-to-date, it may be insufficient for the magnitude of a potential second wave to come.

Thus if we were to revisit the cycle we've just completed, we could see another crash, another deflationary cycle, another bailout, and THEN Crazflation....

(Hey... I like that word. "Crazflation." )

[rdrees]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Could you explain more what you mean by "foreign financing" and how that would not apply to other countries? Are you talking about our current account deficit?

As for whether our deficit numbers are being toyed with, perhaps they are. But I would assume that if our government is playing with numbers, other governments are, too. Washington, D.C. may push a lot of horse puckey and slimy lies, but I don't think they have the monopoly on it compared with other countries' capitols.

[rdrees]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Quick comment on the final graph here: is there anyway to make both left and right axes have 0 as the midpoint, like in the previous two graphs? It's a little hard to sort out, but it looks like the graphs using the left axis have been flat to negative during the course of the recession, while the graph using the right has been positive the whole time. I'm having trouble seeing the comparison you're suggesting with the axes "off" like that. Also, do the other two graphs use as "nominal interest rate" the 10 year government bond, like the final graph? Or are they using the Fed Funds rate, which would seem like the more obvious metric?

[bart]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

I believe this is the basis for complaining about changes to BLS methodology. Using their original methodology (CPI + corrections), the correlation is preserved. Using their "improved" methodology, the correlation weakens. It means the new methodology systematically understates inflation.

Agreed, and thanks for covering my back Ash, much appreciated.

[bart]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Thank you for the charts, bart.

I think these would indeed suggest that we are around the middle of the pack compared with other countries on a number of debt/GDP ratios. While we look a bit worse off when it comes to our government debt ratio, note from my prior post that Europe's three largest economies, France, Germany, and Italy, are all worse than us, although it would appear that the rest of the European countries' houses are in good order on that account, pushing the EU average down below ours.

You're welcome.

And I submit that the US is far weaker than those charts show, mostly due to the outrageously sized deficits being proposed and implemented by the current administration, and of course all the "foreign financing" - which applies to none of the other countries you mentioned.

I'd also hardly call the EU's picture in good shape, although at least Maasatricht provides a hint or vague possibility of restriant.


I also note that the US public budget deficit being admitted to is far from the real and total budget deficit due to the gigantic quantity of off budget items... just more horse puckey and slimy lies from Foggy Bottom.

[FRED]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

The root of the PPI/CPI portion of this discussion is simply timing. Both trendlines can be extrapolated from the data. I've heard it said that technical analysis (charts) shows which way the wind is blowing... but not whether a storm is coming in.





I personally am invested for inflation as per EJ's recommendation. I hope the blue trendline holds up!

Unlike the 1930s, the U.S. didn't wait until the money supply shrank 40% and the economy shrank 25% before going off the gold standard and re-inflating in 2008. Yet even though they waited four years from 1930 to 1934 until nearly half the banks had failed, costing millions of depositors their savings, they were still able to create inflation in 1934. Look at the red line starting in 1934.

The Japanese can't pull a USA maneuver and screw the world by devaluing the yen. They have to do it the hard way.

Just as we told everyone way back in 2006, we "pumped it up!" and got this:

[cobben]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

"we're looking at the same numbers but with different timelines for different conclusions."

Exactly, during major trend changes looking at different time frames will produce different results as there are various conflicting countertrend movements going on.

Predicting the outcome during the confused period when everything seems to be in flux can be more of an art than a science.

No prestige, or don't assume you can know everything, as I believe Harry Brown put it.

[ASH]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

But first, can someone teach me how to do that sort of embedded/quote reply thing? I think that would make a response easier to read and follow.

Thus spake Jim Nickerson.

Edit: Whups. I assumed you were asking about images. All you need to do to embed is click on "Quote" in lower-right, following a post. You can get the HTML tag format from that.

Edit: Other helpful observation -- have you noticed that the "table of contents" type index at the top of the thread is color-coded to track new vs. old posts, since the last time you pointed a browser at the thread? Orange is a new post. This is helpful, because new posts get inserted below the posts they quote, rather than at the end of the thread, in most cases. So, new posts keep appearing in the middle of the thread.