Inflation versus deflation debate for Red Pill consumers

[Charles Mackay]

Re: Inflation versus deflation debate for Red Pill consumers

My question to you is "How did you time the 'Peak' so accurately?"

Rajiv, if you are talking to me... I guess it was that devil thing again... 666 oz of gold..same as in June 1969 :eek: ....kidding

[bill]

Re: Inflation versus deflation debate for Red Pill consumers

Alternative energy is far easier to understand. Assume for a second that we could harness fusion and have free energy that fueled the electric grid as well as all means of transportation.

We don't need no stinking wars in Iraq.
Homeowners heat and air condition their houses for free.
Big cars? No problem.
Personalized flying saucers?
Why not?

I believe if the govt left energy alone we would be much further along. The market will solve the energy crisis if govt would ever let it. Instead we have ethanol policies driving up the price of corn and everything that eats corn.

Heck if the govt would just legalize hemp it would be of far more use in producing biofuels that corn ever will. And it does not have to be planted every year either.

I am not an energy guy so perhaps this is far off base, but what if instead of wasting $trillions in Iraq the US purchased a bunch of nuclear reactors and heated the earth extracting oil from oil shale. Could that have been done for the amt of money we blew?

Still that is a huge cost. To really have an effect we need something that is nearly free. Free energy would certainly get things humming.

Selling off pieces of infrastructure doesn't work in my mind. The problem with alternative energy is that we really don't seem to be close by most peoples assessment.

The credit problem is arguably now.
Mish

I was hoping you would take the time to study the facts and details before drawing a 32 minute conclusion.
I do believe the economy will slide into a slow period similar to 01-02 before we see the cranking up of the next fire economy as I stated in my above post. There is no quick fix to the immediate credit problem, however when investors see value as I stated below there is not a lack of purchasing power.
By using PPP http://www.fhwa.dot.gov/PPP/ initially it is not selling infrastructure it is a partnership and the investors are getting “REAL ASSETS” not paper.
Many projects that fit the PPP criteria have already gone threw engineering, public hearing process, finalization and are ready for funding.
A few deals are already funded and under construction see page 25 in the June 07 report.http://www.usc.edu/schools/sppd/kest...rch/index.html
By the way nicely said GRG55.

[zoog]

Re: Inflation versus deflation debate for Red Pill consumers

Now who wants Chief Conspiracy Theorist?

You should just assign it at random to make it look like a conspiracy.

[zoog]

Re: Inflation versus deflation debate for Red Pill consumers

First I'd like to say to Charles Mackay that I like this chart. Had never really thought to make that comparison before. Nice call.

Would you care to plot this based on the price of a median Seattle home? The price of which I understand is still defying gravity. Another conumdrum! Call the Maestro...

The Seattle (and Portland) balloon is losing some altitude (but don't tell the people in the gondola).

Interesting chart from the Seattle bubble blog comparing Seattle and Portland with Los Angeles and San Diego, using the Case-Shiller indices. There is a time-shift in the chart, using known recent history of the drops in southern California to imply what may happen in the future up here.



(Sorry, not trying to derail this into a housing discussion.)

[EJ]

Re: Inflation versus deflation debate for Red Pill consumers

mish,
i just want to add one point to grg55's excellent exposition of the infrastructure argument above: there is infrastructure - highways, bridges, electrical transmission lines, sewers, water lines, gas lines, etc - in every congressional district. and there are infrastructure contractors in every district. when the economy is going into the toilet and the fed has dropped rates to zero, don't you think uncle sugar is going to find some ways to spend money to prime the pump? ted stevens got a quarter billion dollar bridge to nowhere when the economy was doing fine. what do you think he might want if his local economy were sputtering?

p.s. i know an entity that is always willing to borrow, and which can always find a lender. the government. the consumer is tapped out, corporations are leveraging up as part of private equity deals or to avoid a private equity deal. the government has plenty of debt, but it can always issue more, and if necessary that debt can be monetized. so your condition of a willing borrower and lender is met by uncle sam.

Mish is in the same camp as Rick Ackerman. I wonder if by reading more economics they can better appreciate how government becomes the demand engine of last resort. Keep in mind also that our thinking here is informed by concepts like the Bubble Cycle and more recently the concept of the FIRE Economy has been added. These concepts do not exist in Mish's, Rick's, or Gary North's thinking, so it's understandable that the idea of an infrastructure bubble is hard for them to swallow.

[Mish]

Re: Inflation versus deflation debate for Red Pill consumers

mish,
i just want to add one point to grg55's excellent exposition of the infrastructure argument above: there is infrastructure - highways, bridges, electrical transmission lines, sewers, water lines, gas lines, etc - in every congressional district. and there are infrastructure contractors in every district. when the economy is going into the toilet and the fed has dropped rates to zero, don't you think uncle sugar is going to find some ways to spend money to prime the pump? ted stevens got a quarter billion dollar bridge to nowhere when the economy was doing fine. what do you think he might want if his local economy were sputtering?

p.s. i know an entity that is always willing to borrow, and which can always find a lender. the government. the consumer is tapped out, corporations are leveraging up as part of private equity deals or to avoid a private equity deal. the government has plenty of debt, but it can always issue more, and if necessary that debt can be monetized. so your condition of a willing borrower and lender is met by uncle sam.

Japan built bridges to nowhere but it did not help.
All Japan got out of it was monstrous government debt somewhere between 150-250% of GDP depending on what source you believe.

It did not cure deflation, in fact it prolonged it. US banks are now doing the same: refusing to write off worthless debt.

Perhaps the Fed drags this out for another 10 years. That does not necessarily create another bubble nor does it fix existing credit problems.

Investors getting "real assets" does not help the masses and the problem is with the masses not the investor class. The problem is consumer credit and corporate credit.

Taking on massive government debt did not fix problems with corporate debt in Japan.

The problem here is much worse with leveraged financial institutions on top of massive consumer debt. There is simply no way to pay that debt back that I can see. If debt can't be serviced it will be defaulted on.

The one thing we agree on is the Fed will try.
Deflation is a psychological thing. If consumers and banks become risk adverse there is little that can be done about it. The consumer is still 3/4 of the economy.

Mish

[0tr]

Re: Inflation versus deflation debate for Red Pill consumers

OK, sorry that this will look like a "brag and moan" post but I did nail this one pretty good and part of it was luck. I sold my Seattle house in June 2001 and put the proceeds into gold based on the '69 top in Median Existing Houses priced in gold. So far it is working out precisely as forecast.

p.s. I see that John Rubino posts here now. I guess he will now know who Charles Mackay is because I corresponded with him on this information a few years ago ;) ... Hi John!

Anyway, just wait for 100 oz median existing houses and then buy!
Charles

Wow!
This looks like a 'best of' category. Is there a 'best of' section in itulip? Can this be nominated for 'best of' status?

[bart]

Re: Inflation versus deflation debate for Red Pill consumers

My question to you is "How did you time the 'Peak' so accurately?"

You dare to question the great Ka-Poom parallel, aka "The Hard vs. Soft Asset cycle" and invented by yours truly? :eek: :rolleyes: ;)

[GRG55]

Re: Inflation versus deflation debate for Red Pill consumers

GRG, my former Seattle house had a 50% increase after I sold in 2001 but gold has almost tripled. The math is still on my side by a large margin.

Well done!! Gold did NOT keep up with the price of the house I sold north of the border in April 2001...

[EJ]

Re: Inflation versus deflation debate for Red Pill consumers

You dare to question the great Ka-Poom parallel, aka "The Hard vs. Soft Asset cycle" and invented by yours truly? :eek: :rolleyes: ;)

This very interesting analysis implies the following labels:

1920 - 1929: Post WWI FIRE Economy V1.0
1930 - 1945: FIRE Economy V1.0 Crash
1946 - 1967: Post WWII FIRE Economy V2.0
1968 - 1982: FIRE Economy V2.0 Crash
1983 - 2000: Post Cold War FIRE Economy V3.0
2001 - ?: FIRE Economy V3.0 Crash

Looked at in this way, the housing bubble was part of the dissolution of the latest version of the FIRE Economy and that it's time for another world war.

[Andreuccio]

Re: Inflation versus deflation debate for Red Pill consumers

Wow!
This looks like a 'best of' category. Is there a 'best of' section in itulip? Can this be nominated for 'best of' status?

I was thinking along similar lines. There's a lot of great info here at iTulip. Most of it I read and hope to remember. This one I bookmarked.

[GRG55]

Re: Inflation versus deflation debate for Red Pill consumers

Mish is in the same camp as Rick Ackerman. I wonder if by reading more economics they can better appreciate how government becomes the demand engine of last resort. Keep in mind also that our thinking here is informed by concepts like the Bubble Cycle and more recently the concept of the FIRE Economy has been added. These concepts do not exist in Mish's, Rick's, or Gary North's thinking, so it's understandable that the idea of an infrastructure bubble is hard for them to swallow.

Hmmm. Mish strikes me as a pretty diligent analyst, so I am having some trouble accepting that first part... Seems self explanatory - if the Fed fed (no pun intended) banks can't/won't push that stuff out their doors, and the dang fur'iners stop buying Treasuries (and everything else), the Fed will have to buy every last issue of whatever duration and get the liquidity into the economy through gu'mint programs. What jk describes is undoubtedly going to happen (continue?), but probably biased to new-build (it's a sexier vote getter, no?) as opposed to re-build - isn't that why the current crumbling infrastructure situation was allowed to develop? The thing that is missing with direct programs is an adequate income skim for the Wall St. rentiers. ;)

Today's 2.8 cover on the 5 year auction suggests there is no imminent danger of this scenario, however.

[GRG55]

Re: Inflation versus deflation debate for Red Pill consumers

This very interesting analysis implies the following labels:

1920 - 1929: Post WWI FIRE Economy V1.0
1930 - 1945: FIRE Economy V1.0 Crash
1946 - 1967: Post WWII FIRE Economy V2.0
1968 - 1982: FIRE Economy V2.0 Crash
1983 - 2000: Post Cold War FIRE Economy V3.0
2001 - ?: FIRE Economy V3.0 Crash

Looked at in this way, the housing bubble was part of the dissolution of the latest version of the FIRE Economy and that it's time for another world war.

Is there an obvious analogue to the housing/credit bubble within the early stages of previous long cycle FIRE economy crashes?

As for war, I think you are in good company. Isn't that one of the things that Marc Faber keeps bringing up?

[jk]

Re: Inflation versus deflation debate for Red Pill consumers

The thing that is missing with direct programs is an adequate income skim for the Wall St. rentiers. ;)

you, yourself, pointed to some of the opportunities for the income skim. the money goes out as part of ppp's, or funds projects which are then packaged and sold or leased to private operators who run them and extract rents. those deals will have i-bank advisors and are likely to produce debt instuments tied to the expected future income flows from the revenues, which generate further fees. then you'll have funds which hold infrastructure revenue bonds [these are for the public, i suppose], and eventually clo-like derivatives constructed from the bonds funding dicier projects. i would also expect various construction and material companies to be expanding, selling bonds, engaging in m+a, etc. there's always a way to generate fees.

[GRG55]

Re: Inflation versus deflation debate for Red Pill consumers

you, yourself, pointed to some of the opportunities for the income skim. the money goes out as part of ppp's, or funds projects which are then packaged and sold or leased to private operators who run them and extract rents. those deals will have i-bank advisors and are likely to produce debt instuments tied to the expected future income flows from the revenues, which generate further fees. then you'll have funds which hold infrastructure revenue bonds [these are for the public, i suppose], and eventually clo-like derivatives constructed from the bonds funding dicier projects. i would also expect various construction and material companies to be expanding, selling bonds, engaging in m+a, etc. there's always a way to generate fees.

I was referring to the direct government spending to contractors situation jk. But I never thought about the bond angle. Good point!