Inflation versus deflation debate for Red Pill consumers

[bill]

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.

It’s like a real estate refinance play with plenty of equity to remodel and or build new as I said in my first post.http://www.itulip.com/forums/showthr...=8414#poststop

[Charles Mackay]

Re: Inflation versus deflation debate for Red Pill consumers

Is there an obvious analogue to the housing/credit bubble in the previous long cycle FIRE economy crashes?

GRG, you are looking at EJ's chart of the paper bubbles of this century being perfectly corrected by the monetary metal. And you have seen my chart of real estate being perfectly corrected in real time. Why fight it? Credit bubbles will be perfectly deflated by the monetary metal all in the fullness of time. Trying to guess which political instruments (dollars, pesos, or Somalian "whatevers") will inflate or deflate is just pissing in the wind. Elites will separate you from your money if you play that game. You cannot know the answer to what they will do but you can know relative values and prosper nicely IMHO.

[bart]

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.

Sad but true... the war and "mass human excitability" cycles I track show up strongly during the 2002-2012 period, and various other cycles like Kondratieff tie in quite well too.

The average cycle length since 1900 is about 16 years for what its worth, which would put the peak around 2016... but my gut says sooner.

Even the very off the beaten path weather cycle work by Professor Wheeler many decades ago ties in... and to "global warming" too.

[GRG55]

Re: Inflation versus deflation debate for Red Pill consumers

GRG, you are looking at EJ's chart of the paper bubbles of this century being perfectly corrected by the monetary metal. And you have seen my chart of real estate being perfectly corrected in real time. Why fight it? Credit bubbles will be perfectly deflated by the monetary metal all in the fullness of time. Trying to guess which political instruments (dollars, pesos, or Somalian "whatevers") will inflate or deflate is just pissing in the wind. Elites will separate you from your money if you play that game. You cannot know the answer to what they will do but you can know relative values and prosper nicely IMHO.

Who said I was fighting it? Half-dozen years ago I couldn't spell "gold-bug", now even Mrs. GRG55 owns the shiny stuff (in her investment portfolio as well as her jewelry box). However, a 100% monetary metal position, as you seem to be advocating, is temperamentally unrealistic for this boy. Even if I placed that trade I know myself well enough that I wouldn't have the conviction to hold it - and lack of conviction is the main reason that Wall St elites can separate a fool from his money.

Clearly there are political responses and monetary shenanigans going on in this cycle that are unlike previous cycles (although my repeated reading of Galbraith's "The Great Crash" demonstrates an uncomfortably large number of similarities with today). Perhaps its just a facination with how this is unfolding - certainly the sequence to date has perfectly tracked history...inversion of the yield curve, subsequent steepening after the appropriate time from inversion, and now the collapse of the most egregious speculations. But what do 3 Billion people newly added to the global economy imply this time... ;)

[EJ]

Re: Inflation versus deflation debate for Red Pill consumers

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.

Diligent, indeed. But without traveling to Europe and Asia and Latin America and so on over decades, one has to speculate at what has been going on in those places and how they are evolving. Without having the opportunity to talk to actual leaders in the industries he is talking about (e.g., Finkel who runs a CDO company, Mayer whose wife was exec chairman of the IMF, Jim Rogers, etc.) one has no primary sources. Without experience running organizations, one has to speculate as to how institutional behavior impacts decision making.

Without primary sources or personal experience, one is limited to what one reads on the Web, and while one can do a great job of collecting that information, analyzing it and writing about it, so do many community members here. In fact, I'd argue that many here do better than most bloggers out there.

Further, many here have wide ranging professional experience in industries ranging from real estate to energy to finance to banking. Really, it's an incredible community. I feel honored every day to have so many members here with so much good sense, experience, and integrity.

To your question, government has since The Great Depression been given a political mandate to not have any more Great Depressions. WWII was the Keynesian public works project that brought the US out of The Great Depression. Personally, I'll take a bubble in infrastructure and alt energy over another world war.

[GRG55]

Re: Inflation versus deflation debate for Red Pill consumers

You got it!

Now who wants Chief Conspiracy Theorist?

Fred: There's a worthy submission from fogger over on the Why I Don't Believe in Peak Oil topic that should qualify for the above title...

[Charles Mackay]

Re: Inflation versus deflation debate for Red Pill consumers

Antal Fekete writes:

Can We Have Inflation And Deflation All At The Same Time?

http://news.goldseek.com/GoldSeek/1190991990.php

[Jim Nickerson]

Re: Inflation versus deflation debate for Red Pill consumers

Antal Fekete writes:

Can We Have Inflation And Deflation All At The Same Time?

http://news.goldseek.com/GoldSeek/1190991990.php

Charles,

Do you think what Fekete is writing is highly credible and likely or not?

If he is correct, what do you think one should do? Collect cash, and gold and silver coins and TBills?

[c1ue]

Re: Inflation versus deflation debate for Red Pill consumers

Wow I turn my attention elsewhere for 1 day and look what happens!

Very interesting discussion.

This might be too late - but all of the talk of GDII and Japan failed to note one major difference: the dollar as fiat currency.

In GDII - the dollar was not a fiat currency.

In Japan, the dollar was a fiat currency, but was not the fiat currency in the economy in question.

The developing thesis I am investigating is how much the fiat status of the dollar will affect policy/economic developments in the US in the next 10 years.

I actually would agree with Mish on the deflation view were the circumstances the same as before.

However, I would argue that since the US only holds a fraction of the actual dollars - specific fraction I don't know - there are 2 obvious actions that would result from the present US predicament:

1) Monetization of debt - after all, we're not just taking from our people, we're taking from non-voters too! (who also happen to hold a lot of our debt)

2) And due to 1), repudiation of the dollar due to monetization. A natural response when your debtor tries to weasel out. Dollar collapses, inflation increases due to both finished goods and raw material cost increases.

The thesis isn't about these events happening - it is about the speed.

[mikew]

Re: Inflation versus deflation debate for Red Pill consumers

heres an article about great depression 2

http://www.financialsense.com/editor...2004/0902.html

basically says that china is the US of the great depression1 and that the current US will be the england

[Charles Mackay]

Re: Inflation versus deflation debate for Red Pill consumers

We are trying to determine (guess) whether the debt will be liquidated thru hyperinflation or default and depression ...a debate that has been raging for a very long time. There are a lot of variables in that equation and many of them are outside our domain of knowledge. What the Chinese will do?, what the OPEC countries will do?, what the exact nature of the credit default derivatives meltdown is? .. all unknown variables that can't be plugged in.

Then, on top of that we are taking it to the next level and asking if it goes inflation then what is the next bubble in the FIRE economy likely to be? If it goes deflation what are the safe havens likely to be?

Now, it seems to me that we are already in a perfectly good and solid trend RIGHT NOW that is maybe only 30% of the way along, and that is gold, commodities, and energy. A trend which is really just a different way of saying we're in a "propensity to hoard" market and it may last another decade or longer. It started in 2001 and is solidy supported by the demographics of a retiring 80 million baby boomers, the demographics of Chindia (they don't trust paper), and probably OPEC too.

If you look at the DJIA/Gold chart above, or my Houses/Gold chart, or the relative value of bonds, or fiat, or take your paper of choice, then you can see that all paper was overvalued. The bull market in paper and derivatives of paper is over. The propensity to hoard gold, commodities, and energy is just in the first innings.

Anyway, this is the way I'm playing it because it is working and I'm not smart enough to figure out the inflation/deflation debate.

BTW, gold is even record cheap in relation to energy. Take a look at my gold in barrels of oil chart below and note the record low price of gold valued in oil just before the blastoff in 2005. The commercials were heavily short according to the COT reports but if you were sitting in Riyadh you were probably saying I've got to get rid of this oil and turn it into cheap 6 barrel gold.

[Charles Mackay]

Re: Inflation versus deflation debate for Red Pill consumers

Charles,

Do you think what Fekete is writing is highly credible and likely or not?

If he is correct, what do you think one should do? Collect cash, and gold and silver coins and TBills?

Jim, I emailed him your question... I'm hoping he will login later on.

[nksantabarbara]

Re: Inflation versus deflation debate for Red Pill consumers

Isn't the bottom line that the more credit you create, the more overexpansion you create because people take on leverage to build homes, factories, businesses and also demand increases because people take on more leverage to buy things. So it is a cycle that leades to overexpansion which then has to lead to price deflation in both assets and potentially consumer prices as supply increases. The arguments here are critically flawed for one main reason: they assume the Fed and banks act somewhat independently from one another and do what they should logaically do considering the circumstances. Is seems obvious to me that this is not the case. The Fed gives to banks certain spliffs in exchange for banks continuing to lend and propping up failing companies and keep markets running. For example, BofA bought part of Countrywide for $18 per share, when they knew that they could have bought in cheaper if they let Countrywide continue to flail for longer (maybe even could have bought it out of bankrupcy). This was clearly Fed sponsered to help lend confidence to the mortgage market. In exchange, the Fed gave serious rate cuts at the discount window and also the Fed fund target. And BofA, along with other banks, probably got advanced notification of their intent to lower rates so that they can secure positions ahead of time. You scratch my back and I'll scratch yours basically. Also their is major cross pollination from the Fed and the banks as far as jobs are concerned. Those that do as the banks want, get good jobs when they retire from the Fed (ala Greenspan). SO, in instances when banks should not be willing to lend, they do because receive spliffs from the Fed in exchange that makes it profitable. This can help the the inflation argument but only until so much capacity is built that prices begin to fall, which could take many many years for things other than housing. So I think you end up in an intermediate period for a long long time where there is inflation in some areas and deflation in whatever was the latest asset du jour. It works until the one day where it doesn't.

[Guest]

Re: Inflation versus deflation debate for Red Pill consumers

Compliments to Charles Mackay for one of the most concise, far seeing and elegantly simple expositions on this website. There is a lot of condensed wisdom in this chart, and the fact it was acted on by him in completely unequivocal terms lends it yet more authority. The best of iTulip indeed.

[Charles Mackay]

Re: Inflation versus deflation debate for Red Pill consumers

Compliments to Charles Mackay for one of the most concise, far seeing and elegantly simple expositions on this website. There is a lot of condensed wisdom in this chart, and the fact it was acted on by him in completely unequivocal terms lends it yet more authority. The best of iTulip indeed.

Much appreciated Lukester!