Boom in the Doom

[donalds]

Re: Boom in the Doom

I'm reminded of back when I was in graduate school in the 80's, during which I studied extensively alternative energy (less from a technical than from a social theoretical perspective), and read works by writers like Amory Lovins. Lovins had a nice concept back then, namely, that what was really important in terms of energy was not so much it's generation as it's end use. Ultimately, he argued in 'Soft Paths' and other works, it was the end use that determines the soundness of the forms in which energy generation take.

Now, it seems to me that Knustler is at least attempting to make this point, and frankly I found his reasoning worthy enough to read it in it's entirety.

What I have yet to determine is this: are you, EJ, engaging in a rhetorical argument for purposes of stimulating debate, or are you speaking from conviction? I suspect it is more the later than the former. However, until you flesh out how this will politically come to fruition - and it does seem that you are asserting, and for good reason, that expanding uses of alternative forms of energy generation (along with that of infrastructure development, which by necessity must coincide), will ultimately derive from political decisions and policies (along with the needed social investments) - your argument leaves one with the impression that it is simply rhetorical, aimed at stimulating debate.

So . . . I'd suggest that until you make do flesh out the political to substantiate your projections for the future, your argument will likely fall short in convincing. Once you do flesh this out, assuming you do and that it is made public, then from there the debate can really begin. But be aware that once you enter this turf, that is the sphere of the political (and thus also policy formation and linking it to just how these social investments will materialize), then you have entered a complex cobweb of entangled and competing/contending interests for which consensus (a social/political consensus which by necessity needs to be accomplished for your projections to materialize), will be difficult in obtaining to say the least, especially in a society such as ours where conflict and divisions have become the order of the day and the very fuel on which the political system runs.

Only when you begin to flesh this out politically, and just as important how this will carry over to needed social investments, especially difficult when capital is a private endeavor, only then will you have taken the needed next leap. I commend you for your success in taking your argument as far as you have, but the next leap will require a great deal of study. I doubt that a couple years of study will be adequate.

[bart]

Re: Boom in the Doom

...
Mish skates breezily over the inflationary implications to domestic CPI of a currency plunging in purchasing power internationally. As EJ notes succinctly, it appears Mish "does not travel". Anyone this breezily cavalier about the inflationary implications of a currency racing down in purchasing power is laying themselves wide open for a good old fashioned debunk - and debunk is what Mr. Janszen indeed does.
...

I'm not trying to defend Mish, and indeed we've had more than a few disagreements over the years both online and in private, but he has been in gold and recommending it for many years.
If you didn't know that, it's quite a different picture that emerges.

I agree with EJ too - good guy and he's in there trying and pitching, even though his economics is odd.

[metalman]

Re: Boom in the Doom

I'm not trying to defend Mish, and indeed we've had more than a few disagreements over the years both online and in private, but he has been in gold and recommending it for many years.
If you didn't know that, it's quite a different picture that emerges.

I agree with EJ too - good guy and he's in there trying and pitching, even though his economics is odd.

question is... why was he recommending gold? because "deflation is in the cards"? what the sense in that? and when do we sell gold if "deflation" is the reason the price is going up? when the fed prints and inflation happens? that's the problem with recommending the right thing for the wrong mishmashy reason.

[bart]

Re: Boom in the Doom

question is... why was he recommending gold? because "deflation is in the cards"? what the sense in that? and when do we sell gold if "deflation" is the reason the price is going up? when the fed prints and inflation happens? that's the problem with recommending the right thing for the wrong mishmashy reason.

Yes, as you know he's a deflationista... and having gold and the very good profits is I think one reason why he misses the boat on the full economic picture.

[jk]

Re: Boom in the Doom

what do you call what happened in argentina?

in terms of argentine pesos, the price of everything went through the roof.
in terms of dollars, argentine assets became dirt cheap.

so was it inflation or deflation?

now imagine that argentina's was an international reserve currency, with foreign cb's interested in seeing that it didn't decline too precipitously.

housing prices are still very high in terms of dollars. house prices are at a 20 year low in terms of gold. inflation or deflation? depends on the currency.

[akrowne]

Re: Boom in the Doom

Just to fire my two cents into this debate, here is an excerpt from a recent email three-way exchange with Eric and Mike, where I come down on the inflation/deflation question somewhere in between the two of them. Here it is me replying to Eric, quoted:

deflation: A decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending.

...

> So, deflation is clearly bullish for gold, or at least bearish for the dollar and neutral for gold (unlikely) -- in which case I as a prisoner of the dollar zone still should buy gold because it will "appear" to rise for me.

Deflation is clearly NOT bullish for gold. Is this the state of economics discussion on the web these days? Horrific. In a deflation, no one has any money. What are they going to buy gold with?

Once again, it DOES matter whether you're referring to catastrophic "spiral" deflation or gradual deflation. I don't care much about what one counts as "general prices"... when financial assets deflate (as they are unambiguously now), especially when its in the reserve currency, gold becomes more attractive.

There's no contradiction. Yes, there's less money available in the US to buy gold. But that isn't the case for the other 95% of the world.

Deflation is deflation is deflation. It's absurd to even discuss the
definitions. If you expect a deflation, sell your gold asap. It's at an all time high. Sell it now.

We're having one in the financial-economy sense, and I'm holding my gold (stale definitions aside).

You know "gold is at an all time high" isn't true. Adjusted by monetary base (the appropriate measure), it is half to a third of the all time high.


Given the globalized setting of the current calamity, I expect it to go much higher than even the real value of the watermark from 1980.

I have greater faith in the price of oil, gold, and food as indicators of
inflation.

Then I think you're ignoring an significant element of the picture here. I still contend a large percentage of the price increase in gold (and perhaps the non-financial commodities) is due to financial deflation (I honestly don't know what I could call it that you wouldn't find objectionable, but we clearly have financial asset prices falling.)

Its a bit of a funny dynamic, actually. You have Arab and Chinese investors "withdrawing" dollars and then buying gold. Maybe they're ostensibly worried about inflation, but they're motivated to act because of distrust of US financial assets, bringing about financial economy deflation here when they cash out their stocks and subprime securities!

Anyway, at the end of the day, I'm just saying this is an additional reason to buy gold. You can call it "Krownism" instead of "deflation" if you prefer, because I certainly don't mean CPI deflation.

-Aaron

As for the role of the internet in the social milieux of breakdown, I actually think it will help. While you may get more kooky views being posted on the internet, that doesn't mean they'll become popular. The best, most popular fora are open to debate and comment. Bloggers will provide a check on the MSM, and the MSM on bloggers. This is a massive improvement.

I hear Cramer even cited ml-implode the other day, hah!

[metalman]

Re: Boom in the Doom

Yes, as you know he's a deflationista... and having gold and the very good profits is I think one reason why he misses the boat on the full economic picture.

another thought with my comment "when do we sell gold if "deflation" is the reason the price is going up?" comment... his "argument" is... "gold is money, money is going to do well in a deflation, therefore buy gold".

let's "unpack" it to use jk's phrase...

1. "gold is money". that's a slogan not a fact.
2. "money is going to do well in a deflation". no CASH does well in a deflation.
3. therefore... uh, nothing logically follows from these antecedents.

is that what ej means by sophistry?

soph·ist·ry /ˈsɒfəstri/ Pronunciation Key - Show Spelled Pronunciation[sof-uh-stree] Pronunciation Key - Show IPA Pronunciation –noun, plural -ries.

1.	a subtle, tricky, superficially plausible, but generally fallacious method of reasoning.

2.	a false argument; sophism.

nope. not even superficially plausible. :rolleyes:

[metalman]

Re: Boom in the Doom

what do you call what happened in argentina?

in terms of argentine pesos, the price of everything went through the roof.
in terms of dollars, argentine assets became dirt cheap.

so was it inflation or deflation?

now imagine that argentina's was an international reserve currency, with foreign cb's interested in seeing that it didn't decline too precipitously.

housing prices are still very high in terms of dollars. house prices are at a 20 year low in terms of gold. inflation or deflation? depends on the currency.

dug up the itulip charts from the select area... hope that's ok!







looks like in the extreme case currency depreciation makes for a shitload of inflation in the local currency, too.

p.s. jk, it's not pesos it's reals.

[metalman]

Re: Boom in the Doom

appears to be two voices here. who's who? is > ej?

here we make a distinction between asset price inflation/deflation and p/c econ inflation/deflation in goods and stuff... based on what we learned from dr. hudson about the fed managing the two separately policywise.

[bart]

Re: Boom in the Doom

As for the role of the internet in the social milieux of breakdown, I actually think it will help. While you may get more kooky views being posted on the internet, that doesn't mean they'll become popular. The best, most popular fora are open to debate and comment. Bloggers will provide a check on the MSM, and the MSM on bloggers. This is a massive improvement.

I would love it if someone would put together an article covering *all* the reasons that gold goes up - there are quite a few... and I have a partial one written but am out of round tuits.

http://www.nowandfutures.com/grins/bueller.wav ;)

I hear Cramer even cited ml-implode the other day, hah!

I'm glad I was sitting down when I read that... :eek: ;)

Congrats Aaron!

[bart]

Re: Boom in the Doom

another thought with my comment "when do we sell gold if "deflation" is the reason the price is going up?" comment... his "argument" is... "gold is money, money is going to do well in a deflation, therefore buy gold".

let's "unpack" it to use jk's phrase...

1. "gold is money". that's a slogan not a fact.
2. "money is going to do well in a deflation". no CASH does well in a deflation.
3. therefore... uh, nothing logically follows from these antecedents.

is that what ej means by sophistry?

soph·ist·ry /ˈsɒfəstri/ Pronunciation Key - Show Spelled Pronunciation[sof-uh-stree] Pronunciation Key - Show IPA Pronunciation –noun, plural -ries.

1.	a subtle, tricky, superficially plausible, but generally fallacious method of reasoning.

2.	a false argument; sophism.

nope. not even superficially plausible. :rolleyes:

See my last post about a "missive" ( ;) ) covering all the major reasons that gold goes up. It's far from simple and there's lot of false data and sophistry (and vested interests) out there... and it's also very time frame related. (edit/add for clarification - I actually like the word missive, all it means is a written letter or message.)

For example, the "gold is money" item is mostly true if the time frame is long enough:

[bart]

Re: Boom in the Doom

More on Argentina from my page on it:

[metalman]

Re: Boom in the Doom

i wonder... why didn't the argentines buy shitloads of gold to protect their wealth? i figure... the rich could hedge with dollar assets and the poor didn't have any money. hey, sounds familiar, except now it's hedge with non-dollar assets and gold for the rich.

[FRED]

Re: Boom in the Doom

And EJ replies:

Mish replies:

Eric I have a few quick comments.

Point #1
I am not aware that I have ever used the term missive.
If I ever did, I sure did not insist on that term.
Are you sure you don’t have me confused with someone else?

"Anyone that thinks the FED has any credibility needs to read this missive about FED Bubble Talk from 1999."

Etc.

Point #2
“Sometimes deflation is falling prices.”
No that is a misrepresentation of my position.

That is an accurate representation of your position until recently when you stopped using it and started to refer to a decline in the monetary base as deflation. But prices are the only meaningful result of inflation and deflation. Not talking about inflation and deflation in the context of prices is like talking about obesity without talking about weight but only caloric input and exercise.

The discussion goes: the problem is obesity, the cause is excess caloric input and lack of exercise. Same deal with inflation: the problem is high prices, the cause is excessive money creation. If you could eat all you wanted and not exercise and not get fat, who'd care about diets and gyms? If not for rising prices which are the result of excessive money creation, who'd care about the money supply and the Fed? The answer is the same in both cases: no one.

I expect prices to go down but I have repeated stated and repeat now that falling prices are not proof of deflation nor are rising prices proof of inflation. I often talk about prices but never as proof of either inflation or deflation. Nonetheless I am on official record of saying prices will likely fall on all kinds of goods and services. It simply is not a requirement they do so.

You've been expecting prices to go down for years, but they keep going up. Rather than admit your model is wrong and go back and fix it, as we had to years ago, you'd rather pretend that prices are persistently rising because prices are not related the money supply; if facts don't conform to model, the model can't be wrong, it's the facts that are wrong, not the model. This approach will not serve you well in the long term. Why not say, "Well, prices sure are rising everywhere. That's not what our model anticipated. What we didn't build into our model was the impact of dollar depreciation because not in our wildest dreams when we developed our model did we expect that the Fed and Treasury would allow the dollar to fall more than 30% against major currencies." Then move on, try to determine whether the trend will continue or not.

Point #3
I believe gold is money.
You counter that I need to be consistent.
I am consistent.
I consistently say gold is money.
Obviously you do not believe gold is money.
Once again you are imposing a definition of money on me.
The inconsistency is once again, you using definitions I do not agree with.

The phrase "Gold is money" is good ideology but has little practical meaning to investors. I recall hearing the "Gold is money" rallying cry in 1980, 1981, 1982, and on through 2001 during which time it meant "I'm a stubborn gold bug getting my ass handed to me for 20 years." It will have that meaning again some day in the future after the global monetary system gets it's act together again, whenever that is. Then all the gold owner will have left is a slogan, but no money.

Point #4
You claim “Deflation is not bullish for gold. In a deflation, no one has any money.”
My reply is “Gold is money. In deflation, those with gold will have money by definition.”
The gold will not disappear will it?

If the dollar is deflating against gold, gold prices are rising in dollar terms. If gold is deflating against the dollar, then gold prices are falling in dollar terms. In the first case the purchasing power of gold is rising, in the second of cash dollars. It's either one way or the other and cannot be both at once. It can be one THEN the other, and that's Ka-Poom Theory. At some point it will be time to trade out of gold and into assets that appreciate against dollars.

Point #5
There are numerous Austrian economists that agree with my definitions. If you choose to have a different viewpoint then I cannot change that. My viewpoint at least explains why gold is soaring and treasury yields are dropping.

The Austrian school, as a lot of classical economists (my personal favorite is Joseph Schumpeter due to his focus on the importance of entrepreneurs in the economy) have a lot to offer, and I agree that a lot of modern economists have lost sight of basic principles of the classicists, such as the relationship between credit and innovation. But there was a lot they did not understand about economics, just as there is much that was not understood then about physics and human psychology.

I know you're no fan of Keynes. Have you read him? Keynes' contribution is in seeing an economy as a business that governments can influence but not control. The free market utopians think that's awful, that the economy should not be influenced by government at all. What we have learned over the past 30 years is that this in practice means ceding influence over the economy to finance, culminating in serial bubbles in asset prices and an absurd concentration of wealth. The results, I hope you will agree, have been less than delux. Leave any business to run itself and shortly the thugs and bullies take over.

Point #6
Pull up a long term chart of gold.
Gold fell from 800 to 250 with positive inflation the entire time.
Gold is a very poor inflation hedge by that measure.
However, gold as a currency (money) handles the situation nicely. In periods of monetary disinflation, money does poorly compared to assets.

Positive inflation, to be sure. But not a weak dollar and positive inflation. You really need to plug currency depreciation into your model.

Less relevant model: demand is collapsing, economy in recession, money supply falling, currency appreciating.

More relevant model: demand is collapsing, economy in recession, money supply exploding, currency depreciating.

Thank you for the otherwise favorable comments. I appreciate them. I was hoping this debate would not get acrimonious. I think it has been kept mostly within bounds. I too think you have done your readers a great service. You have made some extremely good calls.

I mean what I said: thousands if not millions are better off for your diligent coverage of the fraud and greed, and I'm sure you get many letters of thanks from readers. We do, and it's very gratifying.

However, your rebuttals against deflation, even your current post, continue to debate without agreement as to definitions. If you look it up, the meaning of inflation has changed over time. I believe this is on purpose. It is of the central bank’s interest to not have people understand what inflation is. This give bankers the ability to inflate until it all blows up . And it blows up when no more debt can be forced into the system. That is, at least in my opinion, a very favorable environment for gold. It is also consistent with my definitions. From 1980 to 2000 you simply cannot make the same claim. Gold was a horrid inflation hedge.

To say that gold is rising because of inflation conveniently overlooks 20 year periods where there was inflation by either your definition or mine, and gold fell like a rock. No matter how hard you try, your gold responds to inflation theory does not hold up for considerable periods of time, decades in fact.

The measures of inflation have changed, not the meaning of the term. The CPI was politicized under the Nixon administration.

Gold is a currency depreciation hedge, with inflation a secondary effect of currency depreciation.

Since I cannot reply on iTulip, I would appreciate it if you would post this for me.

Make you a deal. Let me post to your site and you are welcome to post to mine. Fair enough?

I am not inclined to do another blog on it, we have both had our say.

Thanks
Mish

You are welcome to have the final word on this discussion, if you wish. I won't reply.

Eric

[jk]

Re: Boom in the Doom

i wonder... why didn't the argentines buy shitloads of gold to protect their wealth? i figure... the rich could hedge with dollar assets and the poor didn't have any money.

they did. iirc what finally triggered the revaluation was accelerating capital flight.


re "inflation" and "deflation," i brought up the argentine example to illustrate the lack of clarity we have most of the time when using those words. argentina had a severe inflationary depression viewed in local currency terms, and a severe deflationary depression viewed in global currency terms - i.e. the dollar or gold.

i think we should stop using these words except when specifying the currency in which the term is to be interpreted. or just stop using them altogether. reminds me of alfred kahn who, warned not to use the word "depression," said the country was heading for the worst banana in 45 years if it didn't get inflation [there's that pesky word again] under control.