The deflation case: caught, gutted, poached and eaten

[bill]

Re: The deflation case: caught, gutted, poached and eaten

RA: whence will come the money to bid oil to $200 a barrel, or wheat to $50 a bushel? I hope you don’t try to argue that, in the coming economic depression, physical demand for oil and wheat will take up the slack.

It's a global multi trillion us dollar problem.
I call it the "resource theater".
http://www.bloomberg.com/apps/news?p...AgA&refer=home

Buffett Says U.S. Trade Imbalance Lures Sovereign Wealth Funds

By Josh P. Hamilton
March 1 (Bloomberg) -- Billionaire investor Warren Buffett stepped into a debate about the emergence of sovereign wealth funds, saying the government-controlled firms are fueled by U.S. spending overseas, not political motives.
``This is our doing, not some nefarious plot by foreign governments,'' Buffett, the chairman of Berkshire Hathaway Inc., said yesterday in his annual letter to shareholders. ``Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the rest of the world, they must invest in something here.''
Countries including China, Russia and Dubai have deployed record central bank reserves to set up funds wielding as much as $2.9 trillion. Firms from Singapore, Korea, Kuwait and Abu Dhabi bought stakes during the past four months in Citigroup Inc., the biggest U.S. bank by assets, and Merrill Lynch & Co., the world's biggest brokerage. Officials from the U.S. Treasury Department and the Securities and Exchange Commission have said there's a risk government-controlled funds may invest to achieve political, rather than commercial, ends.
``He's right that we're the ones that created the problem in the first place,'' said Mohnish Pabrai, who manages $600 million at Pabrai Investment Funds in Irvine, California. ``The U.S. is better off if foreign governments buy Treasuries, because we have a printing press for them, but if I were running China's money, I'd be buying U.S. companies, oil reserves, hard assets too.''

Expect more of this from our gov.

http://www.reuters.com/article/polit...e=politicsNews

Rep Frank to offer home-buying bill within weeks

Thu Feb 28, 2008
By John Poirier
WASHINGTON (Reuters) - A key House Democrat plans to introduce legislation in the coming weeks that would allow the U.S. government to buy homes whose values have dropped below the cost of the mortgage, an aide said on Thursday.

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

It's a global multi trillion us dollar problem.
I call it the "resource theater".
http://www.bloomberg.com/apps/news?p...AgA&refer=home



Expect more of this from our gov.

http://www.reuters.com/article/polit...e=politicsNews

``He's right that we're the ones that created the problem in the first place,'' said Mohnish Pabrai, who manages $600 million at Pabrai Investment Funds in Irvine, California. ``The U.S. is better off if foreign governments buy Treasuries, because we have a printing press for them, but if I were running China's money, I'd be buying U.S. companies, oil reserves, hard assets too.''

The Chinese tried to buy a US company with oil reserves a few years back. Didn't work. We'll see how long it takes before they try it again.

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

Inflation hawk? What can Ben do to force down oil prices? Impose import curbs?

All this inflation is an excuse, i only see a coordinated effect by OPEC to ensure high oil prices. High oil prices will flow down the system and cause inflation in everything else from food to metals to services.

He could start by ending the rate cuts. Next start to build the case publicly for rate increases. The former action and latter threat will be enough to clobber oil (and most other inflation hedges), as the US$ exchange rate will start to go the other way.

Will he do it? Not until the Fed feels that the major banks have "fixed" their balance sheets (Bernanke does not want to emulate Mervyn King). If the US$ continues to hit the skids, and commodities, especially food, start to run away, he will have to act to at least temporarily halt the slide.

Your view that OPEC has any control over oil prices is just plain wrong. They completely lost control when oil went contango in mid-2004. They have been desperately trying to figure out a way to get it back ever since. Without success.

[donalds]

Re: The deflation case: caught, gutted, poached and eaten

Lukestar says:

"Jim Puplava at Financialsense will give you a lot better guidance than your globetrotting Mr. Mauldin I'll wager."

Hey, Luke, just because I place a quote from Mauldin doesn't make me a Mauldinistat. I find the guy an elitist. His muddle through is rubbish, as far as I can tell.

As for Puplava, he's all yours. The guy has ultimate faith in the Fed and government to inflate us out of the mess, at least this time, but ultimately succumbing to Bismarkian depression.

The notion that the Fed and federal government has the power to deflate debt and re-start credit creation is is based on assumptions, unless back by factual and empirical analysis. This analysis must account for how Fed monetization will succeed in a global bond market - combined with an analysis that explains how the US government will have the ability to subsidize in the face of ever increasing deficits as local, state and federal tax revenues decline ever faster.

As for this factual and empirical analysis . . . still waiting.

[c1ue]

Re: The deflation case: caught, gutted, poached and eaten

Bernanke won't get fired. There's enough uncertainty in the US financial markets already; they aren't so stupid that they will add to that by dumping the head of the big kahuna Central Bank in mid-crisis. This isn't the same as the 1970's.

You may be right, but then again...

Bernanke is counting on the domestic situation not getting so bad that there will be calls for someone's head by the end of the year.

I'm not so sure.

At some point there will be a popular reaction against rising prices across the board - the recent oil price spike translated into gasoline prices might just be the trigger.

At that point, a sacrificial goat will be needed much as Burns was expended.

Given that GW is already outgoing, there is no benefit from his departure.

And I don't think Paulson is as tasty a morsel thrown to the masses as Bernanke.

Ben is going to prove to be a bigger inflation hawk sometime in the next year or so, than most currently expect. Helicopter Ben is actually doing a reasonable job given his policy options and the situation he's facing. THe USA may come out of this mess better than Europe.

I think he may try, but in my view he's done the following since he began:

1) Tried to educate Congress that the Fed isn't all powerful
2) Tried to inventively fix the banking crisis without credit pumping, but failed
3) Thrown in the towel and gave his buds what they wanted: cheap money and too bad for everyone else.

You apparently seem to feel the past Fed actions were all part of a grand plan, I simply don't agree.

Under my thesis, Bernanke is going to drop interest rates as close to zero as he thinks the foreign dollar holders can tolerate. But, since these foreigners have now been convinced that the US really is going to throw them and their dollar holdings under the inflation bus, the easy goods-for-dollars carry trade is going to be terminated abruptly unless the US relaxes its restrictions on foreigners buying control of US companies and hard assets.

Since the very people who are causing the US easy money policy are the controllers of said assets, I don't see this happening.

Inflation thus will moderate, but by then prices will be so high as to be irrelevant. Bernanke will be sacrificed on the altar of expediency and another patsy brought in.

Unfortunately, the extant problems won't be solved by this Central American religious rite.

Thus the Volcker of 2011 will be a composite of an Arab, a Chinese, a Russian, an Indian, and a Brazilian banker (not central), and the anti-inflation policy will be carried out via a cessation of the goods for worthless dollars trade.

Europe will be embroiled with its own problems and not be a factor - the entire Germany & France vs. the Mediterranean will devolve into an ugly fracas of political posturing as the necessary weakening of the Euro will be slowed by the need for the currency deficit EU portions to keep strong purchasing power.

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

You apparently seem to feel the past Fed actions were all part of a grand plan, I simply don't agree.

I don't know where you get the idea that I think the Fed is operating on some "grand plan"? The Fed has demonstrated repeatedly that when it is necessary for it to be opportunisitic, it will behave that way.

And, as I tried to explain in recent posts, if the Fed gets the opportunity to stop the rate cuts, and turn hawkish (instead of being forced to by circumstances - still a real possibility in the event of a US$ free-fall) it will take that opportunity, and the journey to the zero-bound that you expect may be severely interrupted (but not necessarily cancelled) for some period of time.

[Guest]

Re: The deflation case: caught, gutted, poached and eaten

... You [ Ackerman] say: "Portends only a more spectacular bust when prices at the pump reach $5, and eggs $12 a carton." ... You have been calling for all-goods price deflation. Don't you mean "prices at the pump reach $1, and eggs $0.50 a carton." What, now you're calling for inflation? ... Welcome to the inflation team!

Perhaps the following brief data might serve as a book-end for this thread?

We could even put a nice engraved brass plaque underneath this datum and frame it for posterity - the "gutted deflation case", entitled "actionable hints and epistemological methodology - concerning the presence or absence of inflation in all-goods prices - 2008"

> Prices are skyrocketing: The U.S. Department of Labor reported that wholesale prices soared 1% in January. That was three times more than economists forecast. And it bumped the inflation rate for the preceding 12 months to 7.4% — the worst since the fall of 1981.

> Oil prices are soaring: Oil topped $103 per barrel — up more than 1,000% since we first wrote that prices were set to skyrocket.

> Gold is exploding higher: It hit still another all-time high of $976 per ounce in Hong Kong Friday morning — more than triple the price it was when we first began forecasting this new gold market ... and only a scant $24 away from the historic $1,000 mark.

> Nearly all commodity prices are through the roof: The Reuters CRB Index, which tracks 17 key commodities prices, has soared a staggering 18% just since late January.


Mr. Ackerman, what ever are we to do with this irksome data?

[metalman]

Re: The deflation case: caught, gutted, poached and eaten

Perhaps the following brief data might serve as a book-end for this thread?

We could even put a nice engraved brass plaque underneath this datum and frame it for posterity - the "gutted deflation case", entitled "actionable hints and epistemological methodology - concerning the presence or absence of inflation in all-goods prices - 2008"

> Prices are skyrocketing: The U.S. Department of Labor reported that wholesale prices soared 1% in January. That was three times more than economists forecast. And it bumped the inflation rate for the preceding 12 months to 7.4% — the worst since the fall of 1981.

> Oil prices are soaring: Oil topped $103 per barrel — up more than 1,000% since we first wrote that prices were set to skyrocket.

> Gold is exploding higher: It hit still another all-time high of $976 per ounce in Hong Kong Friday morning — more than triple the price it was when we first began forecasting this new gold market ... and only a scant $24 away from the historic $1,000 mark.

> Nearly all commodity prices are through the roof: The Reuters CRB Index, which tracks 17 key commodities prices, has soared a staggering 18% just since late January.

Mr. Ackerman, what ever are we to do with this irksome data?

rick (waving his hands around to distract you): what about debt deflation? huh? if i stop talking about price deflation like i used to and slip the word "debt" in front of it no one will notice. he-he. i still get to use the word "deflation" and... i'm right! there is debt deflation, right? you said so yourself.

itulip: no, silly. the most popular form of debt deflation is expanding the money supply to allow the repayment of debt with depreciated dollars ala ka-poom ala 2001 (or whenever). true then, true now.

rick: ok, i'll shut up now.

[jk]

Re: The deflation case: caught, gutted, poached and eaten

1.

"There is no such thing as Society. There are individual men and women, and there are families."

that’s why we don’t worry about crowd phenomena around here, huh? I prefer the saying that the iq of a group equals the highest iq of any member divided by the number of people in the group. An exaggeration, no doubt, but it says crowd phenomena are real. Similarly, there’s no such thing as social trends, huh? And so on.


2. deflation v inflation and The melting of the monetary ice-caps
global warmists worry about the rise of sea level once big chunks of ice melt. In similar fashion, the vast frozen reserves of u.s. financial instruments held by foreign c.b.’s are “melting” into circulation, raising our monetary sea-level.

3. Grg55’s fed tightening “once the banks are made whole” [or words to that effect]
This scenario is contingent on the banking problems being, relatively speaking and to coin a phrase, “contained.” On the other hand, I am of the view that the rot in the banking/credit system goes much deeper than has been revealed to date, and the abcess will be lanced to release a putrid mass of bad paper and counterparty failures. I think bernanke would likely love grg’s posited opportunity, but I don’t think he’ll get it.

4. the unit of account and “inflation” and “deflation”
I’m with metalman, who brings us back to the point that you can have all-price inflation and all-price deflation simultaneously depending on your unit of account. Are we counting in dollars, euros, yen, real, gold, bushels of wheat, fixed commodity baskets or those huge round stone wheels that they use somewhere or other? Tell me that, then we can talk inflation or deflation.

5. let’s not assume that all prices move in the same direction
whatever the unit of account, there is no law saying that all prices must move the same way. In fact, such coordinated and unanimous movement seems pretty unlikely. The inflation-deflation debate usually treats global pricing as unitary, but it seems to me that a benefit of ej’s model is that it disaggregates the economy. Real estate prices down. Most equity prices down. Leveraged financial instruments down. Commodities up, but not necessarily all commodities. This is an area that remains for analysis.

6. the problem of wages
the paper from the cleveland fed says that inflation has caused increased wages more than vice versa. But we still need to elucidate the mechanism for that to happen under current conditions, or if we can’t elucidate the mechanism, at least find the evidence for that happening. Aggregated compensation figures hide the disproportionate distribution of incomes and, I would guess, the even more disproportionate distribution of income increases. ej’s story of the poor selling the family jewelry while the rich buy precious metals captures the issue. I think the issue of wage inflation is key. Mauldin’s piece is correct, I think, in saying that the fed will tend to feel retlatively sanguine about inflation IN THE ABSENCE OF WAGE INFLATION.

[metalman]

Re: The deflation case: caught, gutted, poached and eaten

4. the unit of account and “inflation” and “deflation”
I’m with metalman, who brings us back to the point that you can have all-price inflation and all-price deflation simultaneously depending on your unit of account. Are we counting in dollars, euros, yen, real, gold, bushels of wheat, fixed commodity baskets or those huge round stone wheels that they use somewhere or other? Tell me that, then we can talk inflation or deflation.

thx but can't take credit. learned it here years ago.

6. the problem of wages
the paper from the cleveland fed says that inflation has caused increased wages more than vice versa. But we still need to elucidate the mechanism for that to happen under current conditions, or if we can’t elucidate the mechanism, at least find the evidence for that happening. Aggregated compensation figures hide the disproportionate distribution of incomes and, I would guess, the even more disproportionate distribution of income increases. ej’s story of the poor selling the family jewelry while the rich buy precious metals captures the issue. I think the issue of wage inflation is key. Mauldin’s piece is correct, I think, in saying that the fed will tend to feel retlatively sanguine about inflation IN THE ABSENCE OF WAGE INFLATION.

yes, but who's wages? working class j6p's wages or the rent extracted via the debt serf system? that latter inflation = good, the former bad. in fact fire inflation isn't even measured. no fire cpi and if it were measured the higher it was the better.

[Guest]

Re: The deflation case: caught, gutted, poached and eaten

The Subtle Art Of Neo-Epistemological Forecasting -


NEO_EPISTEMOLOGICAL_FORECAS.gif

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DEFLATIONISTAS_TO_ARCHERY-R.gif

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

3. Grg55’s fed tightening “once the banks are made whole” [or words to that effect]
This scenario is contingent on the banking problems being, relatively speaking and to coin a phrase, “contained.” On the other hand, I am of the view that the rot in the banking/credit system goes much deeper than has been revealed to date, and the abcess will be lanced to release a putrid mass of bad paper and counterparty failures. I think bernanke would likely love grg’s posited opportunity, but I don’t think he’ll get it.

Wrong on the first point. The banks won't be "made whole" for quite some time, and some will never be made whole - - ever. The Fed knows this. And after Bernanke's comments last week, we know they know this:

"Feb. 29 (Bloomberg) -- The credit-default swap market had its worst two months on record amid investor concern that mounting losses on securities linked to home loans will trigger bank failures...Federal Reserve Chairman Ben S. Bernanke said yesterday some smaller banks will probably fail and unemployment will rise, fueling concern that a recession is inevitable..."

As long as the US$, gold and the publicly visible commodities (food and fuel) price behaviour doesn't get completely out of control, the Fed has the luxury of buying time for the financial sector to continue to repair itself. I agree they want a still lower US$ (note that Boeing couldn't land the air tanker defense contract even at this exchange rate!!! ) and will tolerate higher commodity prices - but only to a point.

Who is lining up and eager to lance that abcess? When will "they" do it? What is their motive? Who benefits? Anyone? Not that it won't happen, but "The market can remain irrational longer than..."

Money now smells blood and I'll bet the short dollar, long commodity positions are piling up rapidly as market speculators do what they always do...push a trend to excess to see how far they can profitably take it. What do you think the Fed and the other Central Banks will do if the moves in the US$, grain, and maybe oil go parabolic? Deliberately lance that abcess? Stand aside? Order lunch? Call Sikorsky?

I think they take a stand. Force some losses on the less nimble traders, take the froth off the inflation trade, and buy themselves more time to deal with the putrid mess nobody wants to admit to.

The Fed has a dual mandate. And all the other major Central Banks have some sort of inflation target band. Investors who are long commodities and precious metals (like me), and who ignore this, or underestimate these Central Banks, do so at their potential peril IMO.

By the way, is that a CAPITAL "G" I see at the start of your point 3? Wow. You can't assume that anything will remain constant these days...

[FRED]

Re: The deflation case: caught, gutted, poached and eaten

Wrong on the first point. The banks won't be "made whole" for quite some time, and some will never be made whole - - ever. The Fed knows this. And after Bernanke's comments last week, we know they know this:

"Feb. 29 (Bloomberg) -- The credit-default swap market had its worst two months on record amid investor concern that mounting losses on securities linked to home loans will trigger bank failures...Federal Reserve Chairman Ben S. Bernanke said yesterday some smaller banks will probably fail and unemployment will rise, fueling concern that a recession is inevitable..."

As long as the US$, gold and the publicly visible commodities (food and fuel) price behaviour doesn't get completely out of control, the Fed has the luxury of buying time for the financial sector to continue to repair itself. I agree they want a still lower US$ (note that Boeing couldn't land the air tanker defense contract even at this exchange rate!!! ) and will tolerate higher commodity prices - but only to a point.

Who is lining up and eager to lance that abcess? When will "they" do it? What is their motive? Who benefits? Anyone? Not that it won't happen, but "The market can remain irrational longer than..."

Money now smells blood and I'll bet the short dollar, long commodity positions are piling up rapidly as market speculators do what they always do...push a trend to excess to see how far they can profitably take it. What do you think the Fed and the other Central Banks will do if the moves in the US$, grain, and maybe oil go parabolic? Deliberately lance that abcess? Stand aside? Order lunch? Call Sikorsky?

I think they take a stand. Force some losses on the less nimble traders, take the froth off the inflation trade, and buy themselves more time to deal with the putrid mess nobody wants to admit to.

The Fed has a dual mandate. And all the other major Central Banks have some sort of inflation target band. Investors who are long commodities and precious metals (like me), and who ignore this, or underestimate these Central Banks, do so at their potential peril IMO.

By the way, is that a CAPITAL "G" I see at the start of your point 3? Wow. You can't assume that anything will remain constant these days...

EJ writes in:

With so much riding on the inflation bet, vigilance bordering on paranoia is called for. That said, with statements like these, it's difficult to see how the Fed will be able to engineer a serious and sustained decline in oil prices.

Oil prices won't fall under $60-$70: Naimi
Sun Mar 2, 2008 9:03am EST

ALGIERS (Reuters) - Oil prices won't fall below $60 to $70 a barrel as this is the minimum level at which alternative fuels are economically viable, Saudi Oil Minister Ali al-Naimi said in remarks published on Sunday by Algeria's APS news agency.

"From now there's a line below which prices won't fall," the official agency quoted him as saying in an interview with Petrostrategies magazine.

He said this involved "the marginal cost of production of alternative fuels, whether that's biofuels or tar sands" which had a threshold "between $60 and $70", APS reported.

I met with the largest investment bank in the Middle East in NYC a couple of months ago. They were offering a product to funds interested in GCC equities exposure. Their investment thesis was well summed up by one of the hedge fund managers in the room as "long oil." With oil already over $90, everyone was skeptical. But what if oil producers are in fact committed to holding supplies below demand to maintain prices over the price of alternatives in order to support a US Alternative Energy boom? What if that's the new political arrangement with the west?

[jk]

Re: The deflation case: caught, gutted, poached and eaten

Wrong on the first point. The banks won't be "made whole" for quite some time, and some will never be made whole - - ever. The Fed knows this. And after Bernanke's comments last week, we know they know this:

"Feb. 29 (Bloomberg) -- The credit-default swap market had its worst two months on record amid investor concern that mounting losses on securities linked to home loans will trigger bank failures...Federal Reserve Chairman Ben S. Bernanke said yesterday some smaller banks will probably fail and unemployment will rise, fueling concern that a recession is inevitable..."

As long as the US$, gold and the publicly visible commodities (food and fuel) price behaviour doesn't get completely out of control, the Fed has the luxury of buying time for the financial sector to continue to repair itself. I agree they want a still lower US$ (note that Boeing couldn't land the air tanker defense contract even at this exchange rate!!! ) and will tolerate higher commodity prices - but only to a point.

re the fed tolerating commodity prices- i think high commodity prices will be viewed as ultimately deflationary, a "tax" on consumption, not inflationary, in the absence of wage inflation.

Who is lining up and eager to lance that abcess? When will "they" do it? What is their motive? Who benefits? Anyone? Not that it won't happen, but "The market can remain irrational longer than..."

who lanced the subprime bubble? a margin clerk who demanded more collateral from 2 bear stearns funds. that's what started the ball rolling iirc.

Money now smells blood and I'll bet the short dollar, long commodity positions are piling up rapidly as market speculators do what they always do...push a trend to excess to see how far they can profitably take it. What do you think the Fed and the other Central Banks will do if the moves in the US$, grain, and maybe oil go parabolic? Deliberately lance that abcess? Stand aside? Order lunch? Call Sikorsky?

as food and energy go higher, ben will worry about consumption of other goods going lower as j6p is squeezed, not to mention his mortgage resetting next month.

I think they take a stand. Force some losses on the less nimble traders, take the froth off the inflation trade, and buy themselves more time to deal with the putrid mess nobody wants to admit to.

The Fed has a dual mandate. And all the other major Central Banks have some sort of inflation target band. Investors who are long commodities and precious metals (like me), and who ignore this, or underestimate these Central Banks, do so at their potential peril IMO.

there is a reason for the big inflation-deflation debates we hold. there are a lot of deflationary forces, mainly a lot of debt, a lot of leverage. ben is an expert on the great depression and the japanese deflation. the dual mandate gets tossed overboard when there is a threat of deflation, a threat of the fed funds rate reaching the zero bound. the g7 issued a warning about disorderly dollar depreciation, i know, but i can't see more than a coordinated currency intervention someday. and that will hit commodities, temporarily.

i think the real risk to the commodity trade is a big-time deflation scare, a deeper recession than anyone expects, or at least some data that points in that direction. THEN there will be a sell-off of commodities, including pm's.

By the way, is that a CAPITAL "G" I see at the start of your point 3? Wow. You can't assume that anything will remain constant these days...

i composed the post in microsoft word and then pasted it. word did automatic capitalization following a period. accidents happen.:p

[metalman]

Re: The deflation case: caught, gutted, poached and eaten

can i butt in?

re the fed tolerating commodity prices- i think high commodity prices will be viewed as ultimately deflationary, a "tax" on consumption, not inflationary, in the absence of wage inflation.

no. you're sounding ackermishian! high prices cannot be deflationary. deflation: reduction in the money supply resulting in a decline in the general price level. inflation: rise in the money supply resulting in an increase in the general price level. any other definitions are nonsense hand waving.

the question is: can fire econ interests maintain political influence over the fed to keep the inflation pain directed toward the politically weak in american society?

who lanced the subprime bubble? a margin clerk who demanded more collateral from 2 bear stearns funds. that's what started the ball rolling iirc.

yeh, same as every bubble... someone started selling.

as food and energy go higher, ben will worry about consumption of other goods going lower as j6p is squeezed, not to mention his mortgage resetting next month.

so what's j6p gonna do about it? vote? bwah ha-ha ha ha ha-ha ha, ho ho, ho! pick yer fire econ candidate...

from...

Forget the Fed - Part II: Politics of FIRE




gee, look who got pushed out of the race first?

there is a reason for the big inflation-deflation debates we hold. there are a lot of deflationary forces, mainly a lot of debt, a lot of leverage. ben is an expert on the great depression and the japanese deflation. the dual mandate gets tossed overboard when there is a threat of deflation, a threat of the fed funds rate reaching the zero bound. the g7 issued a warning about disorderly dollar depreciation, i know, but i can't see more than a coordinated currency intervention someday. and that will hit commodities, temporarily.

you ain't following this are you? not price deflation forces, debt deflation forces! monetary inflation is a form of debt deflation. the japanese owe money to themselves... are a net creditor. the us has a natural mechanism of debt deflation via inflation: trillions of bonars overseas. we've been over and over this for years.

now the us is pushing its inflation problem onto the world. when does the world say "uncle"? how do they say uncle? those are the questions. rogers thinks it all goes to shit in acrimonious shitstorm of political/currency crisis. don't know if ej's taken a position on that recently but his interview with galbraith and others way back in 2006... inevitable... transitions to new currency regimes are never smooth or pretty.

i think the real risk to the commodity trade is a big-time deflation scare, a deeper recession than anyone expects, or at least some data that points in that direction. THEN there will be a sell-off of commodities, including pm's.

that's dopey. deflation scare... that was fall 2006. over. you blinked. you missed it. right here...

http://www.itulip.com/forums/showthread.php?t=428

where itulip said ka-poom this time is too tough to trade...

The implications of poor distribution of wealth are less obvious. What happened in the 1930s will likely happen again. In a recession, a small minority of the nation's population that garners most of the income and holds most of the nation's wealth and assets cannot generate enough demand to re-employ the majority. As the credit bubble winds down, the US government will find itself with a politically similar challenge as in the 1930s: How to get the wealth spread around and the economy going again? But inflation is much easier to create today without the constraints of the gold standard. Stubborn adherence to the gold standard was in fact blamed for much of the pain, and The Great Depression could have been avoided if only the Fed had been free to print money and buy stuff, just as they are today.

Conclusion

The economic, monetary, financial market, and political antecedents are all in place for a Ka-Poom event. As I mentioned last week, the disinflationary part of the event appears to have started, but no one can say how far it will go before policy makers reverse course, making the transition difficult to time and trade.