The truth about deflation - Eric Janszen

[BobH]

Re: The truth about deflation

That seems like a streach concidering where Japan, Korea, and others are at currently! When Asian Imports vs. Exports are close in dollars, cna they expect the same growth considering this global recession?

[Guest]

Re: The truth about deflation

A quick and simple question for smart itulipers.
If printing $ is so easy as often hinted on itulip, why this deflation (I'm sorry, disinflation) was allowed to happen just before the elections, cratering all possible assets and creating a huge misery for US citizens?

If helicopter Ben had it all figured out and planned, why this financial fiasco reached these proportions?

Another related question. If some of the recent action on the stock markets was caused by margin calls and forced liquidations and redemption that became worse as the nominal priced went lower and lower, why this is not a deflationary spiral?

If the WMD derivatives started to implode, doesn't it create a chain reaction with more deflationary implosions?

Finally, if the future earnings go down in 2008/2009 due to credit squeeze/bursting or higher dollar or record low sentiment ratings and generate more stock selling and more margin calls, why it would not be a spiral action?

In simple words please!

I've heard so much about "printing dollars" story that I don't believe it's true anymore. Most money in modern societies is credit (isn't it 90%?). Didn't EJ declare start of credit destruction in 2007 (one of the best calls in itulip IMHO)?

I'll take a swing at it.

1. There are limitations even on politicians on what the public and foreigners will swallow. The old frog in the pot thing applies. If they announced "the US govn't will pay off all mortgages in the USA and hand everyone $50,000 to pay off car loans and credit cards" the world would have reacted quite differently. Instead of fleeing TO the dollar they would have dropped it. So while NOMINAL stock prices and home prices wouldn't fall, the real buying power of those dollars would, so that your $500,000 home would be paid off but the proceeds might not even buy you a nice car.

2. Ben does NOT have it figured out. This so called fiasco is nothing compared to what's coming down the pike due to his mismanagement of it.

3. Because dollars lost are being replaced via the printing press. Or did you think we had this "bailout money" sitting in a piggy bank somewhere?

4. I have No idea on the CDS effect on things. But it sounds scary.

5. All systems eventually reach a point where they level out. Otherwise, every market movement would be like a nuclear chain reaction. It's knowing where that stabilized point comes that makes people wealthy.

6. If you can't see "money printing" when the government can't even meet its obligations now and hasn't been able to balance a budget honestly since the 60's maybe, and yet is "lending" Trillions to organizations, individuals, and states, with more promises to come, I can't say much more. $60 trillion in unfunded future obligations plus trillions more coming down the pike says they will print money rather than default or cut spending drastically (which they can't, it's mathmatically probably gone too far) and get strung up in the streets by angry retirees and other dependents.

[FRED]

Re: The truth about deflation

A quick and simple question for smart itulipers.
If printing $ is so easy as often hinted on itulip, why this deflation (I'm sorry, disinflation) was allowed to happen just before the elections, cratering all possible assets and creating a huge misery for US citizens?

If helicopter Ben had it all figured out and planned, why this financial fiasco reached these proportions?

Another related question. If some of the recent action on the stock markets was caused by margin calls and forced liquidations and redemption that became worse as the nominal priced went lower and lower, why this is not a deflationary spiral?

If the WMD derivatives started to implode, doesn't it create a chain reaction with more deflationary implosions?

Finally, if the future earnings go down in 2008/2009 due to credit squeeze/bursting or higher dollar or record low sentiment ratings and generate more stock selling and more margin calls, why it would not be a spiral action?

In simple words please!

I've heard so much about "printing dollars" story that I don't believe it's true anymore. Most money in modern societies is credit (isn't it 90%?). Didn't EJ declare start of credit destruction in 2007 (one of the best calls in itulip IMHO)?

December 2007 we called the start of the Debt Deflation Bear Market with a 40% plus decline in 2008 ala the Nikkei in 1990 and for similar reasons: all of the leverage was about to vaporize.

Ka-Poom Theory says that the short term impact is deflationary, but we call it disinflation to distinguish the process from the self-reinforcing process of a deflation spiral ala 1930s, which as we explain here, has never happened since, not even in Japan where deflation has never exceeded -2% in an quarter since 1995, a far cry from the -30% quarterly deflations that occurred under the gold standard.

Ka-Poom Theory says that the Fed and Treasury will reflate by radical means, including outright purchases of assets. I'll remind readers that this forecast was widely derided by the deflationsitas as "impossible" because it violates the Fed's charter. We said the Fed was planning to throw the charter out the window, and they did.

Ka-Poom Theory says the Fed can theoretically expand its balance sheet infinitely, and it has demonstrated over the past year that it can and will.

Ka-Poom Theory says that should all the myriad creative reflation measures fail there is always the "foolproof" way to end deflation: currency depreciation ala 1934.

So now we have the Fed buying the bonds of other countries such as Brazil, denominated in the local currency, the Brazilian real, in order to devalue the dollar and manage the real up. Direct result is high demand for reals versus dollars. The chart shows the dollar falling against the real.

The indirect result of these purchases and swap agreements with several countries simultaneously is to scare dollar longs. Net result? Dollar down against major currencies as the chart above show.

Currency depreciation is inherently inflationary. The Fed is attempting to reset inflation expectations upward. It appears to be working:

Oil prices head towards $US70

October 30, 2008 02:23pm

WORLD oil prices neared $US70 a barrel in Asian trade today, extending gains after a cut in US interest rates powered a rally in global stock markets.

The jump in oil prices was widely reported as due to the rate cut versus the impact on the dollar of the rate cut plus the debt swap based currency intervention.

Dollar, Yen Fall as Rate Cuts, Stock Rally Boost Risk Appetite

Oct. 30 (Bloomberg) -- The dollar and the yen fell as a wave of global interest-rate cuts sparked a rally in Asian stocks, bolstering demand for higher-yielding assets.

The greenback slid for a third day against the euro after the Federal Reserve reduced its target lending rate to the lowest in half a century.

So much for the idea that the US government can't send the dollar down to raise inflation expectations.

This is trick number #27 in the endless bag of tricks that governments can dig into sans gold standard.

The deflationistas will have to hang it up one of these days. They are running out of excuses.

[Andreuccio]

Re: The truth about deflation

Ka-Poom Theory says that the short term impact is deflationary, but we call it disinflation to distinguish the process from the self-reinforcing process of a deflation spiral ala 1930s, which as we explain here, has never happened since, not even in Japan where deflation has never exceeded -2% in an quarter since 1995, a far cry from the -30% quarterly deflations that occurred under the gold standard.

How does this reconcile with, (if my math was correct), 35.4% deflation, or disinflation, or antidisestablishmentflation, over, if not a quarter, at least a third, as shown by Finster's FDI?

http://www.itulip.com/forums/showthr...6637#post56637

[friendly_jacek]

Re: The truth about deflation

How does this reconcile with, (if my math was correct), 35.4% deflation, or disinflation, or antidisestablishmentflation, over, if not a quarter, at least a third, as shown by Finster's FDI?

http://www.itulip.com/forums/showthr...6637#post56637

It's semantics. Itulip cornered itself by proclaiming earlier that deflation was impossible in USA. Thus deflation is called disinflation on itulip. That's all.

[Andreuccio]

Re: The truth about deflation

It's semantics. Itulip cornered itself by proclaiming earlier that deflation was impossible in USA. Thus deflation is called disinflation on itulip. That's all.

Yeah, my question was about the percentages, (35.4%, vs. "a far cry from the -30% quarterly deflations that occurred under the gold standard"), but I guess if we're calling the 35.4% disinflation, then we still could be a far cry from 30% quarterly deflations.

[FRED]

Re: The truth about deflation

Yeah, my question was about the percentages, (35.4%, vs. "a far cry from the -30% quarterly deflations that occurred under the gold standard"), but I guess if we're calling the 35.4% disinflation, then we still could be a far cry from 30% quarterly deflations.

Everyone who is calling for deflation and is holding gold please raise your hand.

[FRED]

Re: The truth about deflation

It's semantics. Itulip cornered itself by proclaiming earlier that deflation was impossible in USA. Thus deflation is called disinflation on itulip. That's all.

It is not semantics. No deflation spiral. That has been our position unchanged since 1998.

If this is deflation why is oil still trading at 300% of the price it was at during the last deflation?

Shouldn't oil be at, say, $5 if deflation is -40% or whatever number is being thrown around?

The Internets, they are filled with nonsense.

[Andreuccio]

Re: The truth about deflation

It is not semantics. No deflation spiral. That has been our position unchanged since 1998.

If this is deflation why is oil still trading at 300% of the price it was at during the last deflation?

Shouldn't oil be at, say, $5 if deflation is -40% or whatever number is being thrown around?

The Internets, they are filled with nonsense.

Doesn't that just depend on your point of reference? Oil peaked recently at, what, about $140. Wasn't the increase from whatever price it was trading at during the last deflation, up to the peak, counted as inflation?

Gas was 60c a gallon when I was a kid, so even if it dropped to $1.20 you could say we were still in a period of inflation: it would be 2x the price it used to be. But that would ignore the $3 drop and whatever consequences came from it.

I'll take your word for it that there's no "deflation spiral". What do I know? But those last 4 months saw quite a decline, apparently, whether it was deflation on disinflation or whatever.

[Guest]

Re: The truth about deflation

Liftoff in two years. Until then, possibility of wing-clipping and generalised "deplumage" of the inflationista eaglets.

I'm trying to think of an analogy for how deflation gets up any momentum in an all-fiat paper-money world.

Something like a sprinter, trying to get off to a running start while his feet are deep in mud? The idea is this: Deflation needs something "hard" to deflate against. Money against which real deflation occurs must be a "hard surface" so that deflation can get some momentum devaluing things against it. But when money is like a soft, deep sponge, how can deflation gain momentum? It remains "trapped in the mud" because the money is soft and gives way whenever you try to push against it. Plus you have the massive external debt and disappearing lines of credit. ... These deflationists, they are people with formerly razor sharp analysis, and when they get into deflation arguments the analysis gets rubbery and sort of "pliable".


HINDENBURG ZEPPELIN.jpg

ITULIP BALLOON - THE DEBT DESTROYER.jpg

[Andreuccio]

Re: The truth about deflation

Everyone who is calling for deflation and is holding gold please raise your hand.

Big difference between calling it deflation and calling for deflation.

[FRED]

Re: The truth about deflation

Doesn't that just depend on your point of reference? Oil peaked recently at, what, about $140. Wasn't the increase from whatever price it was trading at during the last deflation, up to the peak, counted as inflation?

Gas was 60c a gallon when I was a kid, so even if it dropped to $1.20 you could say we were still in a period of inflation: it would be 2x the price it used to be. But that would ignore the $3 drop and whatever consequences came from it.

I'll take your word for it that there's no "deflation spiral". What do I know? But those last 4 months saw quite a decline, apparently, whether it was deflation on disinflation or whatever.

Yes, here it is, right in the government data.

Not as severe as in 2002, 2004, 2006 or 2007 but still noticeable.

The pumping is working to maintain the money supply.

[friendly_jacek]

Re: The truth about deflation

Everyone who is calling for deflation and is holding gold please raise your hand.

Fred, did you know that gold went up during the great depression even though it was a deflationary spiral?

[Guest]

Re: The truth about deflation

I think I'm going a little batty. I have to remember to stay away from windows today or I may end up jumping out of one.

Fred, did you know that gold went up during the great depression even though it was a deflationary spiral?

[Andreuccio]

Re: The truth about deflation

Yes, here it is, right in the government data.

Not as severe as in 2002, 2004, 2006 or 2007 but still noticeable.

The pumping is working to maintain the money supply.

Thanks for the quick replies, Fred. I really appreciate the discourse.

I have a couple of questions on the charts. I'm not trying to be argumentative. I know you're sick to death of talking about deflation. Believe me, at this point, it pains me, too.

On the first chart, it looks like the most recent rate of inflation got down to about -2%, and has since increased to close to 0. This really was the gist of my original question: How does that reconcile with Finster's FDI at negative thirty something? I know they measure somewhat different things, but it seems like night and day.

My second question is in reference to the second chart and the commentary. The chart shows the money supply increasing. Your commentary is that their pumping of money is working. But I keep reading here that it's not just the quantity of money, but also the velocity, that matters, and that the velocity part of the equation has broken down. So my question is, is it really working?