Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[Basil]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Perhaps there was some confusion in the deflationista camp because of the serious shortage of zeroes in the world?

Don't recall where I read this just now, but the gist was that a new deposit of zeroes was recently discovered in Zimbabwe, but it is uncertain whether they can be mined and exported quickly enough and in sufficient quantities to supply the rest of the world.

Yes I heard that they have been actively mining these zeroes for some time but that Mugabe says they are his zeroes and no Western conspiracy is going to take them away. This is why Obama is leading the charge to topple Mugabe. It is a all ruse to abscond with Zimbabwe's zeroes.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Q: Does increasing the money supply have a 100% success rate of beating deflation, or is it a fifty fifty chance of being successful ?

You make this statement with such conviction, that supply of money is 100% way to beat the deflation spiral. Why did Japan not beat the deflation spiral even when they had the ability to export to the world NOT in a deflation spiral, I am very sure they printed money as well.

USA's risk of deflationary spiral is even higher is it not, as the rest of the world is in such a mess. Is money supply and govt projects building stuff in 2 or 3 years going to be enough to stop it????

A. It depends. It's a matter of increasing total money supply (including velocity) enough to offset the disinflationary or deflationary effects of debt deflation or money destruction or whatever you want to call it.



Here's a brand new chart that shows the 1920-1940 period, and pay particular attention to base and gov't debt growth starting in 1931, and what happened about two years later to both GDP and CPI. Also note what happened when the growth rate of both dropped off starting in 1935, and what happened about two years later to both GDP and CPI.

Also note that these two relationships are not a guarantee nor am I trying to say that they're the only effect, but I'm rather trying to suggest that you or anyone look at what actually happened (and what is happening now) and make your own judgments.







Some or all of your concerns about Japan are addressed in Deflationistas get the facts wrong about Japan , especially the last chart in post #23.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

EJ, Bart, Fred, Bueller, anyone?

The charts show that ten and twenty year maturity rates have moved in concert with all velocity measures. Am I just stating the obvious? This was to be expected? or is it meaningless? a coincidence?

I'm far from 100% certain, but yes I do believe that it was to be expected.

If velocity goes up and all other factors are held constant, relative inflation is the result. Higher inflation and bonds don't like each other, and bonds have a hissy fit...

[Munger]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

icm63, sadly, I think they have a 110% chance.

Lets assume this simplistic scenario for a second: stimulus checks for $10,000 for every US citizen each quarter of each year until the debt is inflated away? That would do it no?

The sad thing, is that the Fed prefers one check of $8.5T to friends and political contributors on Wall St.

Giving everyone $10,000 only works if the people believe that the fed will not attempt to stabilize the price level after the deflation risk passes. Otherwise the money will be hoarded and deflation will continue.

[c1ue]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Nice article - and I for one appreciate the levity injection.

I would like to point out a variation in the hyperinflationista view:

The assumption in the article above is that hyperinflationistas don't believe government can stop hyperinflation.

My own view is that government WANTS hyperinflation - defined as more than 100% a year or 10% a month, just not uncontrolled hyperinflation.

Because the scale of debts is such that a mere 100% over 5 years doesn't fix the structural problem. But a half dozen 10% months would both scare money out of passive positions and reduce effective debt significantly.

So the wrinkle for this hyperinflationista is that government CAN theoretically stop hyperinflation, but may not want to. And governments have failed to stop hyperinflation in the past.

[goadam1]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

So we get the fed fail video and then evidence that a fair amount but not hyper amount of inflation.

I still don't understand what I should be doing within the itulip philosophy besides owning some gold in this situation.

[icm63]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Bart thanks for the nice chart of the 1940s..

In the 1930's what was the USA government debt/GDP ratio then, was it easy for USA to raise govt debt and borrow and spend its way out of deflation. I assume the USA can raise more funds buy selling its bonds to overseas central bankers (using their savings and surpluses god bless them).

So if the world lends USA the money at good rates there is a good chance then, but what if the rates are not so good, and treasury interest rates rally resulting from such massive supply over lack luster demand.

Thats not so good for asset prices...

[ltullos]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Ka-Poom Theory says that the ultimate outcome of this political conundrum problem is built into the structure of the foreign debt itself: if only the US can get its foreign creditors to start selling US debt, the dollar will weaken on global currency markets as dollars are exchanged for domestic creditors’ currencies. The weaker dollar deflates the foreign debt. The more the dollar deflates, the more the debt deflates. Of course, US interest rates and inflation rise to compensate new borrowers, but that increases domestic saving while the domestic inflation deflates the domestic debt, :confused: both private (household and business) and public (local and state government). The political question is, in this scenario, which savers are losing?.......

It seems to me that rising interest rates in a debtor nation excaberates the problem of defaults, bankruptcy and foreclosures and net DECREASES domestic savings and higher borrowing costs just means more people chasing their tail to borrow more.

Moreover, I believe we were approaching point where rest of world could not fund our increasing budget deficits when they were $400T and their economies were healthy. Who can fund $1T+ deficits when the world is in free fall?

While I've been accepting Ka-Poom for last year since my arrival here thinking debt would have to be reduced through inflation or currency devaluation, I'm now realizing I don't get it as there are some feedback loops that seem to be ignored.

More importantly, should I sell half my gold now and buy back in when it is below $600-700 as Prechter forecasts?

[occdude]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Not to pee in the punch bowel. But what "inflationista" numbers are we talking about and when? As far as the hyperinflationistas go, government is just not that efficient to print money as fast as deflation can take it out, in a foot race between the government (inflation) and the market (deflation) I believe the market EVENTUALLY wins.

Now theres gonna be a lot of "ka's" and "booms" as the govenment acts in reaction to the market, but never with true "shock and awe" because that would require a consensus and the founding fathers in their brillance put plenty of checks and balances in to guarrentee government incompetence (as if guarrantees were necessary).

So look for the stock market and real estate to continue to "ka" and commodities and staples to "boom" simultaneously. This will manifest as declining employment, real estate prices and equities (asset price deflation). The boom will be oil prices, real money ie. gold and most other commodities due to demand destruction from this current deleveraging phase along with the money creation it should be a real doozy.

[Guest]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Deflating assets are not limitless. The full scope of assets disintegrating has a bottom by definition, as assets are finite. Derivatives are inflammatory vapor, but the underlying assets can and do find a floor in valuation. Fiat money instead, is infinite and we've never observed a global economic crash in history before which occurred in a 100% fiat world. There is no "leash" or "governor" built into the fiat money engine, it can accelerate to any level required, not just in the US, but e v e r y w h e r e . I'm thinking the USD can rally for several years, but I'm under no illusion as to which effect can reach out further in time, between asset destruction and fiat money issuance, the fiat money can run a great deal further. IMO the stock market and real estate will NOT continue to KA. Real estate can limp into recovery, but the stock market can react to the upside like a scalded cat. In fact I bet it will, in about six to twelve months.

Big bada-poom in stocks not too far out. You are getting blinded by the current stock market declines into thinking along the trend most recently in motion, i.e. unholy market collapses in progress. IMO a little ways forward it will be setting the floor for a hellacious boom - one for the history books coming up **soon**, and if you say "yeah but what is going to underpin it as all the fundamentals are crap" my read (because I fear and distrust the stock markets anyway and think it's subject to huge sentiment swings) is that fundamentals can often be of overestimated prime mover value also in the equities markets, for longish periods of time anyway. 3-6 trillion of new credit shoved out the door, with banks getting legislated into lending if things get constipated enough - that is all the rocket fuel we'll need to see the DOW scoot up to 30K within five years. I bet that is exactly what we get by 2013-2014 and a great wave of "apparent" renewed prosperity can emanate out from that boom - gargantuan fiat inflation can produce some strange and improbable artifacts.

BTW, in the thick of the largest declines in history, commodities and equites have actually been positively correlated. I think it is in fact less probable to see an equities market ongoing collapse or stagnation alongside soaring commodities. I can imagine a lot of happy faced investors in the North American indexes, looking out a couple of years from now. That describes iTulip's POOM really, just suggesting it's arriving two or three years earlier. Deflation in various asset classes and wild inflation in others with steepening unemployment, and then throwing in things like booms in oil and gold - this conjunction of effects make no sense to me.

Not to pee in the punch bowel. But what "inflationista" numbers are we talking about and when? As far as the hyperinflationistas go, government is just not that efficient to print money as fast as deflation can take it out, in a foot race between the government (inflation) and the market (deflation) I believe the market EVENTUALLY wins.

Now theres gonna be a lot of "ka's" and "booms" as the govenment acts in reaction to the market, but never with true "shock and awe" because that would require a consensus and the founding fathers in their brillance put plenty of checks and balances in to guarrentee government incompetence (as if guarrantees were necessary).

So look for the stock market and real estate to continue to "ka" and commodities and staples to "boom" simultaneously. This will manifest as declining employment, real estate prices and equities (asset price deflation). The boom will be oil prices, real money ie. gold and most other commodities due to demand destruction from this current deleveraging phase along with the money creation it should be a real doozy.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Bart thanks for the nice chart of the 1940s..

In the 1930's what was the USA government debt/GDP ratio then, was it easy for USA to raise govt debt and borrow and spend its way out of deflation. I assume the USA can raise more funds buy selling its bonds to overseas central bankers (using their savings and surpluses god bless them).

So if the world lends USA the money at good rates there is a good chance then, but what if the rates are not so good, and treasury interest rates rally resulting from such massive supply over lack luster demand.

Thats not so good for asset prices...

Debt/GDP was between 20-40% during the period, and yes it was easy to borrow - and also easy for the Fed to create money too, as the monetary base stats show.
Did you see what happened when both base and debt increased on my chart covering 1920-1940, after a lag? And what happened when they both started dropping in 1935-36, after another similar lag?

I also think you're missing the overall point from EJ and others about the ability of a CB or government to inflate or create money at will. The world does not have to lend any country money in order for inflation to be created.


Additionally, in theory a world wide inflation or hyperinflation could occur without any country lending any other country anything.

[icm63]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I also think you're missing the overall point from EJ and others about the ability of a CB or government to inflate or create money at will. The world does not have to lend any country money in order for inflation to be created.

True, but if USA prints and prints what the point of China and Japan holding loosers, they may as well cut losses and sell, and that will be a lot of paper for the FED to buy up. Agency debt included.

[occdude]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Deflating assets are not limitless. The full scope of assets disintegrating has a bottom by definition, as assets are finite. Derivatives are inflammatory vapor, but the underlying assets can and do find a floor in valuation. Fiat money instead, is infinite and we've never observed a global economic crash in history before which occurred in a 100% fiat world. There is no "leash" or "governor" built into the fiat money engine, it can accelerate to any level required, not just in the US, but e v e r y w h e r e . I'm thinking the USD can rally for several years, but I'm under no illusion as to which effect can reach out further in time, between asset destruction and fiat money issuance, the fiat money can run a great deal further. IMO the stock market and real estate will NOT continue to KA. Real estate can limp into recovery, but the stock market can react to the upside like a scalded cat. In fact I bet it will, in about six to twelve months.

Big bada-poom in stocks not too far out. You are getting blinded by the current stock market declines into thinking along the trend most recently in motion, i.e. unholy market collapses in progress. IMO a little ways forward it will be setting the floor for a hellacious boom - one for the history books coming up **soon**, and if you say "yeah but what is going to underpin it as all the fundamentals are crap" my read (because I fear and distrust the stock markets anyway and think it's subject to huge sentiment swings) is that fundamentals can often be of overestimated prime mover value also in the equities markets, for longish periods of time anyway. 3-6 trillion of new credit shoved out the door, with banks getting legislated into lending if things get constipated enough - that is all the rocket fuel we'll need to see the DOW scoot up to 30K within five years. I bet that is exactly what we get by 2013-2014 and a great wave of "apparent" renewed prosperity can emanate out from that boom - gargantuan fiat inflation can produce some strange and improbable artifacts.

BTW, in the thick of the largest declines in history, commodities and equites have actually been positively correlated. I think it is in fact less probable to see an equities market ongoing collapse or stagnation alongside soaring commodities. I can imagine a lot of happy faced investors in the North American indexes, looking out a couple of years from now. That describes iTulip's POOM really, just suggesting it's arriving two or three years earlier. Deflation in various asset classes and wild inflation in others with steepening unemployment, and then throwing in things like booms in oil and gold - this conjunction of effects make no sense to me.

Assuming that any government entity can just "push a button" to create money is assuming that any-one entity has the authority to do that. They are in reaction mode to the market which is in real time, so there will be a lag affect between their creation of money and the markets destruction of credit. Look at all the hoops that the government has to jump through just to get 850B while the market wipes trillions off of bank balance sheets.

As far as the divergence in commodity and equity prices go. Equities are still overpriced maybe not according to trailing PE but absolutely according to future ones which are gonna show a big haircut for the next couple of quarters. Then once equities correct sufficiently to lure investors back in, it will be at very low historic PEs as befits a recovering stock market after a deflationary gang rape. Also dividend yields will have to rise above the paltry 3 percent currently to justify the risk. Try more like 8-10 percent in yields. Now commodities are not just a domestic consideration but a global one. You think Chinas gonna go back to 70s levels of consumption? I dont think so, they'll use a considerable part of their foreign dollar reserves to buy commodities to both spur domestic consumption and build infrastructure, while dropping their dollar peg being too onerous of a burdon to continuously bear and they'll be off to the races establishing a new trading block sans USA,because we'll be a basket case. The dollar with all its propagation and printing is a "dead man walking" it will lose it's foreign reserve status once something is devised to replace it. The world has no choice but to replace it because we will print it into oblivion otherwise. The Chinese are already experimenting using Yuan to settle domestic trades and if they get together with OPEC and design a new currency its all over for dollar hedgemony.

Now since we wont be able to produce energy we need in quantities we need the price will go up. Still needing to establish savings again in this country for financing a new economic paradigm away from FIRE look for decreased domestic consumption and a longer recession in labor, but the government will pay people to stay home and away from flamable objects so that will be inflationary (more dollars, less goods).

Overseas in the east they don't have the credit problems we do, they have a savings base and a poplulation willing to add to it. They have manufactoring infrastructure and a loose regulatory environment to get things done. They are going to come out of this quicker than we will and then they'll be off to the races competing for the same commodities we will which will cause commodities to rise. During the 70s stagflation we did see a decoupling of commodity and equity prices. Up until the "great deleveraging of 08" you saw a big difference in the ratio between the two. The difference is that commodities are in a secular bull market that has corrected and equities are in a flat out bear market to the past decades phony growth.

The big story of the 21st century is that the world is getting alot smaller and we are going to have to COMPETE for finite resources with our other long suffering brothers and sisters elsewhere and at least right now, they've got the jump on us until we get our heads out of our derrieres.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

True, but if USA prints and prints what the point of China and Japan holding loosers, they may as well cut losses and sell, and that will be a lot of paper for the FED to buy up. Agency debt included.

Fair enough... and although there's lots missing from that view, I think I'll just agree to disagree on the full picture.

[photoncounter]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Also note that these two relationships are not a guarantee nor am I trying to say that they're the only effect, but I'm rather trying to suggest that you or anyone look at what actually happened (and what is happening now) and make your own judgments.

Here's an article that describes how things were in the 1930's compared to now...

Bad news: we're back to 1931. Good news: it's not 1933 yet


http://www.telegraph.co.uk/finance/c...-1933-yet.html