Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[Slimprofits]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

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...

Thank you, Bart.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

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

There's both some incorrect or incomplete facts there and its also missing many other stat comparisons.

Monetary & fiscal stat comparisons, 1929 and now

[marvenger]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

EJ was saying the government can increase and decrease the money supply to counteract deflation spirals and hyperinflations but they cannot control the purchasing power of the dollar by doing this, especially when they spend on crap programs. Foreigners buying dollars was what was and still is giving the dollar its purchasing power.

[*T*]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Can you make an argument as to why it would be politically-expedient to do so for them?

It isn't politically expedient as a deliberate choice, but to avoid hyperinflation presumes a level of fine control in withdrawing and the ability to withdraw the liquidity without re-imploding the economy. We have already seen the sledgehammer approach from Bernanke.

When the time comes to withdraw the liquidity, the 'balance of risks' will point towards leaving it in the system. Remember the Fed's credibility is based on being effective deflation fighters, not effective inflation fighters. To withdraw would require a cultural shift at the fed, which would only happen after the event.

It's really not wholly different from EJ's scenario, except that I think it will come through disorderly currency adjustment. The adjustment through higher interest rates will not be available as the fed will be buying treasuries.

[labasta]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Another EJ article which is slightly out of my league.

I can see the deflationistas argument as bogus or beaten, but I can't seem to get my head around the difference between inflation and hyperinflation.

Is it true that at the moment the US's creditor nations are not buying as much dollars as before due to the economic slowdown (but they are still buying)?

Would someone be so kind as to continue with that story and show me the difference between the inflation and hyperinflaiton thesis.

Thank you.

[we_are_toast]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

What the Fed and Treasury cannot do, however, is increase the purchasing power of the money created, regardless of quantity, or the creditworthiness of the US. These are only earned by sound fiscal, economic, and trade policy, and here the US, in the name of fighting a short term crisis, is heading in the wrong direction, with stimulus programs without a clear return on investment, and spending commitments that bring the nation's global credit limit into question.

For a nation with so much internal and external debt, inflation is not only possible but also the most politically convenient outcome in the long run, and one that the current structure of debt allows without the exertion of political will to deal with the debt in a way that diffuses the growing conflicts of interest between debtors and creditors as the crises deepens.

The above statement implies that the advice you gave to your congressional contacts was not taken, or had a negligible impact on the legislation currently going through congress. I have argued in other threads that I thought it might not be an efficient use of iTulip's analytic skills to propose a detailed solution to the current crises, but rather a better use would be to analyze the solution that will actually get implemented.

I would be very interested in knowing what brought you to make the above statement.

[FRED]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The above statement implies that the advice you gave to your congressional contacts was not taken, or had a negligible impact on the legislation currently going through congress. I have argued in other threads that I thought it might not be an efficient use of iTulip's analytic skills to propose a detailed solution to the current crises, but rather a better use would be to analyze the solution that will actually get implemented.

I would be very interested in knowing what brought you to make the above statement.

If you'd like this answered, recommend you post your question as an Ask EJ in the subscription area.

[Charles Mackay]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Maybe the secret fed cam should be sent in today? Rick Santelli reports of secret FED meetings going on Tues and Wed. this week... all very hush hush. :eek:

I think the only way EJ's soft landing is possible is if capital controls and even limits to bank withdrawals are implemented first. The smart money is just too mobile and we all have trigger happy fingers on our own keyboards!

I can foresee a scenario where the crisis intensifies allowing the above to be legislated and then the massacre of the savers takes place.

That is why I'm not sure trying to time the exit from your T Bill stash is such a good idea. I think it's rather risky to not have a significant chunk of your portfolio already protected.

[vinoveri]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

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.

So instead, as has been suggested before, give everyone a debit card for $12k which they must spend at least $1k pe rmonth over the following year or lose it. No hoarding possible and no deflation. $12k x 100million households = $1.2trillion - a small fraction of what's been committed to the banking/investors sector so far.

Equity while a fundamental concept of justice, seems to be often ignored by the elite.

[phirang]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

So instead, as has been suggested before, give everyone a debit card for $12k which they must spend at least $1k pe rmonth over the following year or lose it. No hoarding possible and no deflation. $12k x 100million households = $1.2trillion - a small fraction of what's been committed to the banking/investors sector so far.

Equity while a fundamental concept of justice, seems to be often ignored by the elite.

The treasury market would explode, destroying asset prices.

Epic FAIL.

[vinoveri]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The treasury market would explode, destroying asset prices.

Epic FAIL.

It needs to pop IMO.
What's holding it together now?

[phirang]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

It needs to pop IMO.
What's holding it together now?

client oil exporters...

[grapejelly]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The aim of CBs and government is the same. They want to drive asset prices higher in nominal currency.

They are unhappy because asset prices are falling, in currency terms. I use the word "currency" to mean fiat of course.

People interpret this fall as deflation but it is not. I won't rehash the argument I already made. Just pointing out that the effect of assets falling in currency terms is a dramatic drop in the ability of banks to lend and borrowers to borrow.

So less currency will be borrowed into existence.

The government and CBs will NEVER tolerate this. Therefore they will, whatever the cost, put money into the banks in unlimited amounts, without appearing to do so, an force banks to lend and borrowers to borrow.

All to drive asset prices up in currency terms.

This *will* happen.

Mish has long argued "you can't force borrowers to borrow." But in reality you can. You can drop interest rates to zero and make credit available in unlimited amounts.

You reliquify your captive nationalized banks through good-bank bad-bank.

Take over all the bum assets. And don't pay interest on reserves. Banks must pay interest to depositors, so they will be forced to try to lend.

The government will be their primary client, of course. The government will borrow in almost unlimited amounts, and pay a low rate but one that allows the banks to make a "profit".

The money so created will then filter into the economy.

The government spending will increase the share of GDP taken by the government and this is highy destructive to productivity and wealth.

You will see a larger flood of wealthy successful people move their assets out of the US.

It is not fun. The stuff happening in the UK is probably a few years ahead of the US, or maybe a few months...but the same thing will happen in the US.

[BadJuju]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

It is not fun. The stuff happening in the UK is probably a few years ahead of the US, or maybe a few months...but the same thing will happen in the US.

I would certainly hope it is a few years ahead, if only to give me more time to prepare. :mad:

[Guest]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Fully agree with your assessment as to the very powerful pincer-effects converging upon commodities prices. Probably one of the best longer term investment stories out there stretching right out into the 2030's. My comment about "no decoupling" between commodities and equities was in reference to the extent of market crashes. During crashes they move together up or down more often than not. My only point of disagreement with your call is that the equities markets **must** carry out a long crash or remain lifeless after the current crash. I believe there is a very high probability the equity indexes in the US are going to soar - more than the commodities even - and all within the next 5 years. Your PE valuations are old school. The monetary events in progress have not even the most remote parallel in the past 50-100 years. That is not an insignificant point with regard to casting bets on the near future direction of equities. IMO US equity indexes have a good shot at spearheading the global economic recovery, with the monetary *cures* in progress serving as nitro rocket fuel. I know, it seems wildly implausible at the present time.

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.