Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

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.

TARP was created within something like 2-3 weeks, and for government that's virtually instantaneous. I submit that the current delay for the $850+ billion has much more to do with the new administration than anything else. Also note that Federal debt has been growing at over 10% annually for months.

And I urge caution on not taking what the Fed has done so far and for about a year into account, along with applicable monetary lags etc.

As of last October, I had estimated US credit & money destruction at about $3.6 trillion and to date the Fed & Treasury have added/created about $3.5 trillion... just a for what its worth.

[photoncounter]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

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.

Lukester, here's an article I found in another thread that is predicting a stock market bull in the near future...not the same as your views, but it will be interesting to see how this pans out. FYI, I am bearish, but what do I know ! As they say - "financial markets can remain irrational longer than you can remain solvent"

http://www.kitco.com/ind/Gerbino/jan272009.html

What Happens Next

• The economy stagnates for another 9-12 months then turns around.
• Unemployment goes down with the induced economic upturn.
  
• The stock market rallies but never gets above its old highs.
• Inflation comes back with a vengeance.
• Commodities resume their bull market and turn the deflationistas into inflation believers.
• Interest rates will go up with inflation and probably to much higher levels.
• The stock market will go down when interest rates start going up.
• Long term bonds will become the worst investment in the world.
• The dollar will go down but so will other currencies as many world governments print their way out of their economic woes as well.
• Gold will go to new highs.
• Housing and real estate will recover but higher interest rates will slow this sector down considerably in the future.
• The gold and silver mining stocks will become the best performing sector on Wall Street for many years.
• The price of oil will go up due to inflation and global production declines of 5-8% per year from most of the largest oil fields in the world.
• The U.S. “recovery” will help the world recover and almost all countries will have another artificial economic expansion from all the paper money they have printed as well.
• China and India will create more shortages of basic materials and commodities by the sheer size of the populations and their economic and industrial progress.
• The U.S. will have even more economic dislocations from all the new paper money and debt taken on by Washington.
• The country gets set up for the next horrible recession some time in about 3-4 years.

[Chris Coles]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

First of all the stimulus package has just been passed. http://news.bbc.co.uk/1/hi/world/americas/7857276.stm

Congress passes economic package

Mr Obama's package was passed by 244 votes to 189 The US House of Representatives has passed President Barack Obama's $825bn (Ł576bn) economic stimulus package.

Surely, the underlying reason for the package is to try and overcome the reduction in tax income caused by the financial sector problems over the last year or so? In that case, there will be no incentive for government to just as suddenly try and stop the inflationary period once it starts as the upturn in the economy will of itself bring in more tax income.

So surely that is the underlying mechanism that prevents moderation?

Once the stimulus takes traction, revenue increases... wow! so now EJ rushes in and says hey you guys, take your foot off the accelerator and they look at him as though he is the proverbial inventor with a new idea.

Not likely they say, not invented here. We like the stimulus, look it gives a boost.

And so the wheel turns faster and faster. Food for thought?

[grapejelly]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

the stimulus will make things worse. The economy will not recover. There will be one more stimulus, then another. Then another.

This is exactly what caused the Great Depression.

[Pericles]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Speaking of hyperinflation, a piece on NPR today told of the teacher's union in Zimbabwe turning down an offered thirteen trillion dollar a month salary package, which comes to US$20.

Ouch. Weimar, my ass. Mugabe.

Missing: Almost a year of zeros...


Btw, a "castle" is a beer; not a stone palace on a European hill ;-)

Seriously though, while buying into ka-poom theory, I look for disconfirming evidence. As a radical option, would a "literal helicopter Ben" affect the thinking? (the post on the next day summarises the feedback this fund manager got).

Inconceivable? ("The Princess Bride" comes to mind)

"...the whole idea won’t work because it is actually not possible to be that irresponsible..."
With a history of irresponsibility as a guide, perhaps "not possible" should be introduced to Taleb?

[The Outback Oracle]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Missing: Almost a year of zeros...


Btw, a "castle" is a beer; not a stone palace on a European hill ;-)

Seriously though, while buying into ka-poom theory, I look for disconfirming evidence. As a radical option, would a "literal helicopter Ben" affect the thinking? (the post on the next day summarises the feedback this fund manager got).

Inconceivable? ("The Princess Bride" comes to mind)

"...the whole idea won’t work because it is actually not possible to be that irresponsible..."
With a history of irresponsibility as a guide, perhaps "not possible" should be introduced to Taleb?

Yeah but at least the beer is as cheap as water!!!

[BadJuju]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

the stimulus will make things worse. The economy will not recover. There will be one more stimulus, then another. Then another.

This is exactly what caused the Great Depression.

You sound like you are depressed. You need sufficient stimulation. :p

[bill]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Surely, the underlying reason for the package is to try and overcome the reduction in tax income caused by the financial sector problems over the last year or so? In that case, there will be no incentive for government to just as suddenly try and stop the inflationary period once it starts as the upturn in the economy will of itself bring in more tax income.

So surely that is the underlying mechanism that prevents moderation?

Once the stimulus takes traction, revenue increases... wow! so now EJ rushes in and says hey you guys, take your foot off the accelerator and they look at him as though he is the proverbial inventor with a new idea.

Not likely they say, not invented here. We like the stimulus, look it gives a boost.

And so the wheel turns faster and faster. Food for thought?

5:min to 6:min says it all
http://www.pbs.org/nbr/site/research...90122_buffett/

[seanm123]

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.

Toast -Special interest groups write nearly half of the 10,000 bills that the House of Representatives and the Senate consider passing into law each congressional term. My best guess is the leaders in Congress haven't written a bill in years perhaps since they were freshmen, I have read that few even read the bills before voting. We (iTulip members) do not have a PAC or lobbying group as part of our little online learning university. Even if we did decide to fund lobbyists or start a PAC we would need lots of veterans of DC and their contacts to deal with the partisan politics that is Washington. It gets very expensive.

I have some experience since I worked for a PAC back in the 90's during Telecom deregulation, the task of getting and audience with Congresssmen and Senators is daunting. If anything take a look at the public outcry that forced the original Tarp Bill vote to fail and then the forces that made it pass, namely the threats of martial law and lobbyists.



I feel that most of us here are simply along for the ride, and like most I am trying to protect my wealth and profit where I can. I would love to be able to infuence the process but alas just watching the inaguration and who was up on the dias and reading about who funded it tells me volumes.


EJ has stated his case as to what he is up to with our politicans, and I can tell you for sure he is pissing in the wind unless someone is willing fork over enough money to challenge the lobbyists from the dark side.

[flintlock]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Sadly, I have to agree with the above.

My guess is we'll see about a 50/50 split on this new bill between pork and real stimulus. So the pigs will continue to line up at the trough.

[powersown]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Sadly, I have to agree with the above.

My guess is we'll see about a 50/50 split on this new bill between pork and real stimulus. So the pigs will continue to line up at the trough.

For what it's worth, Rush Limbaugh quoted a source today stating that approximately 12% of the bill could be considered real stimulus.

[Chris Coles]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

5:min to 6:min says it all
http://www.pbs.org/nbr/site/research...90122_buffett/

Bill, thank you for that, a wonderful interview, pity that the interviewers microphone was not well positioned. But a transcript is also available and I took the liberty of passing this small part on to everyone.

http://www.pbs.org/nbr/site/onair/transcripts/090122t/

WB: Well I've learned my lessons before that. I read a book what is it, almost 60 years ago roughly, called The Intelligent Investor and I really learned all I needed to know about investing from that book, in particular chapters 8 and 20 so I haven't changed anything since.

SG: Graham and Dodd?

WB: Well that was Ben Grahams' book The Intelligent Investor. Graham and Dodd goes back even before that which was important, very important. But you know you don't change your philosophy assuming you think have a sound one and I picked up I didn't figure it out myself, I learned it from Ben Graham, but I got a framework for investing that I put in place back in 1950 roughly and that framework is the framework I use now. I see different ways to apply it from time to time but that is the framework.

SG: Can you describe what it is? I mean what is your most important investment lesson?

WB: The most important investment lesson is to look at a stock as a piece of business not just some thing that jiggles up and down or that people recommend or people talk about earnings being up next quarter, something like that, but to look at it as a business and evaluate it as a business. If you don't know enough to evaluate it as a business you don't know enough to buy it. And if you do know enough to evaluate it as a business and its selling cheap, you buy it and don't worry about what its doing next week, next month or next year.

[Slimprofits]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Thanks Bill!

This is a great line:

We've got money left, but I love spending money. Cash makes me very unhappy.

I think this is the par that Bill was referring to:

SG: We all know that in the long run everything is going to work out, but as you analyze President Obama's economic plan, what do you think are the trade-offs? What are the consequences?

WB: Well the trade-off... the trade-off basically is that you risk setting in motion forces that will be very hard to stop in terms of inflation down the road and you are creating an imbalance between revenues and expenses in the government that is a lot easier to create than it will be to correct later on, but those are problems worth taking on, but you don't get a free lunch.

[sunskyfan]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The only thing that I quibble about in the analysis is that the FED does have an infinite balance sheet but it cannot move infinitely fast let alone the need for this influence to be EVENLY inlfuentual across the economy. We are hitting a asymptotic even in the economy. Whether we approach infinite from the positive side (inflation) or the negative side (deflation) only makes a difference in the amount of time to get there. Things seem to be moving very fast to me. I have never thought much of "Armegeddon" thinking but then again I never thought I would loose money as a defrense researcher during a war.

[raja]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Once past this first part of the deflationista's argument, the next is the "you take a horse to water but can't make him drink" argument, that the Fed can create all the money in the world but it can't make households and businesses spend it.

With a 10% or 20% unemployment rate in the works, and 30% or more of the retail stores on the way to being shuttered, I don't think the American consumer is going to be in the mood to spend, even if the gov't gave them the money, much less lent it to them putting them further in debt, even at no interest. Looks what's happening right now as an indicator of things to come?

And the stimulus package? Do you think the government will be able to foster trust in "the system" by the time the stimulus "takes effect"? Things will be much worse by that time.

I'm not saying this means deflation, but IMO it certainly deflates iTulip's contention that the deflationistas are wrong on this point.

If people think that money will become worthless through inflation (when they learn what that means), they might spend it . . . but probably more for survival items than for cars, computers and TVs . . . and to pay down debt.