Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[FRED]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

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.

Okay, let's try it this way. Here is Mish vs iTulip in charts.

iTulip Ka-Poom Theory of cycles of asset price inflation, disinflation, and reflation.
The last line with the arrow is the disinflation forecast.
The rest of the chart is right out of economagic. How's that for a disinflation forecast?



Mish's "Deflation All The Time Theory" sees deflation even when inflation is rampant

What if we did it the other way? What if we said, "Inflation, inflation, inflation, inflation, inflation, inflation..." through periods of both inflation and disinflation? Then we'd be "wrong" when the disinflation part of the cycle and "right" when inflation occurred.

[raja]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Okay, let's try it this way. Here is Mish vs iTulip in charts.


What if we did it the other way? What if we said, "Inflation, inflation, inflation, inflation, inflation, inflation..." through periods of both inflation and disinflation? Then we'd be "wrong" when the disinflation part of the cycle and "right" when inflation occurred.

You have completely missed my point :eek:


Originally Posted by raja
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.

[FRED]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

You have completely missed my point :eek:


Originally Posted by raja
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.

Sorry, raja. Still don't get your point. Are you saying that goods and commodity prices can't rise while demand is falling? Is that the deflationists' point that you say is "right"?

[Kurt Horner]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Mish's "Deflation All The Time Theory" sees deflation even when inflation is rampant

I don't think Mish predicted deflation repeatedly so much as he has consistently said that it is possible in our economy. Now it looks like such a thing is actually occurring.

The market wants to purge all the excess credit (i.e. deflate) but monetary authorities have always acted to prevent that. It's not unreasonable to posit circumstances where monetary authorities can't act fast enough to offset deleveraging and deflation results.

As it stands right now it is very difficult to gauge whether the flood of new money will ultimately offset the disappearing credit. But right now, disappearing credit is clearly winning the fight despite stimulus that is at least two orders of magnitude larger than in any previous downturn.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I don't think Mish predicted deflation repeatedly so much as he has consistently said that it is possible in our economy. Now it looks like such a thing is actually occurring.

If you read his older comments on his forum on Silicon Investor, which far predates his blog, I think you will likely be surprised.

[Masher]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I don't think Mish predicted deflation repeatedly so much as he has consistently said that it is possible in our economy. Now it looks like such a thing is actually occurring.

The market wants to purge all the excess credit (i.e. deflate) but monetary authorities have always acted to prevent that. It's not unreasonable to posit circumstances where monetary authorities can't act fast enough to offset deleveraging and deflation results.

As it stands right now it is very difficult to gauge whether the flood of new money will ultimately offset the disappearing credit. But right now, disappearing credit is clearly winning the fight despite stimulus that is at least two orders of magnitude larger than in any previous downturn.

But Ka-Poom Theory accounts for both disinflation and inflation. iTulip looks at the financial system, markets, and economy as interacting processes, undergoing constant change, and can't tell assets from commodities. Mish looks at the thing as a giant, undifferentiated mass, like a train rumbling toward a knocked out bridge over a ravine. In the train goes, down it goes, and he's right!

Credit contraction and asset price deflation are bigger and moving at a faster rate than government credit and money inflation now, resuting in the disinflation that iTulip has talked about. But i this was deflation as in the USA in the 1930s or even Japan in the 1990s, in dollar terms gold will not be at $880, silver at $11, platinum at $969, oil at $40, but at $300, $4, $400, and $15 or $20. To call this deflation is to misunderstand what's really going on. It's a critical error.

[Spartacus]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Sorry, raja. Still don't get your point. Are you saying that goods and commodity prices can't rise while demand is falling? Is that the deflationists' point that you say is "right"?

FRED, I read Raja to mean "unemployed people are not going to borrow more"

and maybe

"fearful employed people are not going to borrow more"

which may leave scant numbers to take on new credit

My answer is that yes, even with mass unemployment, there still are lots of people with good credit.

AND ... there seem to be no brakes on government.

Raja, you're making the same appeal (but less hysterical, less histrionic) that some have been making for a long time - a purely emotional, hysterically stated

"that just CANNOT BE"

I can calmly get your point, but once you strip out the over the top rhetoric you can see that there is another side - on on that other side is the fact that this has never happened since fiat money took over:

mild inflation --> sustained, self-reinforcing deflation --> hyperinflation

what has happened repeatedly:

steady state ---> inflation ---> high inflation --->(rarely if ever) sustained, self-reinforcing deflation

[Chris Coles]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

If the system is predicting deflation and the reality becomes inflation then, as the change occurs and inflation starts they will be completely blindsided and will refuse to recognise the symptoms. Classic Mandarin mindset will overcome their perceptions. The more I have listened to the debate the more I have come to believe that regardless of what does happen, the system will be unable to respond. That it will lock up solid.

We often see this in a science fiction movie where the computer is asked an impossible question and because it tries to answer but cannot, it blows up. I suspect we are about to see the same effect, but this time for real. Faced with the unacceptable impossibility that they were after all wrong, they will not be able to change direction.

[Kurt Horner]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

But Ka-Poom Theory accounts for both disinflation and inflation.

Right, and it does so by assuming that the contraction/re-inflation cycle will continue much as it has in the past. But there should be a breaking point. Since the re-inflation portion of these cycles prevents full liquidation of past malinvestment, there would be a cumulative build up of misallocated resources. Eventually, you'll hit a wall at which point the only alternatives are depression or hyperinflation.

If we have hit that wall, and we might have, then it all comes down to which choice (depression or hyperinflation) benefits the dominant portion of the power elite. Loss of dollar hegemony does not benefit the elite and since the state will protect their assets ("too big to fail") the institutional pressure is decisively on the side of depression.

(Caveat: if we see a lot of nationalization, then this institutional pressure might reverse. But as of right now, hyperinflation has no real constituency.)

Credit contraction and asset price deflation are bigger and moving at a faster rate than government credit and money inflation now, resuting in the disinflation that iTulip has talked about. But i this was deflation as in the USA in the 1930s or even Japan in the 1990s, in dollar terms gold will not be at $880, silver at $11, platinum at $969, oil at $40, but at $300, $4, $400, and $15 or $20. To call this deflation is to misunderstand what's really going on. It's a critical error.

CPI has turned negative, and all of the things you cite are down from their peaks -- oil and platinum considerably so. Prices didn't immediately hurtle downward in the Great Depression either. Regardless, we agree that we're in what iTulip calls the "Ka" phase. The question is whether or not there will be much of a "Poom."

I'm not really sure either way, but I'm increasingly leaning toward the idea that this cycle is the last one and the breaking point has been reached.

[FRED]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Right, and it does so by assuming that the contraction/re-inflation cycle will continue much as it has in the past. But there should be a breaking point. Since the re-inflation portion of these cycles prevents full liquidation of past malinvestment, there would be a cumulative build up of misallocated resources. Eventually, you'll hit a wall at which point the only alternatives are depression or hyperinflation.

If we have hit that wall, and we might have, then it all comes down to which choice (depression or hyperinflation) benefits the dominant portion of the power elite. Loss of dollar hegemony does not benefit the elite and since the state will protect their assets ("too big to fail") the institutional pressure is decisively on the side of depression.

(Caveat: if we see a lot of nationalization, then this institutional pressure might reverse. But as of right now, hyperinflation has no real constituency.)




CPI has turned negative, and all of the things you cite are down from their peaks -- oil and platinum considerably so. Prices didn't immediately hurtle downward in the Great Depression either. Regardless, we agree that we're in what iTulip calls the "Ka" phase. The question is whether or not there will be much of a "Poom."

I'm not really sure either way, but I'm increasingly leaning toward the idea that this cycle is the last one and the breaking point has been reached.

Ka-Poom Theory is starting to be followed carefully on many sites around the world. For example, this analysis Deflation, Reflation and Our Oil Future:

Figure 2 — Ka-Poom Theory from Eric Janszen (itulip.com@2006).
Annotated to reflect the current recession (in gray). Note that the start of
the current downturn (December, 2007) was predicted in 2006 following
the reflation that began in 2003 after the collapse of the stock market
(Tech) bubble

Note that the period of the "Ka" disinflation begins toward the end of 2008. Mind you, this chart was created in March 2006. Note also that the period of disinflation lasts well into 2010.

That's how long we think the political and economic wheels churn and grind before the current monetary regime gives out.

Ka-Poom Theory says a brief period of actual deflation is possible, as occurred in 2001 and is occurring now.

See, it's not enough to say what is going to happen, one also has to say why and, just as importantly when, and years ahead of time, else it's not an economic forecast, it's a statement of current or near current economic conditions, weather forecast by a weatherman looking out the window to tell you if it's raining.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Loss of dollar hegemony does not benefit the elite...

Mere assertion.

CPI has turned negative...

Only if you believe both that CPI is 100% correct and not understated/manipulated, and that you do not distinguish between goods and asset inflation.

[we_are_toast]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Eat This! Deflationistas!

Buffalo's football team won't have a place in this year's Super Bowl hoopla, but don't worry, its chicken wings will.

Amid unnerving media reports that spread from here to New York City and even Seattle about a potential shortage of the Buffalo-born appetizer heading into the big game, authorities say yes, production is down and yes, prices are up.

"But there's plenty of wings," assured Richard Lobb, spokesman for the National Chicken Council in Washington.

For those scoring at home, that'll mean about 1 billion wings scarfed down over the Super Bowl weekend.

In the last week or so, some fretted that the spicy snack would be scarce for a number of reasons: the highest wholesale and retail prices in recent memory; an industrywide, economy-driven drop in production of 5 to 6 percent; a bankruptcy filing from major Texas producer Pilgrim's Pride (nyse: PPC - news - people ), though it remains in business; and a push to sell wings by restaurant chains like Pizza Hut and KFC. Taken together, connoisseurs worried that demand would outstrip supply.

And chicken wings were indeed missing for a day from the kitchen of one Niagara Falls restaurateur, but that was by design. Owner Sam Musolino refused to serve wings at Sammy's Pizzeria Monday to protest the annual price increases that arrive every year just in time for the big football weekend.

"They're basically just taking advantage of the pizzerias," said Musolino, who said he was paying $46 per 40-pound box of wings before the price jumped to $78 for the same case.

Lobb said the price is up because feed prices have gone through the roof and chicken producers have had to cut production as consumers have cut spending at casual dining restaurants that favor chicken dishes. That slump recently led to a glut of chicken on the market.

Now that supply is smaller and prices are up, Musolino said he can't pass along the temporary spike to customers - not that they'd pay anyway. "Everyone's so tapped out these days, there's no way you can raise the prices."

It's no trivial thing in this city that gave the world Buffalo wings. Anchor Bar owner Teressa Bellissimo first deep fried the wings and dunked them in hot sauce on a Friday night in 1964 when her son Dominic's hungry friends dropped in while he was tending bar. Until then, the wings were usually used for the stock pot.

Wholesale prices for fresh wings are up to $1.51 a pound this week, compared to $1.24 last year. But as of Jan. 1, the poultry industry had 38.3 million pounds of chicken wings on hand, down slightly from about 40 million pounds a year earlier, according to the U.S. Department of Agriculture.

"It's America's number one appetizer," said Drew Cerza, founder of Buffalo's annual chicken wing festival, who, incidentally, won't be frying up any wings on Sunday.

"It's my day off," he said.

http://www.forbes.com/feeds/ap/2009/...ap5983788.html
;)

[zoog]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

One thing I learned pretty early on after I started reading iTulip was to broaden my time horizon considerably. Despite myth of the slow crash, the various stages of this economic upheaval can take a long time to play out. Or they can change rapidly, it's hard to know. The suddenness surprises people, but the slowness outlasts their attention span. Our entire culture, at least here in America, has trained us to focus on the here and now... 15-second commercials, half-hour tv shows, yesterday's news is old news and what happened today is a total surprise. Is the stock market up today, things are good. Is it down today, things are bad. It really takes a concerted effort and a strong will to look beyond the short term, and the medium term, and even what most of the financial press, analysts, and economists would consider long term, to see what is eventually coming. And then prepare yourself as best you can... and wait. And wait.

[raja]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Sorry, raja. Still don't get your point. Are you saying that goods and commodity prices can't rise while demand is falling? Is that the deflationists' point that you say is "right"?

EJ said there are two components to the deflationistas' position, and that they are both wrong.

I'm saying that the second one may not be wrong.
EJ said, "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."

I'm suggesting that may be correct. People may not want to spend due to fear, as they see around them people losing jobs and stores closing. I saw a taste of this fear firsthand when my wife and her friend were shocked to find that three of the stores that had planned to shop in this past weekend had closed down.

The charts Fred posted in response to my initial post show past behavior, so I believe they do not negate my point, which refers to future behavior in respone to the deepening crisis.

spartacus did get my point . . . but he disagrees with it. His reasoning is: "even with mass unemployment, there still are lots of people with good credit. AND ... there seem to be no brakes on government."

My response is that someone with good credit may not take on more credit if they fear job loss . . . and no brakes on government only addresses the consumer credit availability side, not whether the credit offered will be used.

If I understand correctly, spartacus also suggests that this type of deflationary scenario has "never happened since fiat money took over." My response would be to point out that in this country we have never had 20% unemployment and 40% of stores closing under a fiat money regime.

Fred's missing my point -- which I believe was clearly stated -- suggests to me that there is a lot of momentum in his/her(?) thinking process on this subject, and perhaps the deflationistas' 2nd position deserves a closer analysis.

[Spartacus]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Your points are well taken. I don't claim that long term deflation is absolutely impossible, I don't think EJ does either. We do, however, have Bernanke's playbook.

At some point you just have to take a side. You could choose Mish's bombastic reasoning or EJ's less bombastic reasoning (apparently perceived by some as wishy-washy).

I've come down on the side I have because we have that playbook and are not tied an ideology saying
"the FED can do nothing",
"I'm an Austrian", or
"Rothard RUL3Z!!!, K3yn3s dr00lz!!! ".
(trying to be funny, not facetious)

My response is that someone with good credit may not take on more credit if they fear job loss . . . and no brakes on government only addresses the consumer credit availability side, not whether the credit offered will be used.

"no brakes on government" means several things
1. government can spend as much as it wants
2. they can set the stage to where there is no risk to banks writing loans
3. they can set the stage (maybe with new forms of insurance) to where there is little or no risk to people with good credit taking out loans.

Then fear don't enter into it.

If I understand correctly, spartacus also suggests that this type of deflationary scenario has "never happened since fiat money took over." My response would be to point out that in this country we have never had 20% unemployment and 40% of stores closing under a fiat money regime.

It's a good point and we don't know what will happen.
We only what Bernanke has promised to do try to fix the problem.

Fred's missing my point -- which I believe was clearly stated -- suggests to me that there is a lot of momentum in his/her(?) thinking process on this subject, and perhaps the deflationistas' 2nd position deserves a closer analysis.

Answering the same question 100 times and keeping gross photoshop'd porn off the site can be tiring, and may lead to reading something new with many of the same words as older posts as another one of those older posts.