Inflaton?

[Roughneck]

http://www.marketoracle.biz/Article11844.html

I know what I tulips stance is.what say you?

[ASH]

Re: Inflaton?

http://www.marketoracle.biz/Article11844.html

I know what I tulips stance is.what say you?

(Channels Metalman...)

Does not appear to consider the inflation channels with which iTulip is most concerned. Does not appear to consider differences between net-creditor vs. net-debtor countries in drawing parallels to Japan. Talks about Japan having been in a "deflationary spiral" rather than stagnating at the boundary of low deflation and low inflation.

I don't think the analysis is worthless, I just think it is incomplete. Also, I trust Bart's numbers more than his, with respect to changes in total money/credit.

[Roughneck]

Re: Inflaton?

I think it highlites a couple of intersting points of discussion. One being the importance of making sure you are on the right side of the debate for financial reasons. Also, that higher energy prices can actually be deflationary to the larger economy as spending for energy consumes more of household income at the expense of other spending. I do believe that the massive increase in the money supply has only served to rebalance banks reserves in light of massive losses. I do think that our massive deficits will lead to a weaker dollar and that will be inflationary. I'm just havig a hard time with the "hyperinflationary" scenario due to the increase in the money base given the trillions of dollars of a black hole it's trying to fill. But, I do value honest debate and opinions. That is what we are here for no?

[metalman]

Re: Inflaton?

I think it highlites a couple of intersting points of discussion. One being the importance of making sure you are on the right side of the debate for financial reasons.

well... obviously. you don't want to hold gold/silver if you forecast a deflation spiral... unless you are a nitwit like mish.

thing is, there hasn't been a single instance of deflation since gov't went off the gold standard. not one. dozens of inflations, tho.

ever google truth about deflation?

google is you friend!

Also, that higher energy prices can actually be deflationary to the larger economy as spending for energy consumes more of household income at the expense of other spending.

impossible. that's not how inflation works. give me one example of a country where energy prices went up but prices deflated in the economy. asset prices, sure. but not commodity prices.

I do believe that the massive increase in the money supply has only served to rebalance banks reserves in light of massive losses. I do think that our massive deficits will lead to a weaker dollar and that will be inflationary. I'm just havig a hard time with the "hyperinflationary" scenario due to the increase in the money base given the trillions of dollars of a black hole it's trying to fill. But, I do value honest debate and opinions. That is what we are here for no?

itulip has never once forecast hyperinflation. the argument you find here is for high inflation... like 100% over 5 - 6 years.

[icm63]

Re: Inflaton?

Hyper Inflation can not happen in a senior credit economy (Bob Hoye). As consumer will not borrow the money to spend it, 'pushing on a string' does not work.

Rising Unemployment with rising savings rate at an aggressive rate means rising velocity of money (and thus excessive inflation) is way off, maybe years. This may see the gold bulls take profits, large.

New Gold positions : WAIT till JAN 2010, for revaluation of the situation.
Or exit all positions or take profits now on 50% of your stock.

Deflation: Real or 'may feel like it'. Depends on consumer confidence.

there hasn't been a single instance of deflation since gov't went off the gold standard. not one

BUT this is the first massive credit explosion since the gold standard was dropped. So never say never.

[metalman]

Re: Inflaton?

Hyper Inflation can not happen in a senior credit economy (Bob Hoye). As consumer will not borrow the money to spend it, 'pushing on a string' does not work.

Rising Unemployment with rising savings rate at an aggressive rate means rising velocity of money (and thus inflation) is way off, maybe years. This may see the gold bulls take profits, large.

New Gold positions : WAIT till JAN 2010, for revaluation of the situation.
Or exit all positions or take profits now on 50% of your stock.

is hyperinflation possible?

For a nation to experience a hyperinflation, all four of the following conditions need to be met:

1. Large and growing external debt as a percentage of GDP with falling GDP (Yes, like the US.)
2. Politically and economically isolated and irrelevant (Not like the US. Think: Zimbabwe.)
3. No external demand for the currency (Not like the US dollar. Think: Iraqi Dinar.)
4. Political chaos (i.e., tanks rolling down the street, not like the US.)

[Kadriana]

Re: Inflaton?

well... obviously. you don't want to hold gold/silver if you forecast a deflation spiral... unless you are a nitwit like mish.

thing is, there hasn't been a single instance of deflation since gov't went off the gold standard. not one. dozens of inflations, tho.

ever google truth about deflation?

google is you friend!


impossible. that's not how inflation works. give me one example of a country where energy prices went up but prices deflated in the economy. asset prices, sure. but not commodity prices.



itulip has never once forecast hyperinflation. the argument you find here is for high inflation... like 100% over 5 - 6 years.

Ok, I understand inflation eventually happens. It's the nature of a fiat currency. I keep on thinking about the three things that the other post said had to happen to have deflation. You said the first one wasn't as important, unemployment over 20 mil. as the other two. Well, aren't we starting to see an increase in taxes, especially on the local level and now with talk of cap and trade. I would be surprised if taxes don't go up for the upper income earners in this country in the next year or two. Now that just leaves the third one, the government cutting back on spending. Is the federal government printing enough money in the short run to trump the unemployment, and taxes going up for certain people? Does how often money change hands matter? I know inflation and deflation have around 7 different definitions a piece. I'm talking about deflation in the sense that wages decrease and the price of goods decrease.

[WildspitzE]

Re: Inflaton?

Hyper Inflation can not happen in a senior credit economy (Bob Hoye). As consumer will not borrow the money to spend it, 'pushing on a string' does not work.

Rising Unemployment with rising savings rate at an aggressive rate means rising velocity of money (and thus excessive inflation) is way off, maybe years. This may see the gold bulls take profits, large.

New Gold positions : WAIT till JAN 2010, for revaluation of the situation.
Or exit all positions or take profits now on 50% of your stock.

Deflation: Real or 'may feel like it'. Depends on consumer confidence.



BUT this is the first massive credit explosion since the gold standard was dropped. So never say never.

You keep on posting that same statement.

I respect Bob Hoye, and read his stuff, among other things, but:
(1) What the hell does a senior credit economy mean? and, what do you think that means?

(2) How does he define hyperinflation? Has someone asked him about his thoughts on mass inflation?

[ThePythonicCow]

Re: Inflaton?

My guess is that Hoyes is right - no hyperinflation in the senior currency.

Hyperinflation is always and everywhere a criminal event. Big dog destroys little dogs currency.

The biggest dog does not destroy his own currency, nor does he allow others to destroy it for him.

[ASH]

Re: Inflaton?

I'm talking about deflation in the sense that wages decrease and the price of goods decrease.

In that sense, deflation is happening right now. Officially, the unadjusted CPI fell by 1.3% over the twelve months ending in May. Also, rising unemployment and reduced working hours for those who remain employed have to mean that in aggregate, wages are falling.

As you say, folks seem to have umpty-zillion different ways to define inflation versus deflation. I am persuaded by iTulip that a deflationary spiral in which falling demand and employment (and prices) perpetuate and reinforce each other is the case that is of greatest sociological importance. Stagnation and sporadic bouts of mild deflation don't rise to that level.

iTulip talks about sustained high inflation... like 15% per year for 5 years (i.e. such as to compound to a 100% increase in prices over 5 years). That would be significant. I think deflation on the same scale would also be significant. But if we're only talking a few percent -- and if it's interspersed with periods of flat or mild inflation -- then I think we're talking about something else. That something else is more like Japan's experience, which didn't rise to the level of being a deflationary spiral. But it sure as heck was stagnation.

Is the federal government printing enough money in the short run to trump the unemployment, and taxes going up for certain people?

As far as I can tell, not yet. On the other hand, a true deflationary spiral has not developed yet, either. I think we are squarely in Japan territory right now -- which is an observation that Niels C. Jensen made in the Market Oracle post that was linked above. The point I disagree with is (a) that the Japanese example constituted a deflationary spiral, and (b) that the likely outcome of America's policy response will be the same as for Japan, given the differences in our trade and external debt position.

Does how often money change hands matter?

Most definitely. Jensen correctly states that the bank reserves created thus far won't have a big impact on the supply of money chasing goods and services unless banks lend against those reserves. The phrase "how often money changes hands" is another way to say "velocity of money", in the classical price model. If no one is borrowing and spending, we're not going to see inflation from this channel. Jensen correctly says that only in the case of a V-shaped recovery (which it seems no one believes in) will these reserves result in near-term inflation. However, EJ's ka-POOM theory is about a different inflation channel. Anyway, even if ka-POOM fails to materialize, depending upon how a recovery in employment is paced relative to a recovery in borrowing and lending, many of us expect that the Fed will eventually have to choose between snuffing out a nascent recovery by draining excess reserves from the system, or accepting high inflation. But given the dismal prospects for the economy right now, that scenario is further out.

I'm pretty sure that a currency-related POOM is the main inflationary risk in the near term. Absent POOM, I expect a long period of Japan-style stagnation, followed by high inflation when the Fed is slow withdrawing bank reserves for fear of killing the recovery. However, during that period of stagnation, the political pressure will be for more stimulus and more borrowing -- all the sort of thing that makes POOM more likely.

[Kadriana]

Re: Inflaton?

In that sense, deflation is happening right now. Officially, the unadjusted CPI fell by 1.3% over the twelve months ending in May. Also, rising unemployment and reduced working hours for those who remain employed have to mean that in aggregate, wages are falling.

As you say, folks seem to have umpty-zillion different ways to define inflation versus deflation. I am persuaded by iTulip that a deflationary spiral in which falling demand and employment (and prices) perpetuate and reinforce each other is the case that is of greatest sociological importance. Stagnation and sporadic bouts of mild deflation don't rise to that level.

iTulip talks about sustained high inflation... like 15% per year for 5 years (i.e. such as to compound to a 100% increase in prices over 5 years). That would be significant. I think deflation on the same scale would also be significant. But if we're only talking a few percent -- and if it's interspersed with periods of flat or mild inflation -- then I think we're talking about something else. That something else is more like Japan's experience, which didn't rise to the level of being a deflationary spiral. But it sure as heck was stagnation.



As far as I can tell, not yet. On the other hand, a true deflationary spiral has not developed yet, either. I think we are squarely in Japan territory right now -- which is an observation that Niels C. Jensen made in the Market Oracle post that was linked above. The point I disagree with is (a) that the Japanese example constituted a deflationary spiral, and (b) that the likely outcome of America's policy response will be the same as for Japan, given the differences in our trade and external debt position.



Most definitely. Jensen correctly states that the bank reserves created thus far won't have a big impact on the supply of money chasing goods and services unless banks lend against those reserves. The phrase "how often money changes hands" is another way to say "velocity of money", in the classical price model. If no one is borrowing and spending, we're not going to see inflation from this channel. Jensen correctly says that only in the case of a V-shaped recovery (which it seems no one believes in) will these reserves result in near-term inflation. However, EJ's ka-POOM theory is about a different inflation channel. Anyway, even if ka-POOM fails to materialize, depending upon how a recovery in employment is paced relative to a recovery in borrowing and lending, many of us expect that the Fed will eventually have to choose between snuffing out a nascent recovery by draining excess reserves from the system, or accepting high inflation. But given the dismal prospects for the economy right now, that scenario is further out.

I'm pretty sure that a currency-related POOM is the main inflationary risk in the near term. Absent POOM, I expect a long period of Japan-style stagnation, followed by high inflation when the Fed is slow withdrawing bank reserves for fear of killing the recovery. However, during that period of stagnation, the political pressure will be for more stimulus and more borrowing -- all the sort of thing that makes POOM more likely.

Thanks. I'm just wondering if we're on the edge of a deflationary spiral where so much of our economy is consumer based. You have everyone who has been unemployed about ready to run out of checks. You have everyone who has gotten a pay cut, furloughs or cut hours. Now, you have local government workers that are going to start having to let go of people. I know our local school district was asked to lay off 24 people including 19 teachers and we're a fairly small school district. You multiply that through out the state and that's a lot of people left to be laid off.

[metalman]

Re: Inflaton?

Thanks. I'm just wondering if we're on the edge of a deflationary spiral where so much of our economy is consumer based. You have everyone who has been unemployed about ready to run out of checks. You have everyone who has gotten a pay cut, furloughs or cut hours. Now, you have local government workers that are going to start having to let go of people. I know our local school district was asked to lay off 24 people including 19 teachers and we're a fairly small school district. You multiply that through out the state and that's a lot of people left to be laid off.

Everyone is wrong, again – 1981 in Reverse Part I: The Great ...

20 posts - 12 authors - Last post: Apr 30
As previously noted, starting in Q3 2009 we should start to see the inflationary impact of the credit crunch induced supply crash. ...

[sishya]

Re: Inflaton?

Hyper Inflation can not happen in a senior credit economy (Bob Hoye). As consumer will not borrow the money to spend it, 'pushing on a string' does not work.

Rising Unemployment with rising savings rate at an aggressive rate means rising velocity of money (and thus excessive inflation) is way off, maybe years. This may see the gold bulls take profits, large.

New Gold positions : WAIT till JAN 2010, for revaluation of the situation.
Or exit all positions or take profits now on 50% of your stock.

Deflation: Real or 'may feel like it'. Depends on consumer confidence.




BUT this is the first massive credit explosion since the gold standard was dropped. So never say never.

Good reasoning.. I lean towards this hypothesis. All this talk of Inflation NOW is premature I think.

[Kadriana]

Re: Inflaton?

Everyone is wrong, again – 1981 in Reverse Part I: The Great ...

20 posts - 12 authors - Last post: Apr 30
As previously noted, starting in Q3 2009 we should start to see the inflationary impact of the credit crunch induced supply crash. ...

I understand that we'll eventually see inflation because demand will be greater than supply eventually and other countries are going to realize the US dollar is not the best place to invest. I guess I don't see demand being greater than supply nor people wanting to buy for a year, possibly two. I'm at a bad area for unemployment though and malls, not just stores, are dieing off here so maybe it's a lot different in other parts of the country.

[WildspitzE]

Re: Inflaton?

My guess is that Hoyes is right - no hyperinflation in the senior currency.

This is where I was heading to with my 2nd set of questions, specifically I'd like to better understand Hoye's thoughts on mass inflation. As we've discussed in the past, my real concern is mass inflation - not only because of the quasi-precedent in the US, but because I don't think that hyperinflation would be allowed to happen. My concern is that too many people (outside of itulip) dismiss the inflationary side of the equation because they focus on hyperinflation, and ignore the potential damage that they most likely will face with mass inflation. That said, you never know because governments tend to pooch the best laid plans -- so hyperinflation should be treated with caution IMO.

Hyperinflation is deadly, and I mean that literally too. Preparations for this scenario entail a helluva lot more than just investing in gold, and buying some land. It's a complete lifestyle change where the root of this change comes from the destruction of the division of labor. Mass inflation maims, and a lot of people won't survive the extent of the maiming. However, it is more achievable to prepare for it.

My thoughts are that mass inflation changes to either hyperinflation or to recession/depression/bottoming out process. As the maiming begins, people begin to adjust by buying hard assets and/or going into debt. Thus, mass inflation is akin to dusk or dawn... it doesn't hang around for 10 years. If hyperinflation shows up, then your mass inflation protections may come in handy -- and may mitigate some of the pain. If the alternate shows up, you better be prepared to hit the exit on your mass inflation protections before everybody else does.

All this talk makes me want to buy some more mass inflation protection. Speaking of which, I need to order some more supplies.