The alarm bells begin to ring in China

[Spartacus]

Re: Shanghai in free fall as oil giant plummets

As usual, it depends.
CPI plus total assets (including things like real estate & stocks), then they've had significant deflation.

I've been assuming the real estate values work their way into CPI through housing prices, so there's a proxy for real estate values in the CPI. Maybe not completely accounted for, but measured in some meaningful way.

So in all the numbers we've seen they don't include housing in CPI in any way?

[bart]

Re: Shanghai in free fall as oil giant plummets

yes, that's the point of the chart - it's a CPI chart.

Some prices fell And other prices rose, and the net effect was rising prices (rising CPI) and no "general deflation" of either definition - money supply or overall prices.

Look up the actual facts of both "CPI" measures in Japan. Both of them are lower now than they were in 1990.

[bart]

Re: Shanghai in free fall as oil giant plummets

I've been assuming the real estate values work their way into CPI through housing prices, so there's a proxy for real estate values in the CPI. Maybe not completely accounted for, but measured in some meaningful way.

So in all the numbers we've seen they don't include housing in CPI in any way?

The straight answer - in the US, housing is severely undervalued in the CPI. In Japan, its also undervalued but not nearly as much as best I can tell (there is no shadowstats.com for Japan, unfortunately).

Stocks wise, the Nikkei is still over 55% lower now than it was in 1990.

[Guest]

Re: The alarm bells begin to ring in China

AAA1 - Spot on comments by GRG55 on the secular constraints in the commodities and the highly rational bid which will be underpinning them in the environment we are entering - I would surmise Jim Rogers has many points of agreement with GRG's assessment, and Rogers puts his money where his professed views are, which is more than can be said for many fund managers.

Anyone suggesting Rogers has been "more wrong than right" needs to take a closer look at his net results - he's running a good ways out ahead a lot of the time.

_____________

That's why I disagree with those that suggest that commodity inflation is due to money supply increase, and only money supply increase. If there is no underlying demand for the good or service (including any particular commodity), there will be no inflation in that sector of the economy, no matter how much confetti the CBs of the world dump from their helicopters.

Theoretically yes. But so far it appears that the one area of global economic activity that has not (yet) been brought into gross oversupply is commodities. Twenty-five years of under-investment and other factors, including resource nationalization, stricter environmental scrutiny, lack of experienced personnel, and investor dis-belief in sustained demand, have conspired to limit new capacity additions. That the base metal mining companies are exploring for reserves on the NYSE and LSE (through M&A) is a good indicator of true opportunity constraint at a time of record free cash flow.

If (when) we see this same pattern repeat with the IOC's it will be another solid indication that petroleum supply growth is slowing. It will be rather difficult for Rex Tillerson (Exxon) or Tony Hayward (BP) to continue to argue they are not opportunity constrained (whether imposed politically or by resource geology) when they're using their cash to buy up the likes of Devon, Anadarko or Suncor.

Coupled with the global overcapacity in the supply of virtually every other good and service in the economy, these dynamics give me reasonable confidence that some substantial portion of the CB reflation effort will manifest as firm to higher prices in the commodity complex over time. Now that credit is getting tighter, funding for many marginal resource projects is likely to dry up, which will further constrain supply additions in my view.

And then there is the wild card of the SWFs. Although they seem enamoured of crippled financials this week, one would reasonably expect they will take substantial positions in the geographically diversified resource producers, of which there are very few in this world.

[jk]

Re: The alarm bells begin to ring in China

may i suggest that we restrict the use of the words "inflation" and "deflation" to economy-wide phenomena? [we can continue to argue about whether to apply them only to money supply or to the general level of prices -- however we define that.] to say "housing prices inflated" or "housing prices are deflating" is just plain not helpful. prices can rise or fall. asset prices can rise or fall. but falling asset prices is not "deflation", just as rising asset prices is not "inflation." [finster, avert your eyes!] we get into more pointless debates around here over these words....

let's argue about ideas, if argue we must. let's not argue about words.

[Spartacus]

Re: The alarm bells begin to ring in China

I would much prefer that we stop using inflation and deflation altogether

Replace "inflation" or "deflation" by the specific thing that you mean -

some of the things we use "inflation" and "deflation" to mean

rising/falling CPI / PPI
rising/fallinc price of one commodity
"general price levels"
rising credit
falling credit
more currency
less currency
rising or falling M3, M2, M1

may i suggest that we restrict the use of the words "inflation" and "deflation" to economy-wide phenomena? [we can continue to argue about whether to apply them only to money supply or to the general level of prices -- however we define that.] to say "housing prices inflated" or "housing prices are deflating" is just plain not helpful. prices can rise or fall. asset prices can rise or fall. but falling asset prices is not "deflation", just as rising asset prices is not "inflation." [finster, avert your eyes!] we get into more pointless debates around here over these words....

let's argue about ideas, if argue we must. let's not argue about words.

[GRG55]

Re: The alarm bells begin to ring in China

I would much prefer that we stop using inflation and deflation altogether

Replace "inflation" or "deflation" by what you mean -

CPI / PPI
"general price levels"
rising credit
falling credit
more currency
less currency
rising or falling M3, M2, M1

I think we should call it "the condition formerly known as inflation"...

[Spartacus]

Re: The alarm bells begin to ring in China

I think we should call it "the condition formerly known as inflation"...

Why not give it the symbol used by the performer formerly known as Prince?

[Guest]

Re: The alarm bells begin to ring in China

let's argue about ideas, if argue we must. let's not argue about words.

I like to argue points. Does that make me the biggest resident pain in the ass? Come on guys, now you can be "very frank". [ Where's Jim Nickerson? Or how about Metalman - he's about as blunt as they get! ]






[ No reply eh? My goodness, these guys take themselves so deathly seriously! There's nothing quite so drab and dull as not being able to laugh at oneself. :eek: ]

[jk]

Re: The alarm bells begin to ring in China

I like to argue points. Does that make me the biggest resident pain in the ass? Come on guys, now you can be "very frank". [ Where's Jim Nickerson? Or how about Metalman - he's about as blunt as they get! ]

no, lukester, you are not the biggest resident pain in the ass.

[Guest]

Re: The alarm bells begin to ring in China

Thanks JK, that's very magnanimous of you.







[ OK, I've been pondering this since yesterday. I give up. Who's actually the biggest resident pain in the ass? ]

[EJ]

Re: The alarm bells begin to ring in China

On inflation and deflation, much has been written here over the years. The verb uses unfortunately have more than one meaning. It's perfectly acceptable to say that a commodity or asset price has been inflating or deflating to mean rising or falling.

The nouns "inflation" and "deflation," usually preceded by an indefinite article, refer to monetary phenomena.

The meaning of the noun "deflation" is usually intended is debt deflation. Irving Fisher 74 years ago explained it as well as anyone has since then:

Fisher views price level deflation as “the root of almost all the evils” that he elaborates in six further steps (1932 p. 39). Note that, rather than taking deflation as given, he explains it as the consequence of agents’ attempt to reduce their indebtedness.9 They do so by distress selling, to raise the money for repaying bank loans. Repayment in aggregate reduces the quantity of money, or ‘deposit currency’, which causes deflation. (This last step presumably relies on his quantity equation.) Since deflation is known to increase indebtedness, Fisher’s channel closes the loop of debt-deflation, “and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast as it increases the value of each dollar owed. Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed. Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: The more the debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing. But if the over-indebtedness is not sufficiently great to make liquidation thus defeat itself, the situation is different and simpler. It is then more analogous to a stable equilibrium; the more the boat rocks the more it will tend to right itself.” - Irving Fisher (1933)

As I have written here for many years, it is this process that the Fed is dearly focused on preventing, and that keeping real rates below the rate of inflation is a critical mission.

As for inflation, as GRG55 points out, the general price level is a function of money supply, demand, and productive capacity. I'll add to that the point that the rate of change of these variables is as important as absolute levels. A hyperinflation, for example, can occur in the condition of low and collapsing demand.

[metalman]

Re: The alarm bells begin to ring in China

On inflation and deflation, much has been written here over the years. The verb uses unfortunately have more than one meaning. It's perfectly acceptable to say that a commodity or asset price has been inflating or deflating to mean rising or falling.

The nouns "inflation" and "deflation," usually preceded by an indefinite article, refer to monetary phenomena.

The meaning of the noun "deflation" is usually intended is debt deflation. Irving Fisher 74 years ago explained it as well as anyone has since then:

Fisher views price level deflation as “the root of almost all the evils” that he elaborates in six further steps (1932 p. 39). Note that, rather than taking deflation as given, he explains it as the consequence of agents’ attempt to reduce their indebtedness.9 They do so by distress selling, to raise the money for repaying bank loans. Repayment in aggregate reduces the quantity of money, or ‘deposit currency’, which causes deflation. (This last step presumably relies on his quantity equation.) Since deflation is known to increase indebtedness, Fisher’s channel closes the loop of debt-deflation, “and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast as it increases the value of each dollar owed. Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed. Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: The more the debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing. But if the over-indebtedness is not sufficiently great to make liquidation thus defeat itself, the situation is different and simpler. It is then more analogous to a stable equilibrium; the more the boat rocks the more it will tend to right itself.” - Irving Fisher (1933)

As I have written here for many years, it is this process that the Fed is dearly focused on preventing, and that keeping real rates below the rate of inflation is a critical mission.

As for inflation, as GRG55 points out, the general price level is a function of money supply, demand, and productive capacity. I'll add to that the point that the rate of change of these variables is as important as absolute levels. A hyperinflation, for example, can occur in the condition of low and collapsing demand.

over-indebtedness... such a quaint term, eh? who will pay off debts... the most indebted have no cash or assets. that'll take care of the deflation problem.

[c1ue]

Re: The alarm bells begin to ring in China

over-indebtedness... such a quaint term, eh? who will pay off debts... the most indebted have no cash or assets.

Metalman,

Are you referring to social class or economic state?

The problem we have right now is that both those with low social/economic state and those with high social and economic state have the same problem: more loans than cash. MUCH more loans than cash.

The former is a banker's tragedy, the latter is economic catastrophe.

[FRED]

Re: The alarm bells begin to ring in China

Metalman,

Are you referring to social class or economic state?

The problem we have right now is that both those with low social/economic state and those with high social and economic state have the same problem: more loans than cash. MUCH more loans than cash.

The former is a banker's tragedy, the latter is economic catastrophe.

Don't mean to step on any toes here (metalman) and maybe this supports the point you're making. From this week's commentary:

The top 20% have plenty off assets to cover debts. Everyone else?

As you say, c1ue, looks like a setup for political/economic disaster.