Financial Synchronism: When Inflation meets Deflation

[DrYB/C]

Financial Synchronism: When Inflation meets Deflation

1. We interrupt this program...
http://prudentbear.com/index.php/com...y?art_id=10129
2. Brazil, Argentina start bilateral transaction with local currencies
http://news.xinhuanet.com/english/20...t_10159106.htm

At some point in the not so distant future, within the US, the prices of basic necessities and imports will skyrocket (accelerated inflation), while, simultaneously, the financial value of various production-consumption economy assets will fall significantly below their actual economic value (accelerated deflation), thus allowing anyone positioned properly to buy them at fire-sale prices.

I believe the national and international ramifications of The Event will be cataclysmic.

I believe international war is on the horizon.

[phirang]

Re: Financial Synchronism: When Inflation meets Deflation

WWI and WWII both started with a similar genesis...

[grapejelly]

Re: Financial Synchronism: When Inflation meets Deflation

the dangers of this system is that there will be major exchange rate issues dwarfing those involving the USD. This is not good news for the locals. It is actually far more likely that they are going to end up with a freeze in trade as two corrupt regimes inflating their money supply even more than the USD is inflated compete with each other towards their money becoming worthless.

Ugh.

[rj1]

Re: Financial Synchronism: When Inflation meets Deflation

At some point in the not so distant future, within the US, the prices of basic necessities and imports will skyrocket (accelerated inflation), while, simultaneously, the financial value of various production-consumption economy assets will fall significantly below their actual economic value (accelerated deflation), thus allowing anyone positioned properly to buy them at fire-sale prices.

I believe the national and international ramifications of The Event will be cataclysmic.

I believe international war is on the horizon.

I don't know you well enough to know if you're a tin hatter or not as I don't recognize your name. But wars have to have an impetus, and in the present climate, there isn't one. Even if Russia invaded Georgia or China invaded Taiwan, there's no real impetus for war. True international world war only works when all sides are itching to kill one another.

[Chris]

Re: Financial Synchronism: When Inflation meets Deflation

I don't know you well enough to know if you're a tin hatter or not as I don't recognize your name. But wars have to have an impetus, and in the present climate, there isn't one. Even if Russia invaded Georgia or China invaded Taiwan, there's no real impetus for war. True international world war only works when all sides are itching to kill one another.

Not necessarily. World war I and II were both fought to determine the constitutional form of the state (either fascism, communism/socialism or parlimentarianism). The outcome was relative peace for the last 50 years when parlimentarianism was adopted after WWII aided by economic growth under capitalism.

The question is, has parlimentarianism had its day and are we entering another period of conflict in which new constitutional forms of the state do battle for supremacy? I think that is likely.

[Supercilious]

Re: Financial Synchronism: When Inflation meets Deflation

[quote=DrYB/C;52831]Financial Synchronism: When Inflation meets Deflation

1. We interrupt this program...
http://prudentbear.com/index.php/com...y?art_id=10129

Assume a Japanese investor bought 30 year US Treasury bond in 1985 when the US$/ yen exchange rate was US$1 = Yen 250. Based on an exchange rate of US$1 = Yen 105, the investor has lost 58% of the investment. The investor can take comfort that at the low of US$1=Yen 84, the investor would have lost 66%. European investors who bought US government bonds in recent years would have also suffered significant losses. Based on the highest US$/ Euro exchange rate (Euro1 = US$ 0.85) and recent trading levels (Euro1 = US$ 1.56), the investor would have lost (up to) 46%.
Given that in a typical sovereign default the investor loses 50% to 80% of the value of the investment, the losses suffered are not far short of default. Despite "strong dollar" official policies, a case can be made that the US is in the process of defaulting on its obligations via a systematic devaluation of its currency.

This describes best the concept of a negative interest rate loan. This is why "deficits don't matter". Actually the more debt is sold, the better the global financial scam works, and the larger are their profits (the profits of the global scammers, of course).

2. Brazil, Argentina start bilateral transaction with local currencies
http://news.xinhuanet.com/english/20...t_10159106.htm

As I've said before that means nothing for the dollar, by the contrary, it proves that both Argentine and Brazil are starved for treasuries.

At some point in the not so distant future, within the US, the prices of basic necessities and imports will skyrocket (accelerated inflation), while, simultaneously, the financial value of various production-consumption economy assets will fall significantly below their actual economic value (accelerated deflation), thus allowing anyone positioned properly to buy them at fire-sale prices.

Correct. Actually the fire sale has already started. See Warren Buffett's deal with GE. My suspicion is that the same player who conned us with the dotcom, housing and commodities bubbles will be the ones to buy all goodies for the new economic cycle at firesale price.

I believe the national and international ramifications of The Event will be cataclysmic.

Mostly the international ramifications will be cataclismic. I suspect we will see an approximate repeat of the Asian Tigers Crisis to the power of 3 with major collapses from Iceland to China and Russia to Argentine, with US getting the sweet deal as the safest port fo berthing capital.

I believe international war is on the horizon.

No major wars occur in times of economic crisis. During depressions you may have extended civil wars, secessions, state collapse, but no major international wars.

Major wars occur always during the accelerated recovery path after a major crisis. It's a matter of warfare theory.

[c1ue]

Re: Financial Synchronism: When Inflation meets Deflation

Mostly the international ramifications will be cataclismic. I suspect we will see an approximate repeat of the Asian Tigers Crisis to the power of 3 with major collapses from Iceland to China and Russia to Argentine, with US getting the sweet deal as the safest port fo berthing capital.

Ha ha ha, the US as the safest port to berth capital? Even as the US government continues to expand its dilution of the dollar?

So far:

Investment Banks
GSEs
Insurance companies
Real Estate Based securities
Short term corporate paper

next:

Credit card debt
Student loan debt
entire industries starting with automotive, next airlines

And somehow this is safer?

Tell me, are you also advocating putting money into Zimbabwe?

They also are protecting their domestic assets...and in much the same way.

[rj1]

Re: Financial Synchronism: When Inflation meets Deflation

Not necessarily. World war I and II were both fought to determine the constitutional form of the state (either fascism, communism/socialism or parlimentarianism). The outcome was relative peace for the last 50 years when parlimentarianism was adopted after WWII aided by economic growth under capitalism.

The question is, has parlimentarianism had its day and are we entering another period of conflict in which new constitutional forms of the state do battle for supremacy? I think that is likely.

Really, no one gave a sh*t about the constitutional form of state, that's revisionist do-gooder sh*t to make us feel good about ourselves. Honestly, we beat Japan because we had a Congress and because they had a military junta? The whole "nuclear bomb" thing and Hiroshima and Nagasaki really had nothing to deal with it?

First off, every notable world leader in 1941 was a fascist. That was just the going views at the time.

The outcome of World War II was that communism defeated fascism at Stalingrad.

http://exile.ru/articles/detail.php?...4&IBLOCK_ID=35

The biggest lie about WW II is that it was a war between good and evil. Bullshit, because there were no good European countries.

Fact No1: They Were ALL Fascists. At a military level, let's face a nasty fact: WW II was Stalin vs. Hitler. The rest was window dressing. Stalin won because--because what, he was a nicer guy? Nope, he won because his brand of fascism was actually way more ruthless and bloody and effective than Hitler's smalltime snobbery, and because Stalin had the whole US industrial machine backing him. There's no moral lesson in that that I can see.

Of course, most of these WW II fans try real hard not to think about Stalin, so they prefer to think about Britain and the rest of Western Europe. Those are officially the good guys. Well, got some bad news for you: they were all fascists too, just weaker than Stalin and Hitler, more sly and suckup-y. The only lesson they've got to offer is that if you want to survive, start out as a raving fascist and when that becomes uncool, turn coward and start pretending you were always in favor of niceness.



Europe before Stalingrad was an alien planet, as crazy and bloodthirsty as any Aztec priest. Nobody realizes the complete flip-flop Europe did in 1945. Before that, it was a continent full of insane fascists. Some were braver, better soldiers, or smarter; those are the only real differences.

And when I say "smarter," I don't want to overdo it, because the Greatest Generation was a bunch of morons. Hitler was the stupidest of all, I grant you that, but he was just the standout in graduating class full of mongoloids in fedoras. Take Churchill, who's supposed to be a God of courage and decency and smarts. Wrong, wrong, wrong. Churchill was a buffoon. He was the moron who got Allied armies into useless Mediterranean campaigns in both World Wars. Gallipoli had Churchill's autograph all over it, and he was so stupid he tried the same crap 25 years later with the Italian adventure. He had this obsession with the "soft underbelly of Europe" which conveniently forgot about these things called "mountain ranges," like the Alps and the Apennines.

There's another inconvenient fact about Churchill: he was a fascist too, every bit as much as Hitler. Only thing is, you can't blame him much for that, because, and I want y'all to listen up here, everybody in Europe was a fascist until 1943--if they were quick on the uptake enough to see the Wehrmacht was doomed--or 1944, by which time it was obvious even to the moron majority that fascism was now officially taboo. I repeat: everybody in Europe. Fascist to the core.

Churchill's one and only reason for fighting Hitler was that he didn't want Germany challenging England for world domination. In 1936, Churchill told a British general, "Germany is getting too strong; we must smash her." That was his only objection to the Nazis. No way he could have minded their brutality, because Churchill was always in favor of violence against anybody who opposed British interests. Long before the war, he supported using concentration camps for the Boer women and kids, strafing Indian villages--and here's his enlightened democratic quote on how to deal with the Iraqi Kurds, everybody's favorite persecuted minority, from a 1919 memo: "I am strongly in favour of using poisoned [sic] gas against uncivilized tribes."



That doesn't make him a bad guy; it just makes him a standard European, pre-1945. They were all like that, only more so. You can go down the list of European countries and come up with a list of homegrown fascist parties, all totally popular and democratic, that make the Nazis look like squeamish moderates. Some of them, like the Iron Guard in Romania, make even me flinch.

And if we rotate the globe, voila!: the Asian theatre also turns out to be a classic battle of fascism vs...more fascism. The Imperial Japanese military caste was beyond fascist. Seriously, they were so hardcore that it was taboo even to suggest the possibility of anything going wrong with the grand plan for total victory, which is why nobody dared to develop anything resembling a strategic plan. That was a good way to get yourself hacked into Kobe beef. The Japanese brass responded like Travis Bickle to questions like that: "You talkin' to us? You askin' us that question? Cuz we don't see any other Japanese brass around here..." Cut to: arterial sprays where the insolent questioner used to be.

And in the opposite corner: Chiang Kai Shek, the Asian Churchill: a totally incompetent military leader and lifelong fascist who saw how the wind was blowing and repackaged himself as a crusader for democracy in order to get aid from the gullible Americans. Chiang only valued one thing: obedience. And he only trusted one guy: himself. That's why he personally held 82 official positions in China, including head of all the armed services. He picked his generals for their incompetence, because he suspected that talented men might turn against him. Any sign of independent thinking, never mind criticism, meant the chop, and I mean that literally. Chiang even had himself declared the head of the Chinese Boy Scouts, that breeding ground of coups. That was the Good Guy of the Asian theatre. Oh wait, I'm forgetting Mao, another champion of human rights.

Even the noncombatant states were fascist before the Marshall Plan showed dictators that there was more profit in talking nice. Countries tried to copy the big, bad fascists with little comedy monsters of their own, like Trujillo in the Dominican Republic or Peron in Argentina. And in their humble way, all these guys did their best to do their worst. Trujillo actually tried to prove that the Dominicans were the lost tribe of Aryanism, and ordered something like 30,000 Haitian immigrants hacked to death with machetes for being "black." Even the Mexicans tried to do the Fascist two-step, only being Mexican they went for the gaudiest color they could find, so while Germany had the brownshirts and Mussolini had the blackshirts, Mexico came up with...the Gold Shirts! "And put some frilly cuffs on that while you're at it!"

After Stalingrad, the world's fascists just figured out that if you wanted to win, you needed US backing like Stalin got, and that meant you needed a cleaner line of patter than the Nazis and Japanese used. Those hick Jerries and Japs talked death, skulls, slaughter, suicide--tsk tsk, way uncool. Stalin, on the other hand, talked peace, friendship between peoples, justice for the working class...and not only killed far more civvies than Hitler did but got funded for it by the American taxpayer. It was the original no-brainer--which was lucky because this was the Dumbest Generation since the Thirty Years War.

[Supercilious]

Re: Financial Synchronism: When Inflation meets Deflation

Ha ha ha, the US as the safest port to berth capital? Even as the US government continues to expand its dilution of the dollar?

Yes, because everything is relative. If the situation in Russia hits the fan wouldn't you try to rescue some of your money abroad ? if you have small amounts a Swiss account would do it. But if you have much more the only relatively safe heaven would be US. If you are mart you can even make some small profit, if you are not so smart but at least careful you will not loose more than 20-30% in a few years.

Of course you can choose to put your money into some Bank in Iceland, hey Kudrin said they have an excellent budget discipline :eek:

Tell me, are you also advocating putting money into Zimbabwe?

No, because they are too small and to stupid to do what the Wall Street mafia does.

[ocelotl]

Re: Financial Synchronism: When Inflation meets Deflation

Financial Synchronism: When Inflation meets Deflation

1. We interrupt this program...
http://prudentbear.com/index.php/com...y?art_id=10129
2. Brazil, Argentina start bilateral transaction with local currencies
http://news.xinhuanet.com/english/20...t_10159106.htm

At some point in the not so distant future, within the US, the prices of basic necessities and imports will skyrocket (accelerated inflation), while, simultaneously, the financial value of various production-consumption economy assets will fall significantly below their actual economic value (accelerated deflation), thus allowing anyone positioned properly to buy them at fire-sale prices.

I believe the national and international ramifications of The Event will be cataclysmic.

I believe international war is on the horizon.

So, where does WB alleged restructuring fit in this, specially if such restructuring has former Mexican President Ernesto Zedillo (1994-2000) as head?...

Interesting times indeed.

Official WB release.

[phirang]

Re: Financial Synchronism: When Inflation meets Deflation

Yes, because everything is relative. If the situation in Russia hits the fan wouldn't you try to rescue some of your money abroad ? if you have small amounts a Swiss account would do it. But if you have much more the only relatively safe heaven would be US. If you are mart you can even make some small profit, if you are not so smart but at least careful you will not loose more than 20-30% in a few years.

Of course you can choose to put your money into some Bank in Iceland, hey Kudrin said they have an excellent budget discipline :eek:



No, because they are too small and to stupid to do what the Wall Street mafia does.

from asiatimes article:

Institutions that have large amounts of foreign currency at their disposal are also state-owned or state-controlled enterprises. "Top management of these enterprises are government officials, who are not willing to take the political risk in making outbound investment decisions, seeing the failure of many such projects," the CASS economist said.

Hence the Chinese government will have to continue managing the country's $2 trillion and growing, foreign reserve. That means China will have to continue buying US Treasury bonds.

According to the US Department of Treasury and Federal Reserve, China by the end of July this year was the second-largest holder of US Treasuries, at $518.7 billion, next only to Japan's $593.4 billion. China accounted for 19.38 % of the total $2.676 trillion foreign holding of US Treasuries.

The People's Bank of China (PBoC) welcomed the recent US Congress approval of a $850 billion financial sector bailout package, saying: "China and the United States have common interest in stabilizing financial markets."

The US is expected to issue more Treasuries to raise the funds, and China is expected to be a big buyer. Hong Kong's Chinese-language Ming Pao Daily reported at the weekend that the Chinese government plans to buy at least $200 billion worth of new US Treasuries. A PBoC spokesman declined to confirm this.

"We must help the US to help ourselves,'' a Chinese government official said. "We do not want to see the collapse of the US financial system, which would be disastrous for us too." Premier Wen, on the sideline of a visit to the United Nations, has pledged all coordination and assistance to help the US out of its current predicament.

Right now, buying government-backed treasury bonds may be the safest way for China to make outbound investments. "We believe the United States is a country with good credit," Wen said in an interview with CNN last month.

http://www.atimes.com/atimes/China_B.../JJ08Cb01.html

That + Zoellick talking about getting all those countries with huge US trade surpluses (brics etc) into a "new" G7 implies that symbols is spot-f'ing-on!

let the repatriation of wealth... begin!

[c1ue]

Re: Financial Synchronism: When Inflation meets Deflation

Yes, because everything is relative. If the situation in Russia hits the fan wouldn't you try to rescue some of your money abroad ? if you have small amounts a Swiss account would do it. But if you have much more the only relatively safe heaven would be US. If you are mart you can even make some small profit, if you are not so smart but at least careful you will not loose more than 20-30% in a few years.

Actually, I would move my money into Japan if Russia really were in big trouble. But I'm looking around, and what I'm seeing is still consistent with my previous statements: the biggest (non commodity) companies in Russia were playing the US corporate game: borrowing lots of money to expand/line own pockets.

But the economy in Russia is not dependent on these companies. It is dependent on the natural gas, oil, aluminum and so forth. While prices and demand are going to go down, they're not going to disappear. Germany is still going to want lots of natural gas, as are all those uppity ex-Soviet satellites. Between Russia, Qatar, and Iran - that's a majority of the natural gas reserves in the world for example.

In addition, the reason some of my money is in Russia is not because of opportunity there per se, but is because the US is going to screw all dollar holders, everywhere, all the time.

All those who think the US is a safe haven, will get this thesis thoroughly tested in the next several years.

You're basically betting the US is too big to go Argentina.

If you view the US dollar as a share in USA, Inc. - you're arguing that USA, Inc. is too large to fail.

And how is that different than betting FNM/FRE is too big/connected to fail? And Bear Stearns? And AIG? And Lehman? And Washington Mutual? And Wachovia? GM? GE? Ford?

The most ironic thing about this whole situation is that most of these arguments about the US as too big to fail, US as safe haven, blah blah were exactly repeated in reference to the British empire and pound sterling.

Yet where is Britannia today? A policy pimple on the US' butt.

And how did that come about? Certainly wars were involved, but the means was debt. Sound familiar?

[Supercilious]

Re: Financial Synchronism: When Inflation meets Deflation

Actually, I would move my money into Japan if Russia really were in big trouble.

This is an interesting, but very dangerous, option. If you know well the place and have good connections, I agree, it may be a better solution. if not ... well ... Russia looks better than Japan.

But I'm looking around, and what I'm seeing is still consistent with my previous statements: the biggest (non commodity) companies in Russia were playing the US corporate game: borrowing lots of money to expand/line own pockets.

Exactly! The question is where the rest of the money has been going all this time. ;)

But the economy in Russia is not dependent on these companies.

Now here is the big question. If that is true in a few months Russia's economy will take off full throttle, leaving everybody else behind. If not (and the siloviki regime is an overgrown leech) they'll eat fast all their reserves by propping a doomed rouble and a zombie market and the previous collapse will be, as EJ says, from a much weaker position (I don't dare to use the term inflation anymore ).

Between Russia, Qatar, and Iran - that's a majority of the natural gas reserves in the world for example.

If there is a major energy bust, things can go into the ground in a few months.

In addition, the reason some of my money is in Russia is not because of opportunity there per se, but is because the US is going to screw all dollar holders, everywhere, all the time.

That is true, but people will be not screwed to the same extent everywhere.

All those who think the US is a safe haven, will get this thesis thoroughly tested in the next several years.

There will be no Heaven, just various degree of economic hell, and if Uncle Sam has a cave with air conditioning ...

You're basically betting the US is too big to go Argentina.

There is no bet. The dollar is to big to be compared to the poor peso. China Russia, Europe and Japan never held a mountain of pesos.

And how is that different than betting FNM/FRE is too big/connected to fail? And Bear Stearns? And AIG? And Lehman? And Washington Mutual? And Wachovia? GM? GE? Ford?

I'll be concerned the day when I'll see Berkshire, Vanguard and Sentra bankrupt (and I mean bankrupt, not defrauded into other funds that quietly left the room before the collapse)

The most ironic thing about this whole situation is that most of these arguments about the US as too big to fail, US as safe haven, blah blah were exactly repeated in reference to the British empire and pound sterling.

Yet where is Britannia today? A policy pimple on the US' butt.

Or maybe the guys who made Britannia big moved over the Atlantic, because they had more freedom to make their moves in a loose federation. I don't see them moving back to Europe or going to Russia or China.

Anyway the Russia debate should be solved soon by the evolutions on the ground.

[Guest]

Re: Financial Synchronism: When Inflation meets Deflation

C!ue - I find your arguments overall entirely more rational, but I have a really strong gut sense conviction that $#*'s description below, of the US as the sole safe haven in a chaotic, disintegrating global disorder is in fact highly compelling. I think this is in fact exactly what we will see - and by default, it leaves the US dollar the last man standing. I know, it makes not a scrap of sense from any internal fundamental reasons - unless - unless you stop to picture a global markets implosion like SE Asia in 1998, to the power of three, which plays out over several years. If you see signs of that begin to occur, mark my words, the USD will indeed see a massive and self fulfilling "safe haven" bid. And because this entire idea is so preposterous, NONE of us will have been positioned for it.

I rate this prospect as **high**, and that is what is inducing in me a deep skepticism about any elaborately laid out US dollar short positions for the immediate term. The global massive dsorder which $#* describes is essentially another version of Janszen's KA, except writ large worldwide. If that happens, you WILL SEE the US revert temporarily back to the safest haven in the bonfire. Then of course after this runs it's course the US dollar will collapse from having been massively abused to sustain a global currency role, which no national fiat currency could ever survive. I bet you this is what we will see. And in this uniquely "black swannish" environment, the precious metals as a classic inflation hedge are swimming in entirely unfamiliar waters. Gold may do well. Silver and the industrial metals - my guess is in that 1998 type global currencies meltdown environment, these semi-industrial metals would notably underperform.

But the immediate future role of the USD as the premiere safe haven bid in a global credit and currencies meltdown - I'm leaning to that idea strongly here! I think this ersatz dollar bull market has a ways to go - all the way up to 145 on the dollar index. That is a long, looong way up from here. If this happens, iTulip, one of the premiere sources of superb intel in this huge mess, will have been completely flummoxed (in the intermediate term - ultimately their macro call will be 100% correct).

Ha ha ha, the US as the safest port to berth capital? Even as the US government continues to expand its dilution of the dollar?.

Mostly the international ramifications will be cataclismic. I suspect we will see an approximate repeat of the Asian Tigers Crisis to the power of 3 with major collapses from Iceland to China and Russia to Argentine, with US getting the sweet deal as the safest port fo berthing capital.

[c1ue]

Re: Financial Synchronism: When Inflation meets Deflation

As I said, we're all going to get a chance to test our respective theories in practice.

phirang and $#* believe the present flight to safety is a straight line preview of what's to come: that the world's flight to US$ safety will subsidize the massive shoveling of credit that's been going on for the past year plus - trillions, and that this subsidy will continue into the indefinite future.

My view (and, I think, iTulip/metalman/EJ) is that it is the calm before the gust front hits. There is flight to safety certainly, but equally a massive world level deleveraging as the mini-Mes of FIRE around the world all rush for the exits (or are pushed by the collapse of their US parents).

Yet I still have not heard a good answer to my question: why would the rest of the world give their labor and commodities away for free?

The US cannot pay, and with the ongoing helicopter drops, clearly is in fact going to pave over all possible paper debts with electronic zeros.

It is exactly like the North Korean international trade method: give me money or I'll blow my own head off. But North Korea is small and the cost to help them a pittance. The US, on the other hand, is a large nation with a huge consumption monkey on its back.

Sure, the rest of the world will try to make the US' descent into fiscal sanity an orderly one - lots of reasons to prevent Mad Max from occurring in a nation with lots of nuclear warheads and experience destroying other nation's infrastructure.

But no good reason to give in to the US' monkey - that road leads nowhere good. Tough love it will be - financial methadone.