Deflation: Making Sure "It" Doesn't Happen Here

[friendly_jacek]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Isn't this pretty much what EJ has been saying?

No, last time I checked it was "disinflation but not deflation."
However, I did notice that EJ was invested for severe deflation since 2007.

[GRG55]

Re: Deflation: Making Sure "It" Doesn't Happen Here

No, last time I checked it was "disinflation but not deflation."
However, I did notice that EJ was invested for severe deflation since 2007.

I'm agnostic to whether its called disinflation, deflation, period of Ka, or anything else. The point is that the inflationary period is a direct consequence of the preceeding disinflation/deflation/Ka/non-inflation/whatever. We can't have the inflation that many around here are impatient to see happen, without the preceeding event, otherwise there would be no need for the reflation policy response. And as you and EJ [and a good number of others including $#* & Finster] point out, that "preceeding event", in this cycle, ain't over yet.

[marvenger]

Re: Deflation: Making Sure "It" Doesn't Happen Here

what makes me unsure about ka-poom is that it seems to be based on the assumption that a relatively controlled inflation is the best outcome. But all this talk of printing and weimar and zimbabwe is clearly not controlled inflation, so maybe this controlled assumption of ka-poom in this final phase of debt backed money having been created to it fullest carrying capacity of the economy is not valid. I'm not saying poom is not going to happen, what i'm saying is that if the quantitative easing occurs weimar is possible and this may be a reason to not go down that route.

[c1ue]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Here is the iTulip's "precise definition of deflation" from http://www.itulip.com/glossary.htm#D

"deflation : n. negative rate of inflation, e.g., "CPI inflation averaged -1.3% in 2007."

According to that definition, we DO have deflation as documented by the most recent CPI report.

What I find humorous on iTulip, that people refuse to think and just accept the dogma that we have disinflation but not deflation. I understand that EJ invested a lot in ridiculing deflation lately, but there is nothing wrong with admitting mistakes and moving on.

F_J,

You are trying to argue like a lawyer.

EJ and Fred have clearly stated on several occasions that deflation should be defined beyond a mere negative number, but as a self-reinforcing spiral.

While the iTulip glossary apparently has not been updated - I think it is silly to say that the iTulip glossary is somehow of greater credibility than the individual upon whom this site was built around.

Sorry, but most people would disagree. This is why we have irrational bubbles (as well as irrational selling).

F_J,

If major stock market drops are truly self-reinforcing, then we'd see much larger swings than 5% or even 10%. The reason we do not is that even when times are bad, there are always buyers.

Certainly over time the markets do go lower, but I think it is difficult to point to this as a self-reinforcing selling spiral as opposed to fundamental changes in expectations for corporate performance.

As for the derivatives being the zero game, don't know, as I'm not an expert on this. I took Buffet's word for it when he called them WMD.

As I noted in a thread in Rant n Rave, Sir Warren's statement about derivatives came from his own personal experience. The point about derivatives is still valid: until the event occurs then the derivative is worthless, and the events can be of a type that literally never occur.

The real problem is the financial description of said likelihood; whether by incorrect assumptions or systematic gaming of financial reporting - the trouble arises when events occur AND it turns out the collateral backing was insufficient.

The major note from Sir Warren's 2003 (?) annual report was that the derivatives which caused him and Berkshire so much pain were fairly valued and backed by collateral according to present standards of accounting.

The conclusion I drew from this was that valuation metrics and accounting standards at present are completely unreliable with respect to the actual impact of derivatives.

[friendly_jacek]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Clue,

Again, I'm not sophisticated enough to be an expert on derivatives.
Other, better informed, people claim that it is the major problem in the depression of 2007. The latest figure I heard was from Bill Cara: $55T CDS that need to be written off the books of financial institutions. That makes them all effectively bankrupt, probably worse then 1929.

Maybe EJ has some numbers on bad CDS? If one has a firm figure and a rate of reflation, then one can calculate the remaining time of deflation to come?

[xela]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Clue,

Again, I'm not sophisticated enough to be an expert on derivatives.
Other, better informed, people claim that it is the major problem in the depression of 2007. The latest figure I heard was from Bill Cara: $55T CDS that need to be written off the books of financial institutions. That makes them all effectively bankrupt, probably worse then 1929.

Maybe EJ has some numbers on bad CDS? If one has a firm figure and a rate of reflation, then one can calculate the remaining time of deflation to come?

Numbers are mindblowing, I recently read that given the evolving worldwide recession and probable depression in the US payments of at least 15 trillion us$ will have to be made over the next years if the CDS are not voided. The latter being called here in Italy by our oh so very apt minister of economics; if you don't mind the source you can read it here: (edit link killed by iTulip):
google giulio tremonti catholic university erase derivatives monster

[grizam303]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Xela, is the link you're referring to just a 2-page PDF? I can't find it if not...

[xela]

Re: Deflation: Making Sure "It" Doesn't Happen Here

Xela, is the link you're referring to just a 2-page PDF? I can't find it if not...

The original in italian is a 2 page pdf: http://rassegna.governo.it/rs_pdf/pdf/JXP/JXPV5.pdf