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Albert Edwards: Europe Is On The Edge Of A Deflationary Precipice That Will, Paradoxically, Usher In 20-30% Inflation

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A few days ago we pointed out that the latest Japanese GDP deflator came at multi-decade lows, this despite years of printing, pumping and other -ings. Today, Albert Edwards takes the observation of rampant regional deflation and concludes precisely what we have long claimed, that once rampant deflation is finally acknowledged by central bankers everywhere, and they are now running out for time, their only natural response to preserve the system will be to do what Japan has been doing for decades (successfully, they will claim) and respond with the most extreme round of monetization ever seen, "inevitably driving us towards out ultimate destination - 1970's style 20-30% inflation." Edwards also has an interesting observation in the aftermath of Tuesday's "no more incumbents" Primary Election results - with the administration now realizing it is losing the economic battle, it will instead focus on keeping some political credibility. To do that, Obama will attempt to focus voter anger abroad. And the resulting trade tensions, particularly with China, will be the catalyst for "shock Chinese yuan devaluation." Needless to say, we wholeheartedly agree with Edwards conclusion that "a global downturn is close." We also do not disagree with his bullish case for gold in the least.

From Soc Gen's Albert Edwards: The US and eurozone now stand on the edge of a deflationary precipice.

Amid all the recent euro-related turbulence, the markets have not focused enough attention on the rapidly vanishing core CPI inflation rates in the US and eurozone. With both moving below 1%, we are now only one cyclical mishap from joining Japan in outright deflation. Given our view that this cyclical recovery will end surprisingly early, slipping into the deflationary mire will trigger further, more extreme rounds of Central Bank monetisation, inevitably drivingus towards our ultimate destination – 1970’s style 20-30% inflation will surely return.

Of all the inflation data released this week, the one that caught the markets? attention was the UK?s dramatically higher than expected 3.7% yoy rise for April. Even the core measure of CPI managed to creep up above the 3% mark. Meanwhile the old RPI, to which most state benefits are indexed, rose a heady 5.3% -? the highest pace since July 1991. While many commentators proceeded to berate the Bank of England for consistently underforecasting inflation in recent years, many also saw the first signs of the quantitatively eased pigeons coming home to roost.

But I would argue that in a year or so, we will see the UK?s relatively high inflation rate as a godsend. For elsewhere, it went almost unnoticed this week that core CPI inflation rates in the US and eurozone continue to slip-slide their way down towards zero (see chart below). Although this is seen as buoying bond prices at the margin, it is a pernicious development that investors will focus on when this cycle starts to fail. Regular readers will know that I believe that in a post-bubble world, recession follows recession with surprising rapidity. We are now only one cyclical failure away from Japanese-style outright deflation in the US and the eurozone at a time when de-leveraging still has years to run (falling prices bring the risk of a classic debt deflation trap). Impending cyclical failure and a deflation scare will trigger new lows in equities as the valuation bear market finally plays itself out with the S&P falling below 500. We therefore maintain our long-standing target of sub-2% US 10y bond yields -? and that is the point when QE will really begin to get serious.

Dylan Grice has shown us clearly over the past few months that governments are insolvent. At some point, as can be seen most vividly along the periphery of the eurozone, the market demands action. And amid renewed zeal for fiscal retrenchment within the new UK government, it is worth repeating one key point ?- namely, premature fiscal retrenchment was one of the key policy errors Japan made in a post-bubble, de-leveraging economy (see GSW 12 Feb, To cut or not to cut? Actually it doesn’t really matter. We’re stuffed anyway! -? link).

I remain persuaded by Richard Koo?s book about the lessons from Japan?s balance sheet recession. The crux of his analysis is that governments have no option but to stimulate aggressively all the while the private sector is de-leveraging. ANY attempt at fiscal cuts simply results in renewed recession and a further loss of confidence, thus making it even harder and more costly to sustain any subsequent recovery ? and hence the budget deficit ends up bigger than before (see chart below). A repeat of Japan?s mistakes is exactly the outcome I expect. Renewed recession awaits and with the eurozone and the US core CPI inflation less than 1%, the icy tentacles of outright deflation are now just within reach. (Attached is a link to an interview by welling@weeden with Mr. Koo. It is well worth a readlink.).

Competitive devaluation is one way to try and wriggle free from the deflationary quicksand.

The UK has clearly embraced this option with gusto and is enjoying the benefits of a relatively high inflation rate. This resembles closely the UK?s experience of the 1930s when it was ejected from the Gold Standard, only to devalue aggressively and so suffer a relatively mild "?depression"? compared to those who remained on gold. The eurozone clearly needs to devalue and the Greek crisis is allowing that much needed adjustment to occur. Competitive devaluation might allow the eurozone overall to escape the deflationary fate of some of its most vulnerable members (see chart below) and export its deflation elsewhere.

But as my old friend Jim Saft pointed out in his Reuters opinion piece yesterday, it won?t just be deflation the eurozone will be exporting but also trade tensions as the dollar rises? - link. Jim makes the very good point that "?the US primary elections on Tuesday showed voter anger is focused on incumbents in general and Washington in specific. It would not be a surprise for the administration to try and focus that anger outside of the country.?" A renewed global downturn with rising trade tensions is exactly the environment that will see the shock Chinese yuan devaluation. I continue to remain of the view that a global downturn is close. Too many are focusing on the buoyant economic data that is entirely consistent with continued strength of the coincident indicators, yet all the while the leading indicators continue to slow (see chart below). Renewed recession will never be forecast until after we are back in one!

h/t Chris


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Fri, 05/21/2010 - 11:02 | 365682 Mitchman
Mitchman's picture

Tyler, it is posts like this that make ZH the best site on the web.  I used to read Ritholz' page but now when I turn to it, it feels like the web's version of cnbs.  Thank you so much for the great work.

Fri, 05/21/2010 - 11:34 | 365763 Mr. Anonymous
Mr. Anonymous's picture

The Big Picture is really just Ritholz's very own Barry Ritholz Fan Page, with every third or fourth insertion a tout for one of Barry's media or conference appearances, mixed in with what he's buying from Amazon and some random two-day old economic or world news.  But, that said, calling BR a hack is unfair to the hacks who've earned the title.  To top it off, his commentors are VASTLY inferior in scope and wit to the ones found here at the Hedge.  IMO.

Fri, 05/21/2010 - 11:34 | 365768 crzyhun
crzyhun's picture


I have had 'seminars' with BR recently. Both were so unsubstantive. I cannot for the life of me see what people get from him. And the Big Pic is equally soft stuff.

Fri, 05/21/2010 - 12:04 | 365847 Double down
Double down's picture

Hear, hear!!!

Fri, 05/21/2010 - 14:24 | 366151 Noah Vail
Noah Vail's picture

Agreed, nothing of substance by BR. Took it off bookmarks yesterday.


The problem with people employed in "high" finance is that they don't dare state the obvious. They must keep pushing their garbage onto the public so they pretend that all will end well. Inflation, deflation, what difference does it make when you economy collapses like the world trade center in a cloud of dust? No one will give a shit when there are national guardsmen on every corner and the cities are buring like Bangkok.

Albert Edwards must continue to paint rosy pictures no matter what. Insiders no longer have ANY credibility and are not to be believed. Believe them at your own risk.


Anyone here old enough to remember 1965 knows that our cities will once again be burnt to the ground by a populace enraged at those who robbed them blind. Let them eat cake, the powermad say, and vengence will be had.

Fri, 05/21/2010 - 12:42 | 365925 Damn the Federa...
Damn the Federal Reserve to Hell's picture

ZH is by far my favorite financial/economic website on the interent. I have been reading Zerohedge since it was a blog long ago. I just recently decided to register for an account last week and finally got it approved today! I have learned so much information from Zerohedge over the years and from the users who post on this site. While I am posting, I would like to say hello to my new ZH family and I look forward to sharing more thoughts and information in the future.

Fri, 05/21/2010 - 13:54 | 366103 jomama
jomama's picture

i'm astounded all this great work is still free.  (teach me to open my big mouth)

Fri, 05/21/2010 - 14:37 | 366224 nikku
nikku's picture

The link to the Koo interview (the PDF, which is linked to from the link above) is  a very interesting read.  Here's a quote from Koo...

"Remember, the amount of wealth the U.S. lost
in the Great Depression is estimated to have
equalled one year of 1929 GDP. Japan lost
wealth equivalent to three years of 1989 GDP.
So Japan should have experienced a GDP
decline far larger than 46% drop the U.S. suffered
in the 1930s. Even if we conservatively
estimate that Japan’s GDP would only have fallen
back to the level of 1985, which was when
the bubble began, the difference between that
and what Japan actually achieved, over the 15
years between 1990 and 2005, would have
amounted to over 2,000 trillion yen. In other
words, to my way of thinking, the government
bought GDP equivalent to 2,000 trillion yen
with 315 trillion yen of deficit spending. A very
good bargain, I’d say."

The problem, however, is not one of how much would be lost in terms of currency/GDP.  Rather it is that the cost of Koo's prescription is the end of creative destruction and the mid-point for unlimited moral hazard (it will have an endpoint).  He does not show how much GDP would have rebounded after people would have rediscovered how to appropriate captial more wisely.

Sadly, his analysis sounds good enough that I expect Obama will pull out a blackboard and use it to justify, successfully, more and more debt, resulting in further and exponentially growing missallocation of capital... and did I mention the loss of freedom that comes from government manipulation of our economic "wellbeing?"

Fri, 05/21/2010 - 16:09 | 366485 ThreeTrees
ThreeTrees's picture

Is Koo adjusting for inflation in his calculations of GDP?  That seems like it would be important.


He's right that the Japanese government "bought" GDP though.  They aren't renting it.  If they do reverse-QE, aka: sell, the whole thing implodes again.

Fri, 05/21/2010 - 11:04 | 365686 Kreditanstalt
Kreditanstalt's picture

So tighten or don't tighten: the governments are screwed either way.  That's the point he doesn't see.  Sure, they have no choice BUT to inflate at any cost, but they also have no choice but to retrench fiscally.


Fri, 05/21/2010 - 11:44 | 365796 chumbawamba
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I am Chumbawamba.

Fri, 05/21/2010 - 13:16 | 366016 DoChenRollingBearing
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+ $1170

Gold will be back, count on it.

Fri, 05/21/2010 - 13:27 | 366038 Mr Lennon Hendrix
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This next run will be big and quick. Back up to $1240 by early June, to $1350 by late June, and then to the moon. The Hollywood Futures index will make sure of it.   Spend those phun bux on Hollywood, 'Merca!  A sure bet!

Fri, 05/21/2010 - 13:46 | 366083 Paystee Gangsta
Paystee Gangsta's picture

I'm sorry.  What did you say your name was again?

Fri, 05/21/2010 - 17:15 | 366671 Lux Fiat
Lux Fiat's picture

From my perspective, one reason for the shudder in the markets Thursday was Dubai turning $23+ billion in debt into $14+ billion [hopefully] payable 5 and 8 years out.  To paraphrase T.S. Eliot, "I will show you fear in a handful of restructured bonds". 

Ultimately, "restructuring" makes the most sense to me.  Moral hazard is left intact.  Further idiotic policies and subterfuge [whose main purpose is to mask the fact that there is a major problem, and "buy time" by kicking the can down the road using means that will make the problem much worse when we get there] would not be needed.  While there would be short-term dislocations, most of the costs would be born by those who made poor decisions. 

Instead, we get taxpayer-funded bailouts of banks and sovereigns that provide those who should be leaving many pounds of flesh behind with numeous opportunities to extricate themselves at far superior prices than they deserve.  And to add insult to injury, the bailouts are funded with gobs of GDP-crushing, future-generation smothering debt (i.e. more money we don't really have).

But this would assume/necessitate that we have public servants who are more interested in acting in the best interests of their country than the next election.  Looks like we are screwed for the time being.

Fri, 05/21/2010 - 11:04 | 365687 Printfaster
Printfaster's picture

As the price of gold shows, we have had 10-20% monetary inflation for years.

Printing money to fund overpaid government workers will take us all to a currency shunning uncontrollable inflation, and economies that produce nothing but more printed money.



Fri, 05/21/2010 - 11:49 | 365809 chumbawamba
chumbawamba's picture


I am Chumbawamba.

Fri, 05/21/2010 - 13:56 | 366112 jomama
jomama's picture

wow chumbawamba, your fan base is out in full force!

Fri, 05/21/2010 - 11:10 | 365694 Biggvs
Biggvs's picture

Lower prices are a bad thing? I don't think Ben can print fast enough to get 20-30% price rises. Japan has been printing for a long time and look at all it got them.

Fri, 05/21/2010 - 11:07 | 365696 bigdumbnugly
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I have  kind of seen unraveling this way to, but with a much less informed and experienced basis on which to build.


The question for me, if this is to be accurate, is timeline.  Don't want to be caught fighting traffic here. 

Fri, 05/21/2010 - 11:10 | 365703 suteibu
suteibu's picture

Everybody is trying to rejigger the economy to maintain it while just making it worse by increasing the debt to a point that no one can "grow" out of it.  It is not an economic solution, it is a political one.  All the powers in power don't want to be on the watch when the necessary revaluation happens and economists, mostly on the political payroll or otherwise connected, are more than happy to come up with a great theory to justify more debt.  Now it's accepted as fact, no one questions it at all.

Fri, 05/21/2010 - 11:22 | 365740 Internet Tough Guy
Internet Tough Guy's picture

They all think they can devalue their fiat money against...other fiat paper. Can't work, won't work. They will have to devalue against something. Guess what?

Fri, 05/21/2010 - 11:14 | 365708 godfader
godfader's picture

I wonder where Edwards takes his confidence that the European bailout experiment will end in 30% inflation. Quote: "1970’s style 20-30% inflation will surely return." Surley? How was ever anything a sure thing in financial history?

It may, or it may not. There is absolutely no guarantee either way.

Fri, 05/21/2010 - 14:52 | 366277 moneymutt
moneymutt's picture

good point, he makes no back up arguments about why 20-30...other than to vaguely reference currency comparisons....

I think we can be just a bit more rigorous in how we try to figure what happens next. Compare money supplies including/credit debt, try to figure how much monetization is going on, compare how different countries CB may behave...

doubt there is anyway we can predict given insider manipulation least as far as timing and order of countries falling...but eventually I think CB do not have ability to wash away debt bubble unnoticed....

I'm still thinking, depreciating assets down to pre-bubble adjusted dollar levels or lower (equities, housing etc.) and expensive consumer goods

Fri, 05/21/2010 - 11:16 | 365715 Amish Hacker
Amish Hacker's picture

So what would be the best way to play this scenario, physical gold and TLT?

Fri, 05/21/2010 - 11:17 | 365716 Tinsu
Tinsu's picture

Albert,  You state above ....

"their only natural response to preserve the system will be to do what Japan has been doing for decades (successfully, they will claim) and respond with the most extreme round of monetization ever seen, 'inevitably driving us towards out ultimate destination - 1970's style 20-30% inflation.' "

Yes, Japan has monitized for 10, 20 years.  But, no, they do not have a a 1970's style 20-30% inflation.  The reason is that the deflation on the Island is a massive Dyson vacuum, sucking up all that Yennie monetization. No?


Fri, 05/21/2010 - 11:25 | 365745 Biggvs
Biggvs's picture

That was my point too: deflationary forces will destroy money faster than it gets printed, at least for quite a while.

Fri, 05/21/2010 - 11:34 | 365767 SDRII
SDRII's picture

Tim Geithner had prescient comments at the start of the crisis which went something like "we can not lose out nerve and must stay the course." This is exactly the message and moral suasion he will take to Europe next week. The wildcard is whether the Fed can keep all the disparate forces corralled. There are already those in Europe who are embracing some form of deflation as a necessary restorative measure. Ben Bernanke is neither the BOJ nor timid. He is Ike's analog.

Fri, 05/21/2010 - 11:51 | 365816 THE DORK OF CORK
THE DORK OF CORK's picture

Japan was a Island of Deflation in a Inflationary world, I am not sure the dynamics now  are similar.

Remember try not to see these entities as countries but of cogs in the global dollar system.

The core of the dollar system was threatened in 2008 but over the last two years the FEDs policey has worked to a extent.

The consumption increase within the US / China union has remained but at the expense of forced Austerity within Europe and Japan.

The question is will the old imperial powers again accept American dominance and its dollar system within the context of their domestic political turmoil.


Fri, 05/21/2010 - 12:07 | 365853 Canucklehead
Canucklehead's picture

I don't think the old imperial powers have any choice in the matter.  Basically the discussions within the EU focus on a "Do Over"...  Woulda coulda shouda...  The world is moving quickly now.  Clearly the EU decision-making process is too slow and cumbersome.  Hence, one should talk to Germany.  The rest will fall in line and come on board when they see their lifeboat leaving them to sink or swim.

The world is looking for balance.  Heightened economic acrimony leads to heightened political acriomony which will be balanced by military acrimony.

Right now everyone assumes default wipes the slate clean.  Military acrimony will focus attention on the pluses and minuses of default.

Fri, 05/21/2010 - 12:38 | 365917 THE DORK OF CORK
THE DORK OF CORK's picture

If you believe that everybody will deflate against America/China then you are in the Hendry camp of Dollar Bulls.

I do not believe that Europe can take the level of deflation necessary to subsidise American consumption , I am not so sure about Japan as I do not fully understand its strange culture.

Europe will have to break the dollar umbilical if it wants to remain a first world economy and the longer it waits the more wealth will be transferred to America

Besides even if the Dollar is successful it will be a pyrrhic victory as it is geared towards increased consumption via capital destruction - this system will not survive peak oil.

Step right up and take your pick Bitches.

Dollars or Gold.

Fri, 05/21/2010 - 14:33 | 366208 Canucklehead
Canucklehead's picture

I'm a big believer in agriculture.  I can take 24 carats and turn it into 14 carats.  Heck, Youtube shows you how.  Government stopped that trade.  When the SHTF, how do you tell 24 carat from 14 carat?  Where is the seal of approval?

When the SHTF, I can't think of any meaningful purchase made with gold that won't be backstopped with lead.  Who you gonna trust?  Who you gonna call? One party will be USA and another will be Germany.

In WWII, cigarettes were the currency of choice in POW land.  If Mad Max land prevails, ammo will be the currency of choice.

The fact of the matter is the situation will never get that bad.  We will always have a digital world, with digital money.  Gold is an investment like any other.  I can't think of any big tycoon in the last 500 years who made their fortune hoarding gold.

Greece is the future vision of Europe.  When they try to default, an auction of Greek assets will take place.  No one will walk away from Billions and Billions of euros.  I expect Germany will be well into DM by the time that auction takes place.  The auction will be shades of 1923.

Today, what would it cost to buy Zimbabwe?

Regarding peak oil, I'm thinking Hitachi and their mass produced nuclear batteries, or Thorium fueled salt reactors.

Fri, 05/21/2010 - 15:30 | 366382 Votewithabullet
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Reply                    Flagged as Non-Junk

Fri, 05/21/2010 - 11:57 | 365827 svoboda59
svoboda59's picture

Wasn't the carry trade the result of that monetization?

Now the monetization throughout the world will not play the same as it did in Japan.

Fri, 05/21/2010 - 12:14 | 365867 THE DORK OF CORK
THE DORK OF CORK's picture

Yes Japan saved its surplus but this saving shows the futility of saving within the dollar system as the surplus of one entity just got expressed in consumption somewhere else.

There is little or no capital growth.

I would argue that there has been net negative capital growth since 71 or maybe before - the financial system just got more efficient in its ability to extract capital from the future.

The system is crashing because the future is now the present.

Fri, 05/21/2010 - 12:42 | 365926 cougar_w
cougar_w's picture

the financial system just got more efficient in its ability to extract capital from the future.


++ Excellent analysis. The future will not be kind to us, and is knocking down the door to collect our heads on a pike.

Fri, 05/21/2010 - 13:08 | 365987 hangemhigh
hangemhigh's picture

Yo, DOC:

spot on commentary.  all post 1971 debt/QE/financial engineering has done is pull demand from future to present.

with enough misallocation and malinvestment, you create distant dead zones devoid of future savings based demand.

we are there now......................

Fri, 05/21/2010 - 16:23 | 366529 ThreeTrees
ThreeTrees's picture

Huge word.  Thank you for putting such a fine point on it.

Sat, 05/22/2010 - 00:28 | 367247 assembler
assembler's picture

The future is already here - it is just unevenly distributed.

-William Gibson

Fri, 05/21/2010 - 13:03 | 365977 trav7777
trav7777's picture


The credit growth in Japan went into other nations via the carry trade.

That was the tailwind for BRIC growth.  ZIRP *cannot* make uneconomical activity economical.

CBs control money supply by cheapening debt.  In a growth climate, this causes debt growth because people can borrow at cheaper rates than their rate of return.

But you can *clearly* see a long-term secular decline in yields.  This is caused by the economicalness of the region getting tapped out.  When rates hit zero, the CB is trying to lend money for free.  But if there is nothing economical to DO with that money, it does not get put to the purpose of growth and industrial activity.  A lot goes into speculative bubbles.  Or it simply doesn't get borrowed.

When RoR is .1% and you borrow at 0%, you *must* use insane leverage to make that meager margin into something worthwhile.  This creates deleveraging risks because even a tiny movement against you creates a margin call.

This is easy math to do.

I submit that the secular decline in yields is a result of money chasing decreasingly economical activity in the aggregate.  Japan intended for ZIRP to stimulate Japan, but it could not because the loans were unprofitable even at 0%.  There is no other way around this conclusion.

It made more sense to take the yen loan, FX to BRL and invest there where there are MANY projects to get involved in.  This is what credit IS and how it has been used as a lever on growth over the centuries.

Debt-based monetary systems *cannot* function as a matter of MATH in a contractionary climate.  Every currency must be backed by production of some sort and we are now in an era of contraction after 1000 years of growth.  Therefore, currency outstanding *must* decline.  Insofar as our systems require it to be borrowed, *nobody* should be surprised that the macroeconomic contraction trends are driving a decrease in credit.

Fri, 05/21/2010 - 13:22 | 366031 THE DORK OF CORK
THE DORK OF CORK's picture

Trav7777 - I get your point but you have to ask yourself why there is no organic real growth in the worlds economy.

In my view this is due to the phenomena of extracting capital from utilities.

Extracting capital from utilities and expressing this as profit does not create real growth.

The energy and banking crisis are essentially the same where banks reduce capital and convert this to "profit" and power utilities run down energy capital such as power stations without replacing these ageing plants.

The neo liberal consumption orgy would not have happened if this dubious accounting was not tolerated 

Fri, 05/21/2010 - 14:06 | 366131 bokapita
bokapita's picture

I have to say that this is a very insightful comment very clearly expressed

Fri, 05/21/2010 - 14:19 | 366165 trav7777
trav7777's picture

To answer this I will look at simple metrics.

In every year prior to 2005, the amount of supply of core Crude & Condensate increased.

2005 was its inflection.

What is capital anyway?  I submit that it is energy.  Energy is what does the doing.  Not money.  It never was money.  It's always a claim on energy, the ability to do or to make or to causeth to become.

Banking is certainly a parasite, but nothing they or anyone else can do can affect the energy supply curve.  They cannot make the uneconomical from an ENERGY standpoint, economical.  Period.

Fri, 05/21/2010 - 15:42 | 366372 THE DORK OF CORK
THE DORK OF CORK's picture

I agree with with everything you say except the final sentence.

The banking system is the symbolic representation of the energy infrastructure yet over the years  it did not differentiate between loans for consumption and loans for future energy growth.

It just looks for short term yield within the energy ecosystem which is false as it is not a organism within the environment but is the ecosystem itself.

You say that oil cannot be replaced yet atomic energy is a far more concentrated energy source then any fossil fuel.

Why did the ambitious nuclear energy program die in the 60s ?

It died because the new economic theories of monetarism did not recognize capital as a source to be built on but extracted over time and expressed into profit.

The earlier keynesian while extremely imperfect built projects outside the narrow zone of profitability defined at the time but increased capital and therefore long term profitability for every animal in the Jungle.

In times of economic stress the monetarist solution is to cut capital projects to fuel further consumption , this latter morphed into cuts in wage growth and therefore consumption decline of the masses and conveyed the remaining surplus towards holders of now declining capital.

There is nothing wrong in cutting consumption to save for future capital growth but this monetarist austerity does not fuel capital growth but merely transfers consumption to another group.

As I mentioned earlier saving within the current dollar system merely transfers your savings to consumption elsewhere

A fine example of these dynamics is the travails of the Airline Industry.

The rise of oil prices over time has clearly made this Industry unviable over the long term yet what happened to this Industry since the days of the first oil shocks of the 70s ?

The solution of course was to cut wages to continue to make this Industry competitive against High speed rail for example.

High speed rail was deemed unviable given its high capital cost which was raised now via the banks who demanded high interest on their loans yet the flawed accounting used did not quantify the capital lost due to depletion of the finite resourse that is Kerosene.

So as the price of Kerosene increased over time the airlines cut wages and the money paid to aircraft manufacturers.

Boeing and Airbus now have very small budgets for innovation with predictable results towards innovation, also this business model of cutting wages to increase effeciencey was adopted throughout the rest of the economy and therefore overtime the demand for transport declines as people have less income for discretionary spending and so the cycle accelerates.

Eventually the last lowest cost airline gains a monoply and to continue in business it has to raise prices dramitically to survive and econimic activity crashes.

Notice the above similarity to the Banking Industry.

What would have happened to the Airlines if they did not decrease their wages - the Industry would have been regarded as unviable at least in its present form and would have been replaced by other modes of travel such as high speed trains and if the last airline went bust at least the infrastruture developed as a replacment would now be in place.

The artifical effeciencey of the American and to a lesser extent the European transport network is now being exposed and due to short term policeys which benefitted single cooperations the ecosystem is dead or dying.


Fri, 05/21/2010 - 16:33 | 366563 ThreeTrees
ThreeTrees's picture

Excellent discourse!  I can't wait to read Trav's response.

Sat, 05/22/2010 - 12:03 | 367628 JW n FL
JW n FL's picture

So, depressed wages and a real cost of Oil being plus $150 a Barrel which equates into $5 dollar a gallon gas because of the constant pressure of wage arbitrage is the cause of the down fall of the Great Nation the Planet has ever seen?


I would disagree... The pricing built into the Global Economy for transport is similar to the best numbers they could find... which would be the $50 a barrel drop dead numbers for light sweet crude in the mid east... so the entire world is lite 200% on transportation costs which affects the wage arbitrage number which changes the entire planets purchasing habits.


Our GDP growth number of 2.5% - 3% is really a farce… there can be no, NO! real growth without taxing the World supply… so we don’t have enough to go around and we have priced the entire system wrong based on hopes and dreams numbers.


The system does not respond to ideological theorem, it responds only to real constraints.


Back stopping all of our largest companies with 0% Fed window monies insures they can and will survive the transition that we are all suffering right now… the monies pulled from Freddie and Fannie and everywhere else they could cut are going where? Iraq is so much more expensive that it already was? Afghanistan’s ramp up? Where are all of those dollars going? Our debt is not getting any smaller?


Someone is keeping the lights on… Someone is hoping that if we backstop our biggest and best we may survive… Banking is a “Hey look over here! While we do what we need to over there.” Play... nothing more, nothing less. Big Bad Wall Street has been automated for how many years now? Nothing new!


We are raising the planets temperature… FACT! And I am no tree hugging fucking hippie… And I am saying the temperature is going UP!


Next, the real cost of oil… Light sweet crude, we are running out of… we as a Country are not set up to refine heavy or sour and / or any other type… China is only set up for Sour, Heavy and the like… board terms yes, fucking forgive me.


And Finally our entire WORLD! Economy is based on Trade! And we are 200% MINIMUM!!!! Off on transportation costs!


We don’t have enough affordable oil… offshore drilling? 7,000 feet of water and 5 miles under the Gulf of Mexico is NOT! $50 dollars a barrel oil!


The entire economic structure of the World is being remade before our very eyes… Wage arbitrage in any and all industries is not the cause of the World’s problems… Labor has always been and will always be the cheapest of commodities anywhere at any time! It is a NON-ISSUE!


Fri, 05/21/2010 - 16:13 | 366488 anonnn
anonnn's picture

The great Russian chemist Mendeleyev [who created the path to the modern Chemical Table of Elements] visited the first oil fields in W. Pennsylvania abt 1870's to inspect the fact that petroleum [rock oil] was found in commercial quantities.

Observing great amounts of oil spread willy-nilly on the ground, characteristic of early production methods,  he wisely asked " Why are you wasting such  precious resources?".

It was clearly his genius that realized the unique properties of petroleum...and I dare to say less than a handful on this board even today understand that it is unique as energy source.

Its energy density, liquid form, voluminous availability, ease of transport and storage, relative safety, low cost to produce made it so...yet  this precious resource has now a doubtful future as all the low-cost "low-hanging fruit" is nearly gone.

There is no other fuel that can compete with lo-cost and liquid oil. [Not even alcohol.]

Any other fuel reqires  an intermediate step [e.g. a boiler] to convert to useful for the internal-combustion engine, etc.




He remarked wisely, extremely wisely you should note.

Sat, 05/22/2010 - 12:08 | 367634 JW n FL
JW n FL's picture

And the other part... would be... there is plenty of low hanging fruit... we as a Country are not yet ready to do what is needed to protect our way of life... there has not been enough ugly yet. when the ugly gets ugly enough for the people to rise up and demand more fuel...


Is just a close 5 billion barrels... if we wanted too, and I mean really wanted too... we could fix our problems... but the public is not on board... Obama is a Commie fuck for going and playing nice with the dumb lil dictator... when the rolling black outs effect the quality of life for americans... that lil fucker will be dead!

WMD's Bitches!!!

Fri, 05/21/2010 - 13:36 | 366060 Mr Lennon Hendrix
Mr Lennon Hendrix's picture


Fri, 05/21/2010 - 14:21 | 366175 THE DORK OF CORK
THE DORK OF CORK's picture

Thanks , I have been very repetitive about this subject for some time as I believe this is the core problem with the economies of the world.

It is really very simple energy dynamics.

Money as I see it is just a token for future energy consumption and this does not seem to be expressed in modern mainstream economics.

Sat, 05/22/2010 - 12:09 | 367637 JW n FL
JW n FL's picture

So, depressed wages and a real cost of Oil being plus $150 a Barrel which equates into $5 dollar a gallon gas because of the constant pressure of wage arbitrage is the cause of the down fall of the Great Nation the Planet has ever seen?


I would disagree... The pricing built into the Global Economy for transport is similar to the best numbers they could find... which would be the $50 a barrel drop dead numbers for light sweet crude in the mid east... so the entire world is lite 200% on transportation costs which affects the wage arbitrage number which changes the entire planets purchasing habits.


Our GDP growth number of 2.5% - 3% is really a farce… there can be no, NO! real growth without taxing the World supply… so we don’t have enough to go around and we have priced the entire system wrong based on hopes and dreams numbers.


The system does not respond to ideological theorem, it responds only to real constraints.


Back stopping all of our largest companies with 0% Fed window monies insures they can and will survive the transition that we are all suffering right now… the monies pulled from Freddie and Fannie and everywhere else they could cut are going where? Iraq is so much more expensive that it already was? Afghanistan’s ramp up? Where are all of those dollars going? Our debt is not getting any smaller?


Someone is keeping the lights on… Someone is hoping that if we backstop our biggest and best we may survive… Banking is a “Hey look over here! While we do what we need to over there.” Play... nothing more, nothing less. Big Bad Wall Street has been automated for how many years now? Nothing new!


We are raising the planets temperature… FACT! And I am no tree hugging fucking hippie… And I am saying the temperature is going UP!


Next, the real cost of oil… Light sweet crude, we are running out of… we as a Country are not set up to refine heavy or sour and / or any other type… China is only set up for Sour, Heavy and the like… board terms yes, fucking forgive me.


And Finally our entire WORLD! Economy is based on Trade! And we are 200% MINIMUM!!!! Off on transportation costs!


We don’t have enough affordable oil… offshore drilling? 7,000 feet of water and 5 miles under the Gulf of Mexico is NOT! $50 dollars a barrel oil!


The entire economic structure of the World is being remade before our very eyes… Wage arbitrage in any and all industries is not the cause of the World’s problems… Labor has always been and will always be the cheapest of commodities anywhere at any time! It is a NON-ISSUE!

Fri, 05/21/2010 - 14:46 | 366248 GoldBricker
GoldBricker's picture


Plausible explanation of what we see around us, expressed in terms of production rather than numbers. Activity either repays the capital invested in it or it doesn't. We've put too many resources into the second kind.

My first post on ZH. Hi, fellow nutcases.


Fri, 05/21/2010 - 11:19 | 365722 Crab Cake
Crab Cake's picture

It feels awesome up here on the summit of Mt. Worry, the view is great.

Fri, 05/21/2010 - 11:50 | 365814 depression
depression's picture

Simply push a button and devalue your worries away !

Can we collectively devalue our way into long term prosperity & growth ?

Fri, 05/21/2010 - 11:21 | 365732 Species8472
Species8472's picture

So we will have real deflation?

So,  in 4 yrs when my kid goes to college, costs will be about the same or lower than they are now!

And my Co-pay will go down! and generic drugs down! And school taxes down!!

Yep, since I have $ and am dept free I will be on easy street!!

Right? because if $ increases in value all of that must happen!

Or will this be deflation in name only. you know, A few commodities and imports go down, some real estate goes down, but most everything else still goes up.



Fri, 05/21/2010 - 11:46 | 365806 mix
mix's picture

Well here, The value for my home is going up according to the tax assessor, and thus the tax rate is too, yet my neighbours can't sell their houses. Union labor here will not go down ( in construction anyway), so I am sure the state and federal tax bill will also rise.

Fri, 05/21/2010 - 12:27 | 365884 Popo
Popo's picture

It's important to establish some definitions here:   For starters, there is a difference between monetary inflation and price inflation.

Monetary inflation is an expansion of the money supply -- which often goes hand in hand with price inflation (which is the price you see when you shop).

But the two aren't as tightly connected as many like to believe.

It's important to remember that price inflation for some products is extremely common during a deflation of the money supply.  This part is often counterintuitive.  Most people believe that if the money supply contracts (ie: The dollar becomes more valuable) that we should see prices fall.

This however, is not always the case.  One common reason is supply-chain disruption  (ie: manufacturing collapse somewhere on the supply chain, or shipping collapses, etc.)  Another is "by-product scarcity". (ie:  A rise in the price of plastics because of a decrease in petroleum consumption, or a rise in the price of leather due to a decrease in beef consumption, etc.)

So it's not as simple as pointing to a decrease in the money supply and extrapolating lower prices.   In general, most prices fall in a deflation -- but many spike.

This, by the way is one of several reasons that gold did well during the Great Depression, even though it was a deflationary period.





Fri, 05/21/2010 - 12:33 | 365909 Bull Meat
Bull Meat's picture

If we have deflation of the money supply, then money holdings become more valuable, expressed by falling prices.  Of course, assuming that you depend upon some kind of income (i.e. you don't have enough savings to last), you still might be screwed if prices drop (say) 50% while your income drops 100% because you lost your job.

In real terms, prices rise in both hyperinflation and a deflationary collapse because of production disruptions.

Fri, 05/21/2010 - 13:12 | 366001 AnAnonymous
AnAnonymous's picture

A stub of answer would be to notice that activity level has been heightened by supply of money. Activity leading to work most of times and therefore production.

The rest follows.

Fri, 05/21/2010 - 15:56 | 366444 faustian bargain
faustian bargain's picture

Ah yes. The strategy of Hope.

Fri, 05/21/2010 - 11:22 | 365736 MarketFox
MarketFox's picture

There have been billions lost thinking the same with regards to the disbelief that rates can go low and stay low for two Japan...


20 years later and the Fed meetings are all about making decisions on huge moves ie 10 basis points.


Henceforth the liquidity or interest rate trap.

However in this case....make it even more dire by the fact that the Americans do not have the savings....

Thus expect even more extreme deflationary effects.....


Think of it this way....

There is a whole economy in a box.

In the box there is one item for sale....

And the total money available in the box is $1000.

Thus what is the highest price possible ?

Answer $1000

Then $500 is lost...


Then what is the highest price possible "

Answer $500



50% Deflation or more is already baked in....




Fri, 05/21/2010 - 12:03 | 365845 Raymond K Hassel
Raymond K Hassel's picture

>>And the total money available in the box is $1000

only problem with your analogy is that the amount of money in the box is not finite - just the stuff it can buy.  Japan's experience may be a red herring - it occurred internally with external alternatives.  What will the global alternatives be if we all double dip together (which I gaurantee will cause a truly massive loss in what remains of confidence in gov't and its toilet paper after all the money that has been thrown against it)  Deflation and inflation are both effects of gov't mismanagement - gold is first and foremost a hedge against loss of confidence in the system.

Fri, 05/21/2010 - 11:32 | 365756 Noah Vail
Noah Vail's picture

I think its time to gobble up all these delicious bargins. Rally baby, rally!

Fri, 05/21/2010 - 11:34 | 365769 sweet ebony diamond
sweet ebony diamond's picture

Our "leaders" are like crack addicts.

Impossible to control their habit.

Fri, 05/21/2010 - 11:40 | 365786 EQ
EQ's picture

Does anyone actually understand anything?  First of all Japan hasn't monetized anything.  They have sterilized their activities.  The fact that no one on here actually understands that makes all suppositions thereafter completely meaningless.  If you don't understand how the world works, how can you state we are going to have 70's style inflation?  That is preposterous.  And it shows a complete lack of understanding in the 70s versus today. They are not remotely similar.  As I have said time and again, the Federal Reserve should be printing money to ameliorate this situation.  But rather than giving it to the banks for speculators, they should be printing it into the economy in the form of capital projects.  This entire thread is based on a complete misunderstanding of fundamentals and monetary economics.

Fri, 05/21/2010 - 11:52 | 365820 chumbawamba
chumbawamba's picture

"...they should be printing it into the economy in the form of capital projects."

"This entire thread is based on a complete misunderstanding of fundamentals and monetary economics."

Including your solution, I'm afraid.

I am Chumbawamba.

Fri, 05/21/2010 - 11:55 | 365826 SDRII
SDRII's picture

largess overhang from war coupled with an oil spike and BW deklinkage =1970s inflation

Japan built a lot of bridges too but of course ours will be far more productive.

Monetary economics is not science. Resources are.

Fri, 05/21/2010 - 11:58 | 365828 JW n FL
JW n FL's picture

I think that you are correct in your assumptions, but too answer your call for great works to be completed... that will effect the quality of life for all thusly be an investment into ourselves...

Thats what you want, more of? stuff like this? 

Maybe they where telling the truth and they did in fact throw the everything, inclusive of the kitchen sink... at the problem(s)? Maybe before the lobby whores took over the White House, a few good shots where taken?

Just food for thought. You might want to forgive some here for the short hand, humor or even my stirring the pot! as it is not always a true representation of self. Your new, you will catch on... or not? free(ish) Country.

Fri, 05/21/2010 - 11:58 | 365830 Anton LaVey
Anton LaVey's picture

Welcome to ZH - You must be new around here.

Fri, 05/21/2010 - 11:59 | 365835 tmosley
tmosley's picture

The only thing that stops printing from becoming inflation, then through loss of confidence, hyperinflation is a high savings rate.  Japan has a VERY high savings rate.  THe US had a high enough one in the 30's to stop inflation totally, and to limit it in the 70's.  Rates were also much higher, close to the real rate of inflation (including food and fuel and other ACTUAL costs).  Today, we don't have any of those mitigating factors in our favor, they are all swung the other way to the maximum extent possible.

Printing money does not print prosperity, it only misallocates capital and steals production from those who hold dollars.  Nothing else.

Fri, 05/21/2010 - 12:16 | 365880 chumbawamba
chumbawamba's picture

"Printing money does not print prosperity, it only misallocates capital and steals production from those who hold dollars.  Nothing else."

Well spoken, my good man.

I am Chumbawamba.

Fri, 05/21/2010 - 14:14 | 366154 EQ
EQ's picture

Let me share something with all of the ignorant assholes on here.  Printing money into capital forming industries causes zero inflation.  Maybe one of these days most of you will pull your head out of your asses and actually understand economics. 

Fri, 05/21/2010 - 14:33 | 366211 WaterWings
WaterWings's picture

This is like wave 23 of trolls jumping off transports onto the beach. I have plenty of ammo but I don't feel like shooting anymore. Where do you come from, EQ?

Fri, 05/21/2010 - 14:47 | 366253 EQ
EQ's picture

I come from hell.  Where all of these pinheads are headed.  The extent of knowledge exchange in the comments section of ZH rivals that of Jim Carrey and Jeff Daniels in Dumb & Dumber.  I'm off to let the savants ponder their asinine and incompetent view of reality.

Fri, 05/21/2010 - 16:14 | 366498 faustian bargain
faustian bargain's picture

I think he's taking a break from studying for Econ finals.

Fri, 05/21/2010 - 23:45 | 367227 Hephasteus
Hephasteus's picture

LOL. Teach him your metric system economic theory.

Fri, 05/21/2010 - 14:43 | 366237 Canucklehead
Canucklehead's picture

Define "capital forming industries" please...

Fri, 05/21/2010 - 15:35 | 366393 Ripped Chunk
Ripped Chunk's picture

And repeatedly drawing on a lit crack pipe does not cause insanity.

I'm with you EQ.



Fri, 05/21/2010 - 16:55 | 366638 ThreeTrees
ThreeTrees's picture

Let me share something with all of the ignorant assholes on here.  Printing money into capital forming industries causes zero inflation.

Not when the marginal productivity of debt is negative and not when you can't isolate ZIRP to specific industries.

The ability of capital forming industries to grow and expand production at a rate sufficient to negate inflationary expansion of the monetary base will determine whether or not inflation occurs.  Guess what, we're at peak oil, there is no more headroom for expanded scale.

Fri, 05/21/2010 - 21:05 | 367061 EQ
EQ's picture

HAHAHAHA.  That's one of the stupidest things I have read in this thread.  Where do you morons learn this horsesh*t.  That doesn't even dignify a reply.  You have no f*cking idea what you are talking about.

Wed, 05/26/2010 - 03:01 | 373793 ThreeTrees
ThreeTrees's picture

Late reply but whatever, your arrogance deserves rebuke:

If I have deduced the logic of your (probably monetarist) theory correctly, then you assert that the increased and increasing level of money circulating cannot cause inflation as long as output increases enough to negate it.  Ie:  Supply (industry growth through capital accumulation) increases in that sector, negating the increased demand (more dollars chasing goods) caused by the money printing.

Now the issues: 1)  You cannot keep the money in one sector, it will always spread to the other ones in the end.  2)  How does the money hit the market?  Through loans.  We are now at a point where the burden of debt service has exceeded the economy's ability to pay it, this is negative marginal productivity of debt.  GDP now shrinks the more money is loaned out.  3) If GDP is shrinking what is going to happen to the broader demand to support any kind of growth?  4) Peak oil means that for now, the price of oil can only go up squeezing the margins that allowed massive globalization and economies of scale and unprecedented levels of consumption.

The point is that there is no more growth left for your money printing to stimulate.  The growth of the world economy has been enabled by oil since the beginning of its widespread exploitation.  The rising price of oil will kill growth, hindering the ability of the economy to grow and pay the debt of the wealth we pulled from the future.  Then the headwinds of general deflation will kill growth even more since further growth, in the absence of an affordable source of energy, cannot be financed by more debt alone.



Cliffs notes:  Pray we nail fusion on the first try because without a new, affordable, abundant source of energy there can be no further capital creation.  As it stands we have global excess capacity for almost everything, the market is saturated.

Fri, 05/21/2010 - 16:52 | 366625 anonnn
anonnn's picture

You can't print trust.

Fri, 05/21/2010 - 13:36 | 366057 mtguy
mtguy's picture

Although I don't disagree with your point, I will disagree with the statement, "Japan has a VERY high savings rate"

Change the word "has" to "had" and you are correct. I think their savings rate is around 2% right now. Demographic changes. They (Japan) are older and with no SS backup, they had to save for their own retirements (how novel). Now, they are using the money to live off of and their savings rate went from double-digits in the 80's to the current anemic level.

We started this whole charade without a savings rate. Where does that leave us?

Solving a debt crisis with more debt just intuitively seems like a bad idea to me, but then again, I hate debt so maybe I'm biased.

Fri, 05/21/2010 - 13:51 | 366097 Assetman
Assetman's picture

I agree... but I'll go one step further.  Not only is a high saving rate required, but those savings need to be circulated inside that economy.  Japan had the benefit in the '90's.  The US went through the same process during WWII as a matter of necessity.  There is such a lack of trust between potential savers in the US and their government, that I'd expect a significant portion of excess savings to go outside these borders.

The sentiment expressed about printing money is exactly right-- it's a vast misallocation of capital steals productive activity to those that are willing to hoard available dollars.  It's a monetary non-solution.  Increasing fiscal spending could be a better solution-- assuming that you could trust your elected officials to deploy the assets in productive endeavors.  I have seen good evidence of that over, say, the past 20 years or so.




Fri, 05/21/2010 - 19:30 | 366902 pak
pak's picture

EQ, they ARE "giving it to the banks for speculators", they won't do anything else because they believe everything will be just fine if they prop up asset prices. To the Fed, asset-bubble-driven growth is as good as growth driven by technological innovation.

You are right, this is not what the Japanese did in the 90's. They sticked to classic Keynesianism and financed large infrastructure projects creating economic activity while sterilizing money supply.

However, they also had their QE moment when Koizumi was in power. And in fact, that worked better than anything else for creating "growth".

It's not 70's, but that doesn't mean we won't get inflation. The most prominent feature of the fiat monetary system is that each monetary unit has an embedded "cost" so you need to maintain some kind of nominal "growth" all the time to prevent the system from imploding.

And that's what Bernanke will do because he knows how to do it. He has studied it for decades.

Btw, one very popular misconception is that asset deflation drains money supply. It doesn't. Unless demand deposits (in the conventional banking system) or money market funds (in the shadow banking system) are wiped out on a massive scale.

They won't let that happen. Never.

Fri, 05/21/2010 - 11:46 | 365797 exportbank
exportbank's picture

Debt is the problem and as the private sector de-leverages private sector deflation will be a byproduct. However, every tax or fee or encounter with any government (local, state, federal) will become much more expensive and this will push governmental inflation onto a stagnant economy. We already live in two worlds - the public sector (job growth, security, great wages, royal pensions) and the private sector that is experiencing wage decline, no job security and minimal retirement incomes. Since the private sector has to carry the public sector we're screwed. There is a long-term cure for all this - balanced budgets with no off balance sheet cheating allowed and this is both for governments and individuals. OK - it's a fantasy that no official seeking re-election would ever allow - he needs debt to buy our votes.

Fri, 05/21/2010 - 12:19 | 365885 Apostate
Apostate's picture

Who is this "we," kemo sabe?

The wise private sector fellow is already making plans to get the fuck out of this shit pile.

Fri, 05/21/2010 - 12:45 | 365937 Menelaus
Menelaus's picture

Golbal debt is a mega Black Hole and we are at the deflationary event horizon.

Print all you want, there is no escape.

Fri, 05/21/2010 - 13:13 | 366005 trav7777
trav7777's picture

Complete horseshit.

The Fed has plenary power to create 956 million billion quadrillion dollars tomorrow at the click of a mouse.

What people do not understand is that QE is *not* unsterilized printing.  It is lending to the government.

Buying DEBT instruments creates a compound interest parasitic drag.  But it still must be repaid according to the accounting ledger.

If the Fed buys $150T of USTs, they are owed $150T PLUS interest BY the USG.  To balance the ledger, the USG must eventually tax that level of production out of the economy.

This is the problem with QE.  It merely continues the credit game and makes a sudden unwind more vicious.

They will print.  You can bank on that.  The only way out of the deflation spiral math is printing.  Brute force, just like 1930s.  It won't affect the economy, but it will remove the deflatoinary effects of credit contraction and interest.

This is precisely WHY there is this jubilee concept in debt societies.  Eventually, the math of exponential compounding becomes inescapable.  The print will be our jubilee.

It cannot resurrect Cantarell, obviously.  Once the bacteria fill up the bottle, the bacteria CB cannot make the bottle larger to continue the growth rate.  That is headroom in a physical world.  By cheapening credit, they inspired the bacteria to grow faster.  But at some point, you reach saturation.  That is where we are.

All revolves around energy supply, which is the fundamental rate at which we can *do* things in the aggregate.  Work is still force x distance.

Fri, 05/21/2010 - 14:01 | 366118 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

One minute until midnight.

Sat, 05/22/2010 - 01:10 | 367276 Assetman
Assetman's picture

They will print.  You can bank on that.  The only way out of the deflation spiral math is printing.  Brute force, just like 1930s.  It won't affect the economy, but it will remove the deflatoinary effects of credit contraction and interest.

Not exactly.

If we were to look at the U.S. in total isolation, I could almost agree with this point.  But our largest creditor buddy (China) has every incentive to make sure we don't print our way to dollar nothingness.  And there is some intrinsic value in maintaining a currency strong enough to support its reserve status.  Even Bennie Mae appreciates that.

Printing will affect any economy to the extent on how the credit creation is actually used.  QE as it has existed so far has not been productive--because it's been essentially moral hazard loan that needs to be paid off.  And those institutions on the right side of that ledger have produced exactly what?  New drilling techniques?  Cold fusion?  How about inflated asset values?

Truthfully, I don't know if we have all the answers.  Blind and massive money printing will have it's own unintended consequences-- and I'm not sure it will be terribly effective this time, anyway.

What I do know is that I don't want to confuse what I think is certain, from what may well be wishful thinking.

Fri, 05/21/2010 - 12:06 | 365839 Caviar Emptor
Caviar Emptor's picture

More and more are coming over to my theory of simultaneous deflation AND inflation appearing in the US economy. I believe this article does so in principle, arriving at the same conclusion.

UK is perhaps only 1 step ahead of the US. Here we have undeniable deflation in personal income, employment in general, real estate, and retirement assets. However we have undeniable inflation in raw materials, food and energy, healthcare, insurance, consumer interest, bank fees, financial transaction costs, education, transportation, taxes taxes taxes including those buried in your telecom and cable bills, security just to name a few. 

CPI does not adequately reflect what's going on because the numbers cancel. The sub-indices do confirm food inflation. But most of the fixed costs to small business and consumers that I've outlined are not even measured or reported in CPI. 

PPI does support this theory, showing margins squeezed by increased prices paid and decreased prices received. 

Small business and consumers will be constrained, forced to do a full split between deflating asset values and inflating cost of living and doing business. 

The root causes: a deflating post asset bubble, ultimately caused by 30 years of credit-fueled inflation policy which sent prices out of all proportion to incomes, only sustained by leveraged credit. But if we now add into the mix the remedy which Edwards and Koo have prescribed: pumping more liquidity, this will only serve to reinforce the existing imbalances.

Allowing outright deflation would at least allow both categories to deflate and reset together. Perhaps the policy of continuous liquidity injections to support prices is at the root of the 20 years of Japan's stagnation. 

Fri, 05/21/2010 - 12:07 | 365855 Attitude_Check
Attitude_Check's picture

I've said the same thing for about 1 year now, here and other forums.  I agree that asset deflation (check out shadowstats M3) combined with commodity inflation (see M1) and FX weakness.  A huge double whammy, but the exact inverse to what we had in the 90s and early 00's.


The effect of the baby boomers can not be underestimated either.  They have been net asset accumulators, and will now start to sell to finance retirement.  This will put additional downward pressure on all asset classes for at least 20 years.

Fri, 05/21/2010 - 12:23 | 365896 Raymond K Hassel
Raymond K Hassel's picture

I've been thinking the same thing for months now - and for the most part promptly ridiculed that they are mutually exclusive.  The Great Reflation at end of chapter 1 has a great analogy - an ever narrowing path with inflation on one side and deflation on the other - we've been bouncing off one side and back to the other for decades now - but as the path continues to get narrower - we will eventually be crushed by both at the same time.

Fri, 05/21/2010 - 13:00 | 365973 Crab Cake
Crab Cake's picture

Hyper Stagflation

Fri, 05/21/2010 - 13:39 | 366065 RichardENixon
RichardENixon's picture

Good one.

Fri, 05/21/2010 - 14:02 | 366119 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Great one.

Fri, 05/21/2010 - 14:05 | 366128 Raymond K Hassel
Raymond K Hassel's picture

As previously coined on ZH - the technical term is Masturflation

Fri, 05/21/2010 - 12:03 | 365843 Attitude_Check
Attitude_Check's picture

I wonder about a strategy I haven't heard anywhere else.  Fiscal tightening, government balanced budget etc. which will trigger GDP drop and debt implosion, which will trigger bank failures and a drop in taxes.  The monetize the Government debt "roll-over" and FDIC insurance pay-outs. 

Doesn't this allow for the needed debt reduction, but put a floor under the deflationary pressure?  Am I missing something?



Fri, 05/21/2010 - 13:54 | 366107 RichardENixon
RichardENixon's picture

I think you missed the part about the rioting, lynching and other assorted unpleasantness associated with said strategy.

Fri, 05/21/2010 - 12:05 | 365850 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

the shakedown, you dig?
buy buy.......sell buy....sell sell
inflation, no deflation.... no inflation... no deflation...inflation deflation inflation deflation


gold goes up then up then down then up up up down up up up down up up up down

Fri, 05/21/2010 - 12:14 | 365874 Caviar Emptor
Caviar Emptor's picture

Larry Kudlow, the grand Poobah of supply-side, has mentioned twice this week alone that he sees simultaneous deflation and inflation. 

The struggle between deflation and inflation is to a large extent political. Because allowing free-market forces to have their way would result in a giant deflation that would be like pressing the reset button. Like the proverbial Darwinian Capitalist forrest fire that destroys the old but provides opportunity for new growth and opportunities from out of the rubble. 

But deflation hurts creditors. It hurts those who were favored by the last regime through wealth concentration . They will not give up their privilege without a struggle. They would prefer to maintain inflation so they can collect rent (debt repayment) as did feudal landlords in Europe for centuries. Such a policy does not favor new enterprise or new opportunities but that's of no import to the oligarchs. They'll fight to avoid deflation at all cost.

Fri, 05/21/2010 - 12:47 | 365943 cougar_w
cougar_w's picture

Much of what you say is correct.

But there is a reason deflation is called a "death spiral". There are real bodies at the bottom of the rabbit hole.

Fri, 05/21/2010 - 13:21 | 366028 trav7777
trav7777's picture

Deflation at this point *cannot*, repeat CANNOT be stopped via interest rate regimes.

The energy supply rate has inflected.  Until this statement is no longer true, we simply CANNOT sustain the growth rate needed to keep the effects of interest compounding at bay.

If this "free market" deflation is allowed to run its course, the ENTIRE money supply, ALL OF IT, will vaporize.

That is a mathematical fact.  It's really as simple as this.

You have one bank and one borrower.  Borrower borrows $100 from banker for one year at 5%.  The only way money can come into existence is by borrowing.

Borrower owes $105 at EOY.  But there is only $100 of money in the system.  The creditdollar was in functional default the minute it was created, but it didn't matter because there was growth then.  Another borrower would come along and borrow the $5 that the first guy needed to repay his loan.

But when everybody starts paying back, i.e., deleveraging, you are left with this simple case.  More money is owed because of interest, than EXISTS or WILL exist.  If the second borrower does *not* come along in my basic hypothetical, Borrower defaults in one year due to LACK of the means to repay.  Banker gets his collateral.  The money supply is gone.


Fri, 05/21/2010 - 13:28 | 366043 cougar_w
cougar_w's picture

Banker gets his collateral.  The money supply is gone.

And the bodies pile up in the streets. You missed that part.

Otherwise we really do agree on everything.

Fri, 05/21/2010 - 14:04 | 366122 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Dudes on fire! 

Nice edit, coug.

Fri, 05/21/2010 - 13:45 | 366076 primefool
primefool's picture

He he - The way to fix this problem:

"lend" the $5 to a WS firm - on "soft terms" . Then the WS guy can get you to shine his shoes for a $5 tip. Viola- problem solved!

Fri, 05/21/2010 - 15:03 | 366313 Crab Cake
Crab Cake's picture

The fix, just so you know, is that a national bank that actually works for the people, is supposed to spend into economy 5% public works, thus allowing the equation to par out.

This is what Ben Franklin envisioned.  100% of money supply needs leant out/created at 5%, government creates/spends 5% back into economy, the 105% comes back in; repeat.  The only need for taxation would then be to mop up excess liquidity from unforseen expenditures up and above the 105%. 

That's the way it's supposed to work, monetary and fiscal policy by and for the people, but no, the banksters take the 5% out of the system.  As you noted 100 chasing 105, it's a viscous treadmill, and as Cougar said there are bodies piling up at the other end.  That is boom bust, right there, 100 chasing 105.  The system busts, the banksters pore the liquidity/loan out in the aftermath to their own exclusive benefit.  We're not being robbed, we are slaves being told we're free.

Fri, 05/21/2010 - 12:21 | 365890 Miramanee
Miramanee's picture

most important thing of all...I received my ZeroHedge T-shirt in the mail today.

Fri, 05/21/2010 - 12:28 | 365902 Kina
Kina's picture

So what is the personal strategy to combat these forces? Liquidate assets before deflation bites, then buy assets before inlation accelerates?

Fri, 05/21/2010 - 12:48 | 365947 Menelaus
Menelaus's picture

Cash, crash, metals.  Guns and dogs are good as well.

Fri, 05/21/2010 - 12:49 | 365950 primefool
primefool's picture

IMHO this 50,000ft big picture speculation on deflation/inflation is mildly useful , although certainly interesting to discuss. One cannot base investment strategy on such big picture speculations - very hard to get right, very hard to guess the timing . I mean if we look like Japan then the deflation will last a decade or more. If we loo like Hong Kong after the Asian crisis - severe deflation for a couple of years followed by rollicking growth and property boom ( hah - unlikely!).

Its also wrong to generalize your immediate anecdotal experience to the whole world. eg. In the lasy couple of years - huge property crash in parts of the US, but surging property priices in many parts of Asia. London property apparantly doing fairly well - who would have guessed!

Better to do some homework on specific companies and asset types, get a handle on valuations and wait patiently to pick u stuff cheap if the opportunity comes.. This wild thrashing around in stock indices on an intraday basis is highly unlikely to be rewarding.

Fri, 05/21/2010 - 13:54 | 366104 mtguy
mtguy's picture

"Better to do some homework on specific companies and asset types, get a handle on valuations and wait patiently to pick u stuff cheap if the opportunity comes.. This wild thrashing around in stock indices on an intraday basis is highly unlikely to be rewarding."

I'm not so sure about that. Ever hear the saying, "a rising tide lifts all boats"? The same can be said in the reverse. Now, what investment survived the initial plunge in 2008? Oh,oh, I know, call on me, call on me... Gold.

If you don't see or try to see the big picture, how the hell can you pick a good investment? You might pick the best, say oil stock in the world, great earnings, blah, blah, blah, but if oil prices drop, all the oil stock prices drop pretty much. There is no island of safety in that case.

just a thought (or two)

Fri, 05/21/2010 - 12:38 | 365916 Marley
Marley's picture

"....1970’s style 20-30% inflation will surely return."  So is Ravi correct?...."the three-decade cycle signifies that similar events repeat themselves roughly every thrity years.  .... While the events tend to repeat themselves, their intensity need not be the same".  - Ravi Batra

Fri, 05/21/2010 - 13:47 | 366088 Bam_Man
Bam_Man's picture

I have a copy of Ravi Batra's "Surviving the Great Depression of 1990" in my bookcase, surrounded on either side by "Dow 36,000" and Siegel's "Stocks for the Long Run".

At first glance these three tomes appear to be incorrectly placed, as that section of my library is labelled "Satire & Farce".

Fri, 05/21/2010 - 12:41 | 365921 wawawiwaa
wawawiwaa's picture

Japan has been printing away for 20 years and there is no inflation so if we are going to Japan where is it that the inflation is going to come from?

The ideology of inflation is fogging up contributors minds here. 



Fri, 05/21/2010 - 12:52 | 365956 cougar_w
cougar_w's picture

Japan's inflation was devoured by internal deflation as their domestic economy evaporated. They exported their way out of the jaws of destruction, having a healthy global market to sell into. Who is going to pull that one off now, with the global economy as a whole about to implode? Is China going to buy us all out of deflation?

I think not. And I fear the jaws will shut on us this time around. No more escaping into the thorns, Briar Rabbit.

Fri, 05/21/2010 - 13:24 | 366035 trav7777
trav7777's picture

Expect this:

The resources and effort went into the MOST productive regions first.  The ones with the largest oilfields.  The US, etc.  Then you got BRICs.

All that's left is Africa.  Global carry MUST seek yields if credit will grow.  So they must find things to do in places where they can earn a return superior to the prevailing lending rate.

Japan deleveraged internally but their external credit still grew. That is because the loans went to develop Brazil and Australia and similar nations.  Just watch the forex unwinds on days like yesterday.  See what is moving against what.  That tells you what Japan and ZIRP and the yen carry was about.

Fri, 05/21/2010 - 12:45 | 365939 Stanley Lord
Stanley Lord's picture

 Everybody stopped listening to Obama about three months ago.

Fri, 05/21/2010 - 12:46 | 365941 wawawiwaa
wawawiwaa's picture

Inflation and Deflation at the same time!!! I would really like to see how that works. Maybe in a cocaine induce Kudlow cloud but otherwise I'd really like to see that one!! 

It is going to be something. 

That is going to be as good as cold fusion, perpetual motion machines, travelling faster than the speed of light or fiscal responsibility!!! (had to throw the last impossibility in there... could not resist)

Fri, 05/21/2010 - 12:57 | 365958 cougar_w
cougar_w's picture

Inflation and Deflation at the same time!!! I would really like to see how that works.

A snake, eating and digesting its own tail, crapping itself into its own mouth. And then digesting the crap, until there is only crap left.

See, that wasn't so hard.

BB has this very recurring nightmare every night. He knows exactly what I mean.

Fri, 05/21/2010 - 13:07 | 365983 Crab Cake
Crab Cake's picture

Cougar, since you brought up my avatar, here is an avatar alternate for you.  Not that I dislike Mr/s. TigerEyes.  Just made me think of you, is all.

Fri, 05/21/2010 - 13:20 | 366025 cougar_w
cougar_w's picture

AH, but your ouroboros is a sacred symbol. I was thinking of a real snake doing something stupid and destructive when I wrote.

And for the record, it is Mister Cougar, thank you. Lady cougars are nice too, I hear, but they are a separate species.

Fri, 05/21/2010 - 13:35 | 366055 hound dog vigilante
hound dog vigilante's picture

Deflation in the assets that one WANTS but does not necessarily NEED. (housing/RE, physical/productive capital, toys, luxuries, inventory, consumer crap).

Inflation in the assets that one NEEDS (food, fuel, energy, water).

Pretty simple, actually.

The items in the NEEDS category are basic commodities that can also serve as barter currency between most market participants. These items are already demonstrating premium values for this reason. Ammunition is a curious ("non-essential for life") item that market demand has pulled into the NEED category (liquid & premium trade/market value).

The highly specialized non-critical items in the WANTS category are simply not liquid enough to be immediately "tradeable"... thus these items will languish and depreciate rapidly.

Forget the cash/FRN values of the past. The future value of most items will be determined by which category they fall into - Needs or Wants.

Relative to the other, Needs will steadily appreciate and Wants will steadily depreciate.

Fri, 05/21/2010 - 13:49 | 366092 RichardENixon
RichardENixon's picture

Yea I agree, and that's gonna make for one hell of a mess.

Fri, 05/21/2010 - 23:54 | 367231 Hephasteus
Hephasteus's picture

Food old price $1.00 new price $3.00

20 carat diamond tennis bracelet old price $180,000 new price $4,000

There ya go. Inflation and deflation at the same time.


Fri, 05/21/2010 - 12:48 | 365948 BeerGoggles
BeerGoggles's picture

How much of your net worth should be owned in gold as insurance policy for something like this?

Fri, 05/21/2010 - 13:23 | 366034 cougar_w
cougar_w's picture

Nobody can answer that really. As for your "mad money" than you can play around with 25% is probably a fun amount. It's all a game, don't go in for more than you can afford to lose. But do have fun.


Fri, 05/21/2010 - 13:35 | 366056 DoChenRollingBearing
DoChenRollingBearing's picture

I think up to 5% - 10% is fine.  Hardly anyone owns physical non-jewelry gold.

Some here own a lot more than 10%.  That may be very smart.  I have no problem with buying a lot of gold.

I am about 6% gold and PMs myself.  Insurance.

Fri, 05/21/2010 - 14:08 | 366138 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

'How much you got?'  I ask rhetoricalli.

All of it?  Why not?

Fri, 05/21/2010 - 12:56 | 365960 primefool
primefool's picture

Is it not completely screwed up that we seem to have a "market" where supposedly intelligent human beings decide whether or not to make an investment in Exxon or P&G based on whether there is a news headline speculation on whether or not the SEC settled with GS?!!!! Hilarious.

Fri, 05/21/2010 - 13:00 | 365971 primefool
primefool's picture

I think Hong Kong between 1998-2000 is the gold standard for how to run a deflation. Everything went down in price-houses, salaries, food etc etc. The CB held firm and did not panic. There were no riots or strikes. They just swallowed hard and kept going. Then things turned around nicely. I dont think the large countries can pull this off.

Sun, 05/23/2010 - 11:10 | 368599 happybob007
happybob007's picture

One thing that helps Hong Kong vs. the U.S. is that they're little.  Change can spread across HK quickly.  The U.S. is enormous.  Different states will react in different ways and the end result will be a hurky-jerk mess, regardless of whether we get inflation, deflation or both.

Fri, 05/21/2010 - 13:34 | 366046 Pure Evil
Pure Evil's picture

"Dylan Grice has shown us clearly over the past few months that governments are insolvent."

Governments are always insolvent.

Governments are populated with the worst parasites known to humankind.

It's the greatest welfare scam known on planet earth.

What else besides today's ponzi markets can legally steal people's money while producing nothing of real value.

At least banksters have to connive to steal your money, all the govenment has to do is write a law giving themselves permission to appropriate a portion of your income and back it up with nothing but threats of prison time.

Governments are always insolvent, they stay fiscally afloat by pilfering your money purse.

Fri, 05/21/2010 - 13:47 | 366087 LouRukeyser
LouRukeyser's picture


Governments maintain legitimacy only to the extent that they don't steal enough money to cause a revolution.

Fri, 05/21/2010 - 15:30 | 366381 GoldBricker
GoldBricker's picture

Of course governments are parasites, the bigger they are, the hungrier. The key is not in the faces (if they are the ones really in control), but the incentives. If one can take from the many and give to the few who can keep one in place, then why not? Altruism exists, but cannot be reliably harnessed as a political force.

Fri, 05/21/2010 - 13:51 | 366091 RagnarDanneskjold
RagnarDanneskjold's picture

I do expect deflation before inflation, but I don't think people understand how fast deflation works. It was the post-war Germany economy, the post-war Hungarian economy, and the Mugabe led Zimbabwe and Chavez led Venezuela that are having very high rates of inflation. The economy will be dead before any inflation shows up.

The efforts of the central banks will fail completely. They will not stop the deflation, they will not even halt it. Then, once the deflation is probably pretty much over after a year or two and the economy is ready to have a healthy recovery, their deflation fighting policies will be the seeds of hyperinflation.

Japan is going to supernova if there's global deflation. First, it's debt-to GDP is going to expand like a dying star as deflation jacks the ratio up to an insane level. Then it will implode on itself in hyperinflation.


Fri, 05/21/2010 - 17:47 | 366755 trav7777
trav7777's picture

This is exactly why years ago I forecast that the event that would prove to be the Rogue Wave system killer would be Japan's sovereign default.

I will gain some measure of satisfaction if my prediction comes to pass, but hope to be someplace the hell OTHER THAN THERE or HERE when it does.

Carry unwind is exactly like a dying star.  The engine of credit growth via ZIRP and stimulus struggles against the exponential inexorability of compound interest.  It implodes and the collapse into black hole sends out a lightspeed shockwave, blowing most of the star apart.  Supernova.

Fri, 05/21/2010 - 13:51 | 366098 rawsienna
rawsienna's picture

Politics dictate a reduction in deficits. That is the message. Any politician that does not run on deficit reduction will lose.  It will result in a severe global downturn - what happens after that is anyones guess but near to medium turn outlook is lower stocks, lower yields, gold unched (buy it) and the eventual reduction in Euro members.

Fri, 05/21/2010 - 14:13 | 366149 Highrev
Highrev's picture

It's called an Inflationary Depression!

Fri, 05/21/2010 - 14:19 | 366167 Buyemall
Buyemall's picture

Lagging indicator is missing from the last chart. Is there a point to that?

Fri, 05/21/2010 - 14:22 | 366180 stewie
stewie's picture

Please someone explain this to me. I've done my homework really trying hard to understand the Japan's situation but haven't been able to get a grip on the subject.

Sure Japan's has kept interest rates low for a decade, but loans for citizens to buy Hondas & Toyotas were not at .5%!  All the cheap money went to banks.  If they wanted to cause inflations, why not create cheap money and lower taxes as much as needed to give people the required surpluses to start spending?  It seems they never intended to create inflation at all.  What they wanted is keep inflation low by controlling how much income workers get, while creating boatloads of money for the banks to lend abroad and geta nice income out of it.   

I just don't see why it would be different in the US or in Europe this time around.  What is it that make you think all this money will hit the street and create high inflation?  Big Ben has already inflated the money supply big time and contained the hot plasma money with a level 4 containment force field.  Result:  Total containment.

It seems that everybody underestimate the power of money and the desire to maintain the status quo.  Sure it will all blow up some day. I just don't see how it'll happen soon in light of what has happened in Japan the last decade.  



Fri, 05/21/2010 - 15:14 | 366345 RichardENixon
RichardENixon's picture

The "cheap money" policy is to protect the banks. That money goes to plug holes in the banks' balance sheets, to speculate on risky assets, to pay bankers bonuses, etc. The real economy contracts and deflates. After this deflation runs its course real necessities like food and energy are the assets which still have value, people lose all faith in the currency and won't exchange these precious assets for the currency, and voila, hyperinflation sets in after the deflationary collapse.

Sat, 05/22/2010 - 09:54 | 367517 stewie
stewie's picture

Thanks for your response Nix.  A few points:

- In deflation people don't loose faith in the currency, it appreciates!  So when deflation ends the prices of real commodities might regain their formal level, but that's not hyperinflation, which as I understand is a currency event where there is a lost of faith  faith in the gvmt`s ability to service it`s debts through regular taxes.

- Still, why was Japan able to keep interest rates that low for so long, and increase it`s monetary base for that much without it`s currency falling in value significantly causing inflation.  Why wouldn't that happen in the US and Euro-zone?  I don't see hyperinflation in Japan.  Do you?     

Sat, 05/22/2010 - 10:18 | 367537 RichardENixon
RichardENixon's picture

Yen has been the carry trade currency and Japan has financed much of it's deficit spending by tapping the native population's extremely large pool of  savings. I think Japan will see massive inflation at some point as those 2 factors unwind. I think hyperinflation is a little more than loss of faith in government's ability to finance its debt through taxes. From what I've learned about situations where it has occured, such as Weimar Germany, the final catalyst is a complete lack of faith in the currency by the entire population, where it reaches the point where no one will exchage essential items for it. Another ZH poster, I think it was Crabcake, called what we are going through "Hyperstagflation". My area of expertise is accounting, not finance, so I could be way off on this. There are many posters and contributors on ZH who seem to have a profound knowledge of finance, and one of the reasons I came to this site was to learn from them. They probably have a better understanding of the deflation/inflation conundrum than I do.

Fri, 05/21/2010 - 15:00 | 366306 Edwardo
Edwardo's picture

Exactly as someone said, the 20-30 percent target for "inflation" will prove to be off target.

Betting against gold is a huge mistake, since gold is the ultimate referendum on systemic failure, and that is exactly what we are in the early innings of. 

Fri, 05/21/2010 - 15:13 | 366341 surfer
surfer's picture

A fascinating thread, some of the intellectual content hear really needs applauding. The Japan references just seem so off the mark, the isolated economy with the rest of the world to devalue against make it non relevant to todays charade. What I miss is not about deflation/inflation its about risk premium and credit worthyness. Surely the cost of capital should go through the roof. The banks are poor counterparts, now the governments are poor counterparts surely just to preserve capital risk premium should be so much higher. When you witness a flight to quality into Gilts you realise the ugly contest just got real ugly.

Fri, 05/21/2010 - 15:58 | 366447 ThreeTrees
ThreeTrees's picture

Question:  How do the Keynesians know that renewed recession is the result of premature fiscal retrenchment?  Do we even know, a posteriori, what defines "ideally timed" fiscal retrenchment?

Sat, 05/22/2010 - 15:24 | 367858 LetUsHavePeace
LetUsHavePeace's picture

"This resembles closely the UK's experience of the 1930s when it was ejected from the Gold Standard, only to devalue aggressively and so suffer a relatively mild "depression" compared to those who remained on gold."  This is the standard academic story; but the tale is very much one of the Emperor's "golden" threads.  No country "remained on gold" in the 1930s because nowhere in the world could private parties convert their paper currency holdings into gold.  In 1932 the United States literally swapped one prohibition for another; it was now legal to own and sell alcohol as a private citizen, but it was illegal to own or sell gold.  For Britain and France the default on the right of convertibility was part of the central bank's repudiation of the gold exchange standard.  Finland's experience was representative:  "Redemption of banknotes in gold was suspended in Finland in 1915. In 1926–1931 the gold standard prevailed again until it was abandoned as a consequence of the depression of the early 1930s. Since then, it has not been possible to exchange banknotes for gold."

The best explanation of Britain's comparatively mild depression during the 1930s is that Imperial Preference protected the British Empire from international competition, and the British pound - like the dollar now - "sucked less" than the currencies of the counter-parties.  The competitive devaluations of both Australia and New Zealand against the Pound Sterling increased Britons' real incomes substantially.  

Thu, 06/09/2011 - 17:11 | 1355775 sun1
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