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The "Game Over" Redux

Tyler Durden's picture




 

Back in November, we posted a piece by Knight Research titled "The Game Is Over" in which the firm's strategist Mark Lapolla presented his thesis why he believes that "the structural and cyclical terms of global trade have finally reached their tipping point. This will catalyze a wholesale change in sentiment and a historic repositioning of risk assets. The emerging market global growth story is over." And while the article came out just as the barrage of $750 billion in daily POMOs courtesy of QE2 was starting and hence masked the true state of reality, now that QE2 is finishing, it is only appropriate to bring Mark back up front, as the imminent and very violent convergence of the rosy myth that is the stock market, and of the underlying miserable reality, is about to wake up all those who have been dozing under the Pied Printer of Eccleslin's soothing tune, and Lapolla's thesis is about to see its first validation. In essence, while we have heard much from those who claim that the end game will come as a result of hyperinflation, Lapolla is convinced in the opposite: namely that the end will be not a bang but a hyperdeflationary whimper. In order to refresh readers with his thoughts, recently Lapolla conducted an interview with the master questioner Kate Welling in which the Knight strategist laid out his uber-bearish case in more gruesome detail than most can stomach. Below we present the key points from his interview, as well as the full thing subsequently.

In a nutshell, and this won't come as a surprise to anyone, Lapolla believes that "the game is over because there is no collateral... When consumer debt is rooted 75%-plus in residential real estate and residential real estate is impaired, easy Federal Reserve  monetary policy simply cannot make it to Main Street. The transmission mechanism is broken. There is no conduit. "

Lapolla's observations on the secular shift in the employment structure:

What's going on here is very simple. John Maynard Keynes wrote a letter entitled, "Economic Possibilities for our Grandchildren "in 1930, in which he coined the term "technological unemployment." He said it's a term nobody has heard of, but you are going to be hearing a lot about it. Of course, he was writing about the use of technology to supplant labor in the factory... Any way you slice it, nominal wages, real wages, hourly wages, the duration of unemployment — all of these measures imply that we have a  growing structural fracture in the labor markets.

On the irrelevance of week to week and month to month micro fluctuations in the jobs numbers:

Right now, the full employment gap is running about 11 million jobs. That's a shocking gap and, although this is very difficult to quantify, we have a sinking suspicion that — while a number of the jobs that are being created right now might in fact be "good jobs" - they're being filled by over-qualified labor no longer able to wait for jobs at compensation levels similar to what they had before. Now, in the very long run, this might work itself out, but in the short run it doesn't do anything to change the outlook for the consumer. What it does is suggest that people are going to have to shift down the way they live and the way they expect to live — perhaps even further than they already have. Thus, the propensity to save in this country has to continue to rise — which (although not in the short term) is very bullish long term — whether that's captured in the aggregate data or not. So as you've gathered, we are very different from consensus, first and foremost, when it comes to the secular structure of labor and credit in the U.S.

On the previously discussed topic of Squatter's Rent (discussed extensively here):

There are roughly six to seven million folks who are no longer paying on the mortgages on their homes, so if we do some really simple arithmetic, it suggests in the aggregate as much as $100 billion of annualized consumer income is being freed up to find its way into consumer spending elsewhere in the economy, instead of going towards the satisfaction of housing debt..., the real question is if, or when, does the foreclosure mechanism begin to kick back into gear and then accelerate? At this juncture, there really isn't a tremendous amount of evidence that it's going to accelerate. Let me give you a tangible example. We know someone who has lost his job and is in a home with a $1.45 million mortgage. The house is on the market at $1.3 million, which we guess is the degree to which the home has been written down on the books of the mortgage holder. The property taxes on the home are about $20,000 a year, so he has been expecting an eviction notice or a foreclosure proceeding for almost 18 months. Yet his property taxes have been mysteriously paid every year. What is going on is clear: If the bank or whomever holds that mortgage note were to foreclose, the house's liquidation value is prob¬ably about $900,000. So they would have to take a further $400,000 writedown on that mortgage. Which makes paying $20,000 a year in property taxes, look like a relative bargain.

On Europe's state of suspended animation:

Europe right now is still kicking the deflationary can down the street; trying to postpone and prolong the inevitable. Meanwhile, they're trying to cover their tracks with verbiage claiming they're pursing mandated fiscal and monetary austerity policies and monetary policy. But the ECB's bump up in rates of 25 basis points isn't material. And all of this is intensifying the deflationary pressures on the periphery countries. So Europe is in a state of suspended animation, where the deflationary pressures are spilling out but even the sort of modest financial restructuring the United States is trying is still being resisted. It's clearly not a stable situation.

On the "China" question:

I think the China situation, how¬ever, is profoundly obvious and profoundly simple. The idea that the free world is placing its hope in a repressive, communist regime employing command and control economic management while violating trade protections and human rights everywhere is absolutely astounding, amazing. I would suggest that, in itself, should be a sufficient warning flag. But let's be a lot more specific. I actually see the situation in China as very analogous to the U.S. in 1929 and Japan in the 1980s....I'll just tick off eight similarities between China circa 2011 and the U.S. before the Depression. 1) Massive disparity of wealth, income, and education. 2) Rapid industrialization and displacement of labor. 3) Opaque and misleading economic and financial data. 4) Massive build-up of leverage across the "rising" class. 5) Bubbles in both residential real estate and fixed asset/infrastructure development. 6) Accelerating and uncontrolled growth in disintermediated credit. 7) Expected transference of economic growth to domestic demand. And, finally, an accelerating price/wage spiral. Nonetheless, to China's credit, they have a booming economy which has drawn the attention, admiration and certainly the economic aspirations of the world. The irony is, despite its hubris, China appears to have lost control — and has done so by doing everything it could to avoid that. Essentially, in its own zeal to placate its masses with rapid growth, China has created a tide of inflation that threatens it with wide-spread social unrest. But if it crushes speculation and clamps down on credit, it risks a deflationary collapse that would also threaten social harmony. The upshot is that China no longer controls its own destiny. The free markets do. As an aside, I would suggest that in the not-too distant future, when this all unravels, there will be downside as well as upside for the U.S., particularly as it relates to what we were talking about before, the way the U.S. has benefited from the value of intellectual property versus scale.

On China's Lewis Point (discussed extensively here):

If there was one thing that pushed us over the edge to publish it last November, it was our belief, now confirmed, that China and an increasing number of other emerging markets are caught in a price/wage spirals that they're not going to be able to control through monetary, fiscal or legislative policy. These are an inevitable result, not only of the credit boom, but of the manufacturing engine they're living by. This is the great differentiator between the U.S. and China. The reason a systemic inflation cannot happen here for a long time and why it is happening in China is simply this: When labor is in the business of manufacturing goods (as opposed intellectual property or services), labor has a call on rising finished goods prices. When commodities prices begin to increase and manufacturers attempt to raise finished goods prices, wage rates must go up or labor's value is necessarily diminished. This is the dynamic traditional U.S. manufacturing businesses faced decades ago, and now, in China, it has reached epic proportions. We've seen 20% to 30% wage increases by the government on the low end and by contract manufacturers such as Foxconn (FXCNF), which does the Apple (AAPL) iPhone, on the high end. It has raised wage rates, almost 30%. China bulls believe this wage inflation is good for workers and so ultimately is going to help China accelerate consumer demand as an engine of their growth. Nonetheless, it hasn't and won't, for a couple of reasons. 1) Savings rates actually are rising in the major city centers. 2) China's consumer confidence numbers and research on the ground in China both show that labor has never been less secure than they are now, which seems paradoxical. One would think that China's new¬found international power, along with higher incomes, would make Chinese workers feel all is right with the world. The problem is that the cost of living is growing even faster. Without getting too technical, China has probably crossed over what's called, in academic theory, the Lewis Point, where the movement of labor from agriculture into manufacturing reaches a peak and begins to taper off as manufacturing labor begins to reconsider whether life in fact wasn't better back on the farm.

On the link between inflation and money:

Increased money supply is not a causal factor for inflation. It's like suggesting that a bartender is a causal factor for alcoholism. In reality, reserves, whether they exist in the system's books or not, are always available. Credit creation cannot really be controlled. If you and I want to create a loan between ourselves, we can do it. If a bank wants to create a loan, it can do it. The only thing that can mitigate that ability is regulation of the banks. However, if we consider the off-balance-sheet and shadow banking mechanisms, there really is no way to control that credit creation. The only way the Federal Reserve can influence credit creation is by raising or lowering short-term rates. With that said, we're at the outer bound, at zero, and what we're finding is that demand for money is not increasing as the cost of money goes to zero — which is not unlike what we saw in Japan. What is happening, however, as ever when the cost of money stays this low, is that speculators are inclined to speculate because the cost of speculation on leverage is negligible.

The reason why, in Lapolla's opinion, the Fed has failed in generating systemic inflation (and why the Fed will keep coming back, and doing the same wrong things over and over until everything finally breaks)

The reason [we don't have systemic inflation] is that the labor markets are fractured. So, at the end of the day, what we're having now is an asset inflation again, an echo. We're not seeing the seeds or leading edge of wage/price inflation, the true driver of damaging systemic inflation. Asset inflation resolves itself in one way, and one way only, and that's through asset deflation. So we have ongoing asset deflation in the residential real estate market. We have ongoing asset deflation in the commercial real estate market and we will ultimately have asset deflation across China and Asia.

On what would happen to the global economy if the dollar were to collapse versus the euro and commodities:

Global deflation and depression are what would happen.

On what self-cannibalizing HFT algorithms means for volume and for the markets in general.

Doesn't it necessarily imply that there must be real inefficiencies in pricing on the table, for long-term investors, if everyone is totally focused on the short term? So, suggesting that "the game is over" has implications across the board. It has implications in terms of the way asset allocators think about investing, the way their money managers think about deploying capital, and ultimately about the way corporate managers think about deploying shareholder capital. We in effect are in this very awkward "teenage" stage where we've just had this fracturing shock, the credit crash, the exposing of all the financial hubris and misallocation of capital. We haven't even moved to credibly addressing those issues in Europe and we're still holding onto the notion that the emerging markets — which are just getting their first taste of capitalism on the back of reckless credit expansion and speculation — can somehow become the engine that overwhelms the massive deleveraging of the developed world. It's a preposterous notion. I'm not being fatalistic. This is the way history moves. In 30 years, it will be clear to people, looking back, that this is the final chapter of the old story in which finance, financiers, leverage and short-term trading ruled the world.

On what the "sequel" is:

We're moving towards something that, by definition, is going to have to address the real structural issues — in the U.S., fractured labor markets, still-excessive credit and unsupportable levels of debt tied to homes, a rising propensity to save, bleak expectations for wages and investment returns. From our vantage point, it's only a question of timing. But it's entirely possible that there won't be an asymmetrically positive outcome for the globe. "Growth" is not a fait accompli. In fact, there can and probably should be periods, lengthy periods, of virtually no growth; of consolidation and pruning. So we would reject the notion that growth necessarily has to happen. Very marginal, just population-type, growth could in fact be the order of the day, and that implies a re-pricing of risk capital across the board.

Lastly, his investment advice:

Those who are bit more speculative, we're encouraging to pick a spot where they will buy the U.S. long bond, if not zeros on the U.S. long bond, as rates start to move closer to 5%. It's likely to have very high, equity-type returns, in short bursts.

Full interview with Kate Welling:

2011 05 Game Over _China_

h/t Michael

 

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Thu, 05/19/2011 - 21:04 | 1294083 Arrowflinger
Arrowflinger's picture

Game over.

Government referees threw the game.

 

Thu, 05/19/2011 - 23:11 | 1294413 JW n FL
JW n FL's picture

Transitory Manipulation for the Benefit of the New Normal, Sir…

Thu, 05/19/2011 - 21:07 | 1294094 mophead
mophead's picture

Game over? Too much dept? End of QE2?
RALLLLLLLLLLLLLLLLLLLLLYY!!!

Thu, 05/19/2011 - 23:39 | 1294497 Sock Puppet
Sock Puppet's picture

B.S.

"Lapolla is convinced in the opposite: namely that the end will be not a bang but a hyperdeflationary whimper."

Just another Mo Fo trying to get you to sell your PMs.

Don't do it, Troll alert.

http://trololololololololololo.com/

Thu, 05/19/2011 - 21:12 | 1294101 Rynak
Rynak's picture

@Tylers: I love what you do, but it would be helpful if in some articles you'd use the enter key a few more times :-)

Thu, 05/19/2011 - 21:10 | 1294102 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Let's hope it is game over soon, after all, those who are enjoying the game are the only ones who would want it to continue. Sanity asks who would possibly want a game to continue that they aren't enjoying... anyone enjoying this 'game'?

Thu, 05/19/2011 - 21:16 | 1294114 Rynak
Rynak's picture

Anything that doesn't involve the word "nuclear" and doesn't involve dictatorships is a fine "end" to me.

Thu, 05/19/2011 - 21:41 | 1294175 JohnG
JohnG's picture

So we are already only half way there?

Thu, 05/19/2011 - 21:54 | 1294231 Rynak
Rynak's picture

:-/ yeah.... i noticed that when writing it..... considered rephrasing it to "the state not getting much worse than it is already" or smth like that.... but then just thought "too complicated - people will get it anyways"

Thu, 05/19/2011 - 22:53 | 1294354 sullymandias
sullymandias's picture

i thought he was talking about the nuclear half..

Thu, 05/19/2011 - 22:52 | 1294351 Oracle of Kypseli
Oracle of Kypseli's picture

I am very sceptical about posts that entice you to short stocks, because the end is near and posts that entice you to stay with stocks because the shark must keep swimming to survive.

I think that both want to feed on players whether long or short. They can suck blood either direction with their HTF uber-software.

Thus, only a few of my marbles are in play as a hedge. Mostly puts

Fri, 05/20/2011 - 07:05 | 1294898 chubbar
chubbar's picture

Sorry but ALL of your marbles are "in play". Cash IS a risk position if the gov't backing them is 14T in debt with 100+T in out year obligations. If your cash is in some other currency then perhaps it is marginally safer or in greater danger depending on the backing country. Have no illusions about what is coming, a full re-write of the monetary system. There are no SAFE positions without making an assumption about the future value/purchasing power of the US dollar, which you are doing IMO.

Thu, 05/19/2011 - 21:19 | 1294113 Zero Govt
Zero Govt's picture

John Maynard Keynes ..coined the term "technological unemployment." ...writing about the use of technology to supplant labor in the factory

Did the West, who out-engineered and out-robotocised the East (USSR), create more unemployment? ...or did the West create more wealth and employment through the productivity and efficiency of machines?

Academics and economists always manage to lack common sense and miss economic history/reality which is why it's about time they were all made redundent 

Thu, 05/19/2011 - 21:20 | 1294123 Rynak
Rynak's picture

As i wrote a few times already, economic planners should worry less about how to reduce unemployment, and worry more about how to stop making it a problem. Machines are here to stay. Increases in efficiency are here to stay. Trying to fight it, is a fighting a losing war. Think about how to solve it, rather than compensate it. But be warned: This WILL involve cultural and moral changes are the rootlevel - and they are not what "oppressors" would want.

Thu, 05/19/2011 - 21:31 | 1294141 rufusbird
rufusbird's picture

You are so right. The solutions are not financial or technical. They are social issues that corporations have no interest in. What kind of world will we have in 100 years? Interesting to consider...

Thu, 05/19/2011 - 21:59 | 1294244 johnnynaps
johnnynaps's picture

It's good to see that there are a FEW that can see this! Thomas Jefferson said "leave the afternoon for recreation and exercise"......good to see they were able to enjoy the afternoon 200 years ago! What time period are we living in now that we have to work the whole damn day away? What is the sense in advancing the human race since it apparently makes the workday longer. We have the capability and technology to do without the 50 hour workweek......time to find a system for the entire country to live a comfortable life.

Thu, 05/19/2011 - 22:25 | 1294287 Rynak
Rynak's picture

not just working the whole damn day.... working the whole damn day DESPITE of massive increases in efficiency. This alone.... that an increase in efficiency results in MORE work.... should ring alarm bells that something is seriously going wrong.

And if that isn't enough to wake up people stuck in the common mantra, then here is my usual oversimplistic (but structurally valid) hypothetical example: Imagine a small island with a population of 10 people, who for whatever reason only need bread to survive. At first, 10 people are necessary to produce enough bread for everyone. Then a while later, only 7 people (or 70% of time) are needed to produce enough bread for everyone. On our common sense island, the people will be happy that they now have more capacity free to do other stuff than working to survive. But in our current system, the happiness and wealth turns into partial poverty and existencial fear.

Thu, 05/19/2011 - 22:35 | 1294316 johnnynaps
johnnynaps's picture

Couldn't agree more! The funny thing about our current predicament compared to your logical illustration is.......we are over $14 Trillion in debt and the workday needs to get longer to pay it back. Now that's IRONY! I am personally trying to work minimally, because I don't support the GDP system, our bloated GMENT, these wars, the debt I didn't cause, the Oligarchy, 55 hour workweeks, our Judicial system and this stupid way of life where everything we produce turns to crap thus causing pollution and creating obscure diseases.

Thu, 05/19/2011 - 23:00 | 1294376 Rynak
Rynak's picture

Which is why a gov shouldn't even be allowed to engage in such massive programs with money/debt of people who do not support it. If we already do not get to vote on such stuff, may we at least vote with our money?

Thu, 05/19/2011 - 23:08 | 1294402 Quixotic_Not
Quixotic_Not's picture

But the sheeple did support it!

They kept voting for the (D) & (R) Free Crap Empire™ election after mind-numbing election, didn't they?

Thu, 05/19/2011 - 23:12 | 1294416 johnnynaps
johnnynaps's picture

Most. Unfortunately, this population doesn't embrace change and isn't smart enough to recognize when change is needed.

Thu, 05/19/2011 - 23:33 | 1294486 BobPaulson
BobPaulson's picture

Humans evolved in a simpler world with many fewer abstract concepts required for survival or integration into society. As it gets more complicated, that normal distribution of intelligence stays put, while the median required intelligence to function slowly creeps up.

It doesn't make sense to ridicule the less intelligent. They're not going to go away. If we plan a world that steadily requires more smarts to function, we're naive to be shocked when some people can't cope with it.

Thu, 05/19/2011 - 23:51 | 1294544 J in Vegas
J in Vegas's picture

Great post +1

Fri, 05/20/2011 - 00:38 | 1294622 grok
grok's picture

well.. or rather, priority should be placed by the planners in making people more educated before making processes more complicated (growth of intelligence being a nurtured attribute).

Sun, 05/22/2011 - 12:59 | 1300116 BobPaulson
BobPaulson's picture

There are sustainability issues if we would hope to keep providing more education to the population. I'm a professor, and I see a bubble in education where too many people are getting more education for more costs, too many professors writing too much bullshit, yadda yadda. That feels very top heavy when many students don't give a shit about the content as long as they get the credentials. 

Again, from a sustainability standpoint, we I don't think it's wise to envision a world on a ramp to continuous growth in anything, be it education, organization complexity, resource use, or population - of course, M2 has no notional limit, especially with the convenience of floating point arithmetic :)

Fri, 05/20/2011 - 08:01 | 1294949 ibjamming
ibjamming's picture

And they KEEP on telling us that the races are equal! 

Sure they are equal...THAT'S why they compete so well? 

Blacks and browns don't have the smarts to make it in our "white" modern system...they don't...that's why they NEED affirmative action, they need welfare, and that's why our inner city schools are so shitty.  It's why all the inner cities suck. 

It's like we're expecting the cows on the farm to take care of themselves.  They CAN'T.  If they were in "the wild" they could scratch out a living...but they don't have the "smarts" to survive in a modern farm setting...without people to do the complicated stuff for them. 

I've been saying this for years...of course, with our conditioning...nobody listens.

Fri, 05/20/2011 - 12:48 | 1295898 Alpha Monkey
Alpha Monkey's picture

I wonder what racism does to self confidence?  I wonder what poverty, worrying about food and shelter and other basic neccessities does to self confidence?  I wonder why "blacks and browns" are willing to work in shitty conditions for little pay and don't stand up to their bosses demanding respect?  I wonder what it's like hoping to be qualified for financing, or being able to afford financing earning minimum wage with most of your income going to food and energy?  Somehow I don't think it's their inability to compete, but rather the marvelous system we have set up that keeps people properly in their place.  It's not just inner city schools that suck, but most schools throughout the united states.  Why?  Because white people beleive everyone should be like them.  Therefore they have set up the school system, not to teach one how to learn and become inteligent critical thinkers, but instead how to follow orders, stay in line, and be smart enough to play in the "white" system where you get a job and keep your head down for the rest of your life.

 

interesting perspective I have on this one, I'm half hispanic but was raised in a nice racist midwest town, where I learned how to live the "white" way as a brown person.  I think you need to spend more time widening your perspective.

Fri, 05/20/2011 - 10:12 | 1295205 sleepingbeauty
sleepingbeauty's picture

+1

The risk to thinking this way, and assuming that you are part of the crowd that is intelligent enough, is that you need to take a "Big Brother" role in protecting the people who can't understand. At some point in your protecting them, you have a situation where what is best for you is worse for them and vice versa. You convince yourself that if you don't survive they cannot (kind of like the parent putting the air mask on before their kids on an airplane). And after that it gets easier to do what is best for you. And then you can believe you are doing God's work.

Thu, 05/19/2011 - 23:16 | 1294426 JW n FL
JW n FL's picture

the reality of.. or our shared reality... is that the Duly Elected have sold us po' folk down the river for some pretty trinkets and beads!

 

here's a Great Slave Song that we should all learn.. so that we can sing it together while working for slop. http://www.youtube.com/watch?v=wHWGVNLrc1g&feature=related

 

You might as well get in the mood, for your kids sake becuase they will surely being singing this song becuase no one wanted to get off their fat ass! no one wanted to threaten their pension.. lol! PENSION PROTECTIONS!!! LMFAO!!!

Thu, 05/19/2011 - 22:56 | 1294368 Oracle of Kypseli
Oracle of Kypseli's picture

@ Rynak

That was a failed experiment already. We exported physical work to China and we were sitting on desks playing solitaire and had "bring your daughter to work" days, blue jean Fridays and company barbecues. No pain no gain. 

Thu, 05/19/2011 - 23:07 | 1294395 Rynak
Rynak's picture

Well, perhaps instead of playing solitaire, we could use the time to create more "luxury" (art, entertainment, literature, research) on a freelancer basis..... but you know, that would imply a society that no longer is living to survive, but has managed to solve existencial needs totally, and which now is concerned with stuff beyond this..... but noooo, must stay lowly primitives who live in fear of death. In the big picture, it almost is like mass-sadomasochism.... a civilization that has the technology and knowhow to make existencial needs peanuts, yet still artificially makes itself fight for survival.

Hey, i got an idea.... if those fucking stupid morons like pain so much, could they at least let those who are a bit more evolved, do something better with their life?

Fri, 05/20/2011 - 08:01 | 1294950 swissbene
swissbene's picture

nice.  the mental model is key first step.  in my experience, people are often constrained by their own thinking.

when i quit corp job, colleagues/friends/family very curious 'what would i do'.  ie how possibly to fill the void and achieve meaning.

sometimes i felt obligated to make something up.  simply to 'consume' one's own life is foreign to the dominant work-to-consume model.

i am with you & T. Jefferson though.  even seems obvious :)

Fri, 05/20/2011 - 10:38 | 1295332 FreeNewEnergy
FreeNewEnergy's picture

Your comments have hit the nail pretty squarely, but, allow me to add, current economic conditions are fostering an environment where work has changed and what you call the "existential needs" might more reasonably be filled by the technology-marginalized workers, such as home gardening, DYI home repair and generally more resourcefulness and less dependence on the "system", the grid.

I am one of these technology-marginal types, in my own home business, with very limited overhead, having to actually do work about five to six hours a day, and that only four days a week. The rest of my time is spent raising my own vegetables, making my home more energy efficient and sourcing other income streams. It's actually a pretty sweet spot.

The promise of technology was always presented - back in the 60s and 70s - as more leisure time, but the banksters and politicians stole that luxury lifestyle from the common man. However, through their own rampant greed, this is backfiring, because more people are now on welfare (read: government-supplied leisure), not paying mortgages (bankster inspired leisure), and working less (congress, thanks for doing nothing).

With all this free time on their hands, common folks - the smart ones - are devising ways to capitalize and take back their leisure, which has some new definitions, such as, leisure as not spending, leisure as self-education, leisure as efficiency.

Deflation is going to hurt the most at the top of the food chain. Those already at or near the bottom will be scarcely affected, while the smartest of that group will actually prosper, just as in the depression.

It's all coming at very slow speed, thanks to the Fed's unending fight against deflation, but it's coming, no matter what. There is no other good alternative.

Fri, 05/20/2011 - 22:03 | 1297309 Baptiste Say
Baptiste Say's picture

Yeah, all the coal, iron ore, copper, steel, rare earth, thermoplastics, semiconductors, oil, gas, electricty and whatever else you rely on to maintain your life of sloth is going to extract and produce itself if we simply focus more on art and literature.

 

Piss off you bum.

Fri, 05/20/2011 - 00:00 | 1294560 Seer
Seer's picture

"Machines are here to stay. Increases in efficiency are here to stay."

Saying so won't make it so.

Machines require energy.  As was the case with (corn-based esp) ethanol, people finally got it, got that the machines weren't going to get that energy.  Walk around any nearby city and note the vandalism; infrastructure gets pummeled when people are messed up.

Further, 2/3 of the world's population subsists on the equivalent of $3/day or less- do you think that machines play a big role in Their world?

Lastly, in regards to "efficiency," look up Jevons Paradox.

Fri, 05/20/2011 - 00:26 | 1294596 Rynak
Rynak's picture

When i said efficiency, i meant efficiency. That is: Requiring less input to get the desired output. Unless knowledge or ability to built such mechanisms is lost, it stays and only increases with accumulating improvements (i agree though, that the returns must in the longterm be dimishing).

P.S.: Energy/Ressource supply certainly matters, and it is one reason why i consider nowadays wasteful and growth-greedy culture so problematic. It doesn't change the advantages of increased efficiency though. Even if ressources decrease, i can still get more output per input, with efficiency improvements.

Fri, 05/20/2011 - 01:49 | 1294717 StychoKiller
StychoKiller's picture

RICH Economy step 1:

[quote]

Offer a prize of $50,000/year to any worker that designs a
machine/software/process that will replace him/her.
Offer an additional prize of $30,000/year to ALL OTHER WORKERS that get replaced.

Answering conservative objections:
1. A machine works 24/7, thereby tripling output immediately.
2. Machines do not take sick leave.
3. Machines are never late for work.
4. Machines do not form unions and constantly ask for higher wages and more fringe benefits.
5. Machines do not take vacations.
6. Machines do not harbor grudges and foul up production in sneaky, undetectable ways.
7. Cybernation was advancing every decade anyway, despite the opposition of Unions, government, and other Alpha males; it was better to have huge populations celebrating the reward of $30K to $50K/year for group cleverness than huge populations suffering the humiliation of welfare.
8. With production rising due to Cybernation, consumers were needed and a society on welfare was a society of very meager consumers.

The majority of the unemployed, living comfortably on $30k/year, spent most of their time drinking, smoking, engaging in primate sexual acrobatics and watching TV.
When Moralists complained that this was a subhuman existence, Hubbard answered, "And what kind of existence did they have doing idiot jobs that machines do better?"

[/quote] -- R.A. Wilson

Thu, 05/19/2011 - 21:14 | 1294116 TrueStrengthTur...
TrueStrengthTurnsTheCheek's picture

Sorry I dont buy it. This could only happen in a sane world not run by elite/evil bankers who would much rather just inslave us all. they will lie to us until its to late to do anything and we wake up realizing we own nothing of value and must beg the government to feed us. thats how I see it. get some physical silver/guns and stay free!

Thu, 05/19/2011 - 21:46 | 1294182 Crab Cake
Crab Cake's picture

It will never, never ever, be too late to do something. What? You think you are going to live forever? I plan to die on my feet, rather than live on my knees should it come to that.

Thu, 05/19/2011 - 22:10 | 1294270 johnnynaps
johnnynaps's picture

+10000000

Thu, 05/19/2011 - 22:56 | 1294361 sullymandias
sullymandias's picture

i guess when you die on your feet it will be too late to do anything..

Thu, 05/19/2011 - 23:17 | 1294442 serotonindumptruck
serotonindumptruck's picture

Thought I recognized that quote.

"It's better to die upon your feet than to live upon your knees!" -- Emiliano Zapata

Well done. ;-)

Fri, 05/20/2011 - 00:28 | 1294607 TrueStrengthTur...
TrueStrengthTurnsTheCheek's picture

hey! I meant for the general populous. I've made the proper preperation to stay free (0 debt, ounces upon ounces of silver, retreat house with years supply food and water, guns and ammo) nothings ever certain but I plan to make it through all this just fine. drones do worry me...

Fri, 05/20/2011 - 09:41 | 1295138 johnnynaps
johnnynaps's picture

when drones are used against the population, that is when we strategically storm police headquarters and get some of our own.

Fri, 05/20/2011 - 12:21 | 1295796 TrueStrengthTur...
TrueStrengthTurnsTheCheek's picture

Ah but what about when they are using drones not against the "population" but against "terrorists"?

drones already kill thousands of innocents in tens of countries because we think they are killing terrorists. we are being set up the 60 minutes piece on sovereign citizens as "terrorists" and the threat we are constantly reminded of "homegrown" terrorists.. the gov. will spin it however they want and the american sheeple will eat it up. a police state is being enacted across the world with the civilian control mechanisms being tested in america and europe and the rebellion control mechanisms being tested in iraq/afghanistan/pakistan.

Thu, 05/19/2011 - 21:56 | 1294245 Rynak
Rynak's picture

Ownership only works as long as most people respect it. Material force overrides all "laws" if the force is strong enough. Casualities on the other hand......

Thu, 05/19/2011 - 22:38 | 1294326 nufio
nufio's picture

+1. i never understood why people think that their ownership of something would actually be considered fair by others.. just because they themselves think they earned it.

I think personal property rights is just ingrained in the moral code that we grew up with, but for someone who grew up in a communist nation for example it might not be evident.

Thu, 05/19/2011 - 23:54 | 1294545 serotonindumptruck
serotonindumptruck's picture

I'm reminded of Chief Seattle's philosophy on land ownership.

http://www.kyphilom.com/www/seattle.html

Fri, 05/20/2011 - 00:03 | 1294568 Seer
Seer's picture

Yeah, I think that we should all hold hands and sing "let's protect property rights" when everyone is homeless and TPTB own/control it all.  NOTE: TPTB aren't communists, they aren't anything, really, just folks who will do anything to stay on top of the pile.

Fri, 05/20/2011 - 14:20 | 1296277 gangland
gangland's picture

you could say such folks are legitimately a separate species, a further evolved species than sapiens...homo psychopathicus

Thu, 05/19/2011 - 21:18 | 1294118 johnnynaps
johnnynaps's picture

Time to say goodbye to the failing GDP Economic model. But unfortunately, there will be a fight to the death to keep it going. In the land of hefty technology, the entire population should be able to live comfortable lives without 50 hours of work a week in meaningless positions such as assistant retail manager.

Fri, 05/20/2011 - 05:31 | 1294849 knowless
knowless's picture

but how would the retail manager ever get by without his assistant?

Thu, 05/19/2011 - 21:34 | 1294142 Caviar Emptor
Caviar Emptor's picture

It's not yet game over. But they're working triple overtime to keep the game going. And they're sweating it.

There's no doubt that the flow of economic data just keeps souring whenever they stop daily stimulation. And there's no doubt that Main Street has made little progress since the bottom of the recession. So does that mean keep on stimulating? To them, yes it does.

But what they're missing is the point: the more they stimulate, the worse it gets. The imbalances are getting more pronounced, the social dimension is sickening, the chance of a real economic pickup outside of just creating inflation and pumping up stocks and bonds is diminishing. 

Because they're keeping alive the rot, the failures, the inefficiencies and preventing competition and reinvigoration. A king would do the same. But the peasants are getting hungry

 

Thu, 05/19/2011 - 22:09 | 1294266 Votewithabullet
Votewithabullet's picture

Nonwithstanding your ability to use latin but THE PEASANTS ARE FUCKING FAT. This " Game over" bullshit or the fringe fucking  may 21 freaky christian BS or the Phoenix capital fuck Nostradumbass putting a date on the currency collapse has got piss coming from my ass. ht south park. Look  their buildings have 4ft thick walls and they will use your baby girl as a shield. This shit ( USA ) will outlast you. A good anaolgy would be do you think those guys in the supermax in colorado are going to do their time? u goddamn right. ht  em

Fri, 05/20/2011 - 11:44 | 1295620 Ripped Chunk
Ripped Chunk's picture

You are seeing someone at least 3x a week for your condition(s)?  I certainly hope so.

Thu, 05/19/2011 - 21:32 | 1294144 Life of Illusion
Life of Illusion's picture

 

Big money stays out of US until it collapse, dollar destroyed, Fed owns all and ready to liquidate using Dodd-frank powers. Fed will welcome back all Bankers that made a fortune using dollar carry trade pumping up EM. Don’t expect EM blow-up to happen for a few years.

Until then tell these lazy ass money managers that never made it in EM and missed out to shut the fuck up.

Thu, 05/19/2011 - 22:18 | 1294281 gookempucky
gookempucky's picture

We're moving towards something that, by definition, is going to have to address the real structural issues — in the U.S., fractured labor markets, still-excessive credit and unsupportable levels of debt tied to homes, a rising propensity to save, bleak expectations for wages and investment returns.

Big money stays out of emericka and the illusion is correct, 08 crash and burn to 09 into the abyss. Embargoed info as real time would show nothing but an illusion. The graph says it all. We were over before it began.

http://www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm

Thu, 05/19/2011 - 21:33 | 1294148 AUD
AUD's picture

So this guy is 'all in' US Treasuries?

From the intro, I thought he was some kind of contrarian.

Thu, 05/19/2011 - 21:46 | 1294200 Quixotic_Not
Quixotic_Not's picture

So this guy is 'all in' US Treasuries?

What a fool!  That's so 2007!

Who in their right mind doesn't think that there will be a currency crisis at the tail end of this fraud that destroys anything paper?

Thu, 05/19/2011 - 21:45 | 1294208 Boston
Boston's picture

He is a contrarian.  Conventional wisdom says Treasury yields will rise once the Fed stops buying.

 

Thu, 05/19/2011 - 21:32 | 1294154 zen0
zen0's picture

it is all very intellectually interesting, but bottom line is inflation for commodities, deflation for middle class assets.

 

End of discussion?

Thu, 05/19/2011 - 21:40 | 1294160 bob_dabolina
bob_dabolina's picture

The US WAS winning 'till the FED decided to overtake China as the largest holders of T's. 

What was happening was China was shipping shit to us we didn't need, in exchange, we gave them promises we couldn't keep. 

empty promises vs. shit we don't need. 

Which side of the equation would you rather be on?

However, China has it's own problems now coming down the pipe.

Fri, 05/20/2011 - 00:16 | 1294591 Seer
Seer's picture

Did you just fall off the Turnip Truck?

This globalization shit was happening long before China was revving up.  Japan was actually the place where this stuff started cooking (and now, ironically, it's where it's melting down).

The use of the word "winning" makes me think of you stomping your fist down on the table because you can't chant "USA NUMBER ONE!"  It's all some fucking stupid contest, isn't it? (of which neither you or I are in anyway a member of ANY "winnining" team- I think that George Carlin had something to say about this: http://www.youtube.com/watch?v=i5dBZDSSky0).

Thu, 05/19/2011 - 21:35 | 1294161 buzzsaw99
buzzsaw99's picture

He decribes the muddle through tightrope act of the ptb quite well. imo black swans are more likely. Environmental distopia in japan and china. open hostilities between the usa and china leading to a loss of investment infrastructure over there by our maggots here. the usa will be fine unless one is poor and unemployed or else we get nuked by n. korea or pakistan. there are a ton of variables he doesn't take into account.

Thu, 05/19/2011 - 21:37 | 1294169 blunderdog
blunderdog's picture

If you and I want to create a loan between ourselves, we can do it.

Couldn't he provide a bit more detail on this?  I'd like to loan a friend of mine about $50,000 for a business opportunity.

Thu, 05/19/2011 - 22:29 | 1294306 Derpin USA
Derpin USA's picture

A loan to a friend for a business?

Good way to lose a friend and reap very little ROI on the off chance they're successful. Instead, I'd recommend you setup a corporation and get as much of a stake in the business as they'll give you. This will vastly improve your risk/reward ratio and take away the butthurt if they fail since you've become an investor instead of a banker.

Fri, 05/20/2011 - 00:22 | 1294601 blunderdog
blunderdog's picture

You so silly.

Let me explain: I've been placing columns in my Excel spreadsheet here, but for some reason, no one will cash my checks.  First Intergalactic Bank of blunderdog somehow doesn't get the respect it so obviously deserves.  That's what I need the author's clarification on.

As for my personal life...you've got that wrong, too.  I don't have many friends, but the ones I do have wouldn't be troubled by anything as trivial as $50,000.

Fri, 05/20/2011 - 02:44 | 1294779 Derpin USA
Derpin USA's picture

I figured it might be sarcasm, but you never know. No stupid questions, right? :D

Thu, 05/19/2011 - 21:39 | 1294173 Jack Burton
Jack Burton's picture

 The mantra for 3 years now has been "get credit moving again, get people borrowing to consume again, get money into the mortgage markets".

They have been crying for more of the same, trying to replay the 2000s. The idea of peak credit seems to have escaped the mainstream economic community. In today's economy only a fool would lever up or shop for an overpriced McManison. Granted the top 10%, who continue to profit despite the downturn, can continue to consume,lever up at will and use cheap money to lever up their investments. But the bulk of the economic units, the bottom 90% of families are hardly candidates for taking on more debt, even at record low interest rates.

The long slow death of housing has sapped trillions out of people's equity. They are unlikely to ever be taking out home equity lines of credit to hit the malls and shop till they drop.

The black swan in all this is a possible oil supply disruption due to another mid east war, like Iran, Syria or a collpase of the Iraqi government. ANother potential black swan would be continued wild climate patterns that destroy major farming districts, like happened to Russia last summer. Food price increases are like timebombs planted in food importing nations.

Thu, 05/19/2011 - 22:51 | 1294357 rocker
rocker's picture

Oil supply shock, true but haven't they priced that in too.  Barton Biggs, (Scumbag), said that oil dropping 10 bucks a barrel was a tax cut for the middle class. The dick must not fill his own tank or care about the price. If he did, he would know that the price of gas itself has and will not go down on a one week dip on the barrel. Beside that, we have driving season and hurricane season. LOL

Thu, 05/19/2011 - 21:41 | 1294176 Andrew G
Andrew G's picture

It's game over until QE3 is proclaimed and then it's game on again.

Thu, 05/19/2011 - 21:44 | 1294190 Crab Cake
Crab Cake's picture

Until its not...

Fri, 05/20/2011 - 10:13 | 1295232 firefighter302
firefighter302's picture

Exactly !

+1

Thu, 05/19/2011 - 21:59 | 1294188 mophead
mophead's picture

"Increased money supply is not a causal factor for inflation."

Correct.

"The only way the Federal Reserve can influence credit creation is by raising or lowering short-term rates."

Sorta correct.

"With that said, we're at the outer bound, at zero, and what we're finding is that demand for money is not increasing as the cost of money goes to zero — which is not unlike what we saw in Japan."

Correct.

"What is happening, however, as ever when the cost of money stays this low, is that speculators are inclined to speculate because the cost of speculation on leverage is negligible."

Exactly. And what this means is that you don't need to print money to make prices go up. There is an easier way: a) drive up the cost of oil, it affects virtually everything, b) burn/dump crops (not too hard, just stage a contamination), also, dump good water into the ocean as California is doing and blame it on environmentalists, instead of giving it to farmers to grow crops so food prices don't rise, c) another way to sabotage crops (and many other things) for the sake of driving up prices is to utilize technology that can modify the weather: HAARP-FLATION, BITCHEZ, d) allow deadbeats to live mortgage free (what will they do with the extra money? Spend it, doh.). The list is endless - deflation is not a threat.

"We're not seeing the seeds or leading edge of wage/price inflation, the true driver of damaging systemic inflation."

This is intentional. The idea is to bring American labor in line with the rest of the world. Wage inflation would certainly drive up prices faster and higher, but we'd be back to square one: uncompetitive labor.

"Asset inflation resolves itself in one way, and one way only, and that's through asset deflation. So we have ongoing asset deflation in the residential real estate market. We have ongoing asset deflation in the commercial real estate market and we will ultimately have asset deflation across China and Asia"

An asset is worth NOT what a buyer is willing to pay, it's worth what a buyer CAN pay--IN CASH. If the asset must be financed, then the asset is worth what a BANK IS WILLING TO LEND AGAINST IT. Repeat: BANKS DETERMINE THE COST OF REAL-ESTATE. The reason RE is down is because they WANT IT DOWN. Otherwise, their bailout money would dry up.

"On what would happen to the global economy if the dollar were to collapse versus the euro and commodities:

    Global deflation and depression are what would happen."

The dollar won't collapse. It (as well as most developed-world currencies) will go down substantially. There will be no deflation. But a depression, perhaps.

"We in effect are in this very awkward "teenage" stage where we've just had this fracturing shock, the credit crash, the exposing of all the financial hubris and misallocation of capital. We haven't even moved to credibly addressing those issues in Europe and we're still holding onto the notion that..."

The bankers know exactly what they're doing. Everything is planned.

"We're moving towards something that, by definition, is going to have to address the real structural issues — in the U.S......."

Same old same old. It will be addressed as it has for centuries. Through inflation.

Thu, 05/19/2011 - 22:27 | 1294304 Pepe
Pepe's picture

Thank you for a very good comment

Thu, 05/19/2011 - 23:03 | 1294380 Quixotic_Not
Quixotic_Not's picture

Did he/she/it say something?

All I saw was meat on a hook...

Fri, 05/20/2011 - 00:58 | 1294657 RockyRacoon
RockyRacoon's picture

An asset is worth NOT what a buyer is willing to pay, it's worth what a buyer CAN pay--IN CASH. If the asset must be financed, then the asset is worth what a BANK IS WILLING TO LEND AGAINST IT. Repeat: BANKS DETERMINE THE COST OF REAL-ESTATE. The reason RE is down is because they WANT IT DOWN. Otherwise, their bailout money would dry up.

Like!  Some nice insight.   As they say, "Follow the money."

Fri, 05/20/2011 - 07:02 | 1294893 rwe2late
rwe2late's picture

 Assuming you CAN pay much more than $40,

I have a nice silver coin to sell you for all you CAN pay,

in disregard of what you may be WILLING to pay.

Thu, 05/19/2011 - 21:48 | 1294198 Yen Cross
Yen Cross's picture

QE-#3  is not happening. If it does you will see bond spreads move on 10-01-12. Short term 10-11. (expirations)

 

Maturing long term notes will be reinvested, and short term notes retired to smooth the curve.

Thu, 05/19/2011 - 23:20 | 1294443 JW n FL
JW n FL's picture

Yen.. I Love You.. but could you please reach both demographics.. so that two people can discuss the facts together for the betterment of all! Pretty Please Kind Sir?

 

Thank You in Advance! short the long man!

Fri, 05/20/2011 - 01:47 | 1294487 Yen Cross
Yen Cross's picture

EDIT. For the betterment of all. what is your trade. Equities, or fixed? I'll draw some lines and and sector shop. Then I will look @ P/E and book value. Then I will look@ the cash flow.

Thu, 05/19/2011 - 21:43 | 1294199 Jack Burton
Jack Burton's picture

   I like his take on Europe. Europe is extending and pretending with a passion! They want at all costs to keep the Euro game going, though any sensible person can see that the EU is toast. What do you suppose the EU Powers That Be are expecting to gain by putting off the writting down of unsustainable debts? Does anyone expect Greece or Ireland to make good on those debts and bailout loans?

Thu, 05/19/2011 - 21:48 | 1294219 Yen Cross
Yen Cross's picture

 I'm gay Jack. A smart ass girl!  Nice work.

Thu, 05/19/2011 - 21:48 | 1294223 lynnybee
lynnybee's picture

we're toast, too ... i'm worried sick about my kids & grandkids future.

Thu, 05/19/2011 - 22:33 | 1294317 Yen Cross
Yen Cross's picture

Jack, I'm not gay that way.

Thu, 05/19/2011 - 23:22 | 1294447 JW n FL
JW n FL's picture

how do you know you are not gay that way until you try it?

 

look ad DSK.. he never new he liked anal.. or cuffs! and look at him now.. even at home he is in plastic bonds!

Fri, 05/20/2011 - 01:54 | 1294724 Yen Cross
Yen Cross's picture

 I can say with a fair degree of certainty that I enjoy the company of a well put together woman. My experimental days are long behind me. Sorry if I offended you Jack.

Fri, 05/20/2011 - 01:47 | 1294714 Yen Cross
Yen Cross's picture

Or portugal,Spain, Italy and the whole club Med PiiG's Family.

Thu, 05/19/2011 - 21:45 | 1294209 max2205
max2205's picture

LOL. Even if millions are living, starving and dying in the streets in front of ABC World News Tonight, Ben will keep interest rates low and stocks at new highs.

Hard core Bears will be jumping off buildings as they get wiped out and depressed.

This marks year 3 of these types of non reality articles.

Dance till the music stops. Oppa!!

Thu, 05/19/2011 - 21:45 | 1294210 lynnybee
lynnybee's picture

yup, they are going to wait til the end, swoop down & buy everything for pennies on the dollar & do a leveraged buy-out of the whole United States of America.............. just setting themselves up for the next economic cycle, exactly like what happened after the crash in the 1930's ........ & to think that they used our tax dollars to help facilitate this win !  

Thu, 05/19/2011 - 23:16 | 1294428 Yen Cross
Yen Cross's picture

 Lets distract them?

Thu, 05/19/2011 - 21:46 | 1294216 zen0
zen0's picture

The situation in India is this: Interest rates are high, but inflation is higher. As long as nominal rates are less than real rates, you can have quantitative easing + high inflation.

Thu, 05/19/2011 - 22:49 | 1294352 nufio
nufio's picture

but still the USDINR stays the same.. does that mean there is inflation in US?

Thu, 05/19/2011 - 21:51 | 1294221 Catullus
Catullus's picture

It's such monsterously bad economics that it boggles the mind. Citing Keynes' "technical unemployment" is just over the top.  It doesn't surprise me that Keynes would have thought he came up with it or that this turd burglar would think that Keynes came up with it.  It's the technology causes unemployment myth and it's been around for centuries.  Many bad conclusions from this terrible logic.  Go read Henry Hazlitt's Economics in One Lesson.  

The "over-qualified" in lesser paying jobs means labor will be underpriced in those fields and cause surpluses from the increased productivity from the "over-qualified" labor.  Those surpluses will either lead to higher profits to be reinvested into capital goods or lower prices to conform to his "deflationary" hell spawn.  Prices throughout the economy would adjust and people are again capable of consuming to match their standard of living previously. 

He's also wrong about zero interest rates.  We are not zero interest rates.  We are above zero.  There is a very real and significant difference between .85% and .00%.

When a bank makes a loan, it is increasing the money supply under fractional reserve banking.  The Fed purchasing assets from banks and creating a greater amount of reserves to loan off is not necessarily inflationary until the banks take the reserves and loan off of them.  But say that it's not casual is essentially misunderstand fractional reserve banking.  You can claim there's an existentialist money supply reserve, but then the asset deflation argument holds no water.  It wouldn't matter if deflation in asset prices occurred if banks don't need reserves to create money.

Thu, 05/19/2011 - 23:20 | 1294453 LowerAlabamaBohunk
LowerAlabamaBohunk's picture

+10

Thu, 05/19/2011 - 21:52 | 1294236 I am Jobe
I am Jobe's picture

 Guillotine Bitchezzzzzzzzzzzzzz. Only way to clean out the system.

I am also open to Mumba Pits or the Chamber with the Alien Creature

http://4.bp.blogspot.com/_NvhnTb-4j3k/TS2dfnkJqaI/AAAAAAAAG3U/7kbKh3sTBa...

Thu, 05/19/2011 - 22:04 | 1294259 RoRoTrader
RoRoTrader's picture

Trading price dictates 1 of 2 outcomes; the public jury turns to savings which increases the value of cash or its another round of managed debt induced spending and consumption to buy the banks more time.

I like cash. It is simple and I make the calls, as opposed to some pseudo academic freak out of Harvard or Pricenton who can no longer even make a credible case for bullshit.

 

Thu, 05/19/2011 - 22:11 | 1294268 Element
Element's picture

What Irving Fisher was talking about was DEBT deflation ...

i.e. when debt deflates its because people borrow less.

Money comes into existence via fractional-reserve debt creation, out of thin air.

A 'debt-money' system is the result.

Deflate the debt-money's creation, due to debt-saturation (sans Jubilee) = Depression.

It's not necessarily got anything to do with a hyper-inflation - though it may have.

Hyperinflation is just radical relative debasement in action.

But this does not mean you''re not going to get DEBT-deflation at the same time.

However, in hyperinflations, huge debts shrink really fast, as aggressive debasement unfolds and destroys the money.

So people might in fact decide to borrow in a strongly debasing environment, if wages remain sort of 'ok', because the repayments keep shrinking fast in relative terms, especially if ZIRP is occurring at the same time.

The outcomes and dynamics are extremely unclear, and unpredictable, for this little black-sheep, just that the currency will need to be 'replaced' as it occurs.

But I can't help thinking that replacing digital mouse-clicks with some mysterious unseen "NEW" variety of digital mouse-clicks may be a bit unconvincing, for most people to swallow.

So replacing the currency may indeed have to go back to PMs before people can 'see' any difference in the old and new debt-money.

 

The real question is; do we want a debt-money system at all?

 

I think the world would reject it completely, if they ever understood what it is, and not just reject "the debasing currency" of the debt money asset-theiving inflation-machine invention of private central bankers.

 

Thu, 05/19/2011 - 23:05 | 1294387 jomama
jomama's picture

The real question is; do we want a debt-money system at all?

to that, i would contend:

do we really have a choice in the matter?

people would rather suffer than die, so the system must completely collapse before any real reform shows up.

Thu, 05/19/2011 - 22:15 | 1294274 apberusdisvet
apberusdisvet's picture

I'm sure a lot of you are aware that the fat lady is warming up in the wings.

Thu, 05/19/2011 - 23:25 | 1294461 JW n FL
JW n FL's picture

they have lost control of 60%! Quality of Life wise..

 

No matter how you chew it up.. that Sir is a Majority.. but how many of the cows can be stampeded in a given direction?

Thu, 05/19/2011 - 22:15 | 1294278 Re-Discovery
Re-Discovery's picture

I dont agree with his investment thesis, but we WILL have deflation.  In my opinion after hyper-inflation.  At least he distinguishes himself fom he faceless many of the investment pros who are too gutless to express an opinion that describes a Fed end game in detail.

Thu, 05/19/2011 - 22:19 | 1294284 Atomizer
Atomizer's picture

JEDH - The Hdden Truths

Calendar

http://www.jedh.org/jedh_calendar.html

In the aftermath of the 1994-95 international financial crisis, the IMF established a two-tier standard to guide IMF member countries in the provision of economic and financial data to the public, namely the Special Data Dissemination Standard (SDDS) and the General Data Dissemination System (GDDS). Participation in both data initiatives is voluntary. The purpose of the SDDS is to guide countries in the provision to the public of comprehensive, timely, accessible, and reliable economic and financial statistics. By subscribing to the SDDS, members undertake to provide the supporting information to the IMF and to observe the various elements of the SDDS. The GDDS is a structured process focused on data quality that assists countries in adapting their statistical systems to meet the evolving requirements of the user community in the areas of economic management and development. Participating countries commit to adhere to sound statistical practices in developing their statistical systems. On March 29, 2000, the IMF included a separate total external debt data category in the SDDS and public and publicly-guaranteed external debt and a debt-service schedule as a core data category in the GDDS.

http://dsbb.imf.org/

http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/EXTDECQEDS/0,,menuPK:1805431~pagePK:64168427~piPK:64168435~theSitePK:1805415,00.html

***Brazil SDDS*** Alarm bells

http://www.bcb.gov.br/pec/sdds/ingl/sddsi.htm

Obama on Oil in Brazil

http://www.youtube.com/watch?v=HFO5xR0DPmM&feature=related

You won't piece together everything based on this post. It should drive you to seek more research. :)

Thu, 05/19/2011 - 22:53 | 1294362 Derpin USA
Derpin USA's picture

Give me a thesis. I don't like wasting my time reading links from cryptic posts.

Thu, 05/19/2011 - 22:29 | 1294298 Maos Dog
Maos Dog's picture

Ok, he lost me here:

"Increased money supply is not a causal factor for inflation."

Adjusted monetary base is up, credit is going nowhere, hot money is flowing all over the world bidding up all asset classes but real estate, what am I missing here?

Thu, 05/19/2011 - 22:56 | 1294372 Derpin USA
Derpin USA's picture

Money velocity is a very important factor for inflation.

Thu, 05/19/2011 - 23:08 | 1294410 Maos Dog
Maos Dog's picture

But that's part of my point when I mentioned credit, velocity is low based on credit and reserves, but, PPI is up, Real CPI (Shadowstats) is up, Energy, it's all up. All those reserves are also earning interest from the Fed for keeping that money parked, and that interest on those reserves is new money as well. So, inflation is here and the only real driver of that seems to be increasing money supply.

Fri, 05/20/2011 - 08:26 | 1294986 tarsubil
tarsubil's picture

I'm right there with you. I asked a similar question a while back and received crickets in response. I've tried very hard to find a deflationary answer to this question and have not found one. If you do, let me know dude.

Thu, 05/19/2011 - 22:29 | 1294299 Yen Cross
Yen Cross's picture

I play with  ( The team) Occasionally.

Thu, 05/19/2011 - 22:26 | 1294302 sodbuster
sodbuster's picture

>Yet his property taxes have been mysteriously paid every year. <

Not only that, but he doesn't have to buy homeowners insurance, either. What does he care if the place burns down??

 

 

Thu, 05/19/2011 - 23:10 | 1294407 sullymandias
sullymandias's picture

um, wouldnt he be out of a free place to live then? a nice house too probably, with a fat mortgage like that..

Thu, 05/19/2011 - 22:29 | 1294308 Edmund Dantes
Edmund Dantes's picture

Invest in T bonds?....... that says it all. this guy is an idiot!!!

Thu, 05/19/2011 - 22:37 | 1294319 Yen Cross
Yen Cross's picture

Keep track of the Bund , T spreads

Thu, 05/19/2011 - 22:45 | 1294335 Edmund Dantes
Edmund Dantes's picture

Who cares what the spreads are. How could anyone lend money at any rate to the most bankrupt entity in the history of the world. This might be the single most stupid article I have ever read. This guy is so naive  as to think the bankers would commit sucide by letting deflation take hold? He obviously doesn't understand how the world really works from his acedemic ivory tower. ONLY gold is money... period!!!!

Thu, 05/19/2011 - 23:52 | 1294358 Yen Cross
Yen Cross's picture

Edmond,  Did you Junk me>?

Thu, 05/19/2011 - 23:52 | 1294547 Yen Cross
Yen Cross's picture

You Junksters hate AUSSIES?

Fri, 05/20/2011 - 01:56 | 1294730 Yen Cross
Yen Cross's picture

Edmond spreads set Fixing. Fixing sets Libor. Libor sets Swaps. Swaps set spreads.

I will be civil, being that you are learning.

Thu, 05/19/2011 - 22:40 | 1294331 rocker
rocker's picture

There is only one conclusion in his theory. Only buy treasuries after rates rise.

The question is, how does he know it will only rise to 5%.  It all depends on how much the Bernanke inflates.

It is far from over with foreclosers and all the crap on the FED's balance sheet.

Thu, 05/19/2011 - 22:46 | 1294347 Coldfire
Coldfire's picture

This is No Game

by Jack Handey January 9, 2006

This is no game. You might think this is a game, but, trust me, this is no game.

This is not something where rock beats scissors or paper covers rock or rock wraps itself up in paper and gives itself as a present to scissors. This isn’t anything like that. Or where paper types something on itself and sues scissors.

This isn’t something where you yell “Bingo!” and then it turns out you don’t have bingo after all, and what are the rules again? This isn’t that, my friend.

This isn’t something where you roll the dice and move your battleship around a board and land on a hotel and act like your battleship is having sex with the hotel.

This isn’t tiddlywinks, where you flip your tiddly over another player’s tiddly and an old man winks at you because he thought it was a good move. This isn’t that at all.

This isn’t something where you sink a birdie or hit a badminton birdie or do anything at all with birdies. Look, just forget birdies, O.K.?

Maybe you think this is all one big joke, like the farmer with the beautiful but promiscuous daughter. But what they don’t tell you is the farmer became so depressed that he eventually took his own life.

This is not some brightly colored, sugarcoated piece of candy that you can brush the ants off of and pop in your mouth.

This is not playtime or make-believe. This is real. It’s as real as a beggar squatting by the side of the road, begging, and then you realize, Uh-oh, he’s not begging.

This is as real as a baby deer calling out for his mother. But his mother won’t be coming home anytime soon, because she is drunk in a bar somewhere.

It’s as real as a mummy who still thinks he’s inside a pyramid, but he’s actually in a museum in Ohio.

This is not something where you can dress your kid up like a hobo and send him out trick-or-treating, because, first of all, your kid’s twenty-three, and, secondly, he really is a hobo.

All of this probably sounds oldfashioned and “square” to you. But if loving your wife, your country, your cats, your girlfriend, your girlfriend’s sister, and your girlfriend’s sister’s cat is “square,” then so be it.

You go skipping and prancing through life, skipping through a field of dandelions. But what you don’t see is that on each dandelion is a bee, and on each bee is an ant, and the ant is biting the bee and the bee is biting the flower, and if that shocks you then I’m sorry.

You have never had to struggle to put food on the table, let alone put food on a plate and try to balance it on a spoon until it gets to your mouth.

You will never know what it’s like to work on a farm until your hands are raw, just so people can have fresh marijuana. Or what it’s like to go to a factory and put in eight long hours and then go home and realize that you went to the wrong factory.

I don’t hate you; I pity you. You will never appreciate the magnificent beauty of a double rainbow, or the plainness of a regular rainbow.

You will never grasp the quiet joy of holding your own baby, or the quiet comedy of handing him back to his “father.”

I used to be like you. I would put my napkin in my lap, instead of folding it into a little tent over my plate, like I do now, with a door for the fork to go in.

I would go to parties and laugh—and laugh and laugh—every time somebody said something, in case it was supposed to be funny. I would walk in someplace and slap down a five-dollar bill and say, “Give me all you got,” and not even know what they had there. And whenever I found two of anything I would hold them up to my head like antlers, and then pretend that one “antler” fell off.

I went waltzing along, not caring where I stepped or if the other person even wanted to waltz.

Food seemed to taste better back then. Potatoes were more potatoey, and turnips less turnippy.

But then something happened, something that would make me understand that this is no game. I was walking past a building and I saw a man standing high up on a ledge. “Jump! Jump!” I started yelling. What happened next would haunt me for the rest of my days: the man came down from the building and beat the living daylights out of me. Ever since then, I’ve realized that this is no game.

Maybe one day it will be a game again. Maybe you’ll be able to run up and kick a pumpkin without people asking why you did that and if you’re going to pay for it.

Perhaps one day the Indian will put down his tomahawk and the white man will put down his gun, and the white man will pick up his gun again because, Ha-ha, sucker.

One day we’ll just sit by the fire, chew some tobacky, toast some marshmackies, and maybe strum a tune on the ole guitacky.

And maybe one day we’ll tip our hats to the mockingbird, not out of fear but out of friendliness.

If there’s one single idea I’d like you to take away from this, it is: This is no game. The other thing I’d like you to think about is, could I borrow five hundred dollars?

(Author’s Note: Since finishing this article, I have been informed that this is, in fact, a game. I would like to apologize for everything I said above. But please think about the five hundred dollars.)

Read more http://www.newyorker.com/archive/2006/01/09/060109sh_shouts?printable=true&currentPage=all#ixzz1MrCQz8Nk
Thu, 05/19/2011 - 23:28 | 1294471 JW n FL
JW n FL's picture

+++++++++++++++++++++++++++++++++++++++++++++

and I needed that! Thank You!

Fri, 05/20/2011 - 01:12 | 1294678 callingnew
callingnew's picture

laughed so hard i teared and my nose snotted up.

Thu, 05/19/2011 - 22:57 | 1294365 Yen Cross
Yen Cross's picture

 And not the endless diatribe p[osted in block !

Thu, 05/19/2011 - 23:07 | 1294396 JLee2027
JLee2027's picture

Squatter's rent my ass...they (the banks) broke title and CANNOT legally foreclose. 

Thu, 05/19/2011 - 23:24 | 1294455 gwar5
gwar5's picture

Deflation vs Inflation?

It can pretty much be whatever the Fed chooses it to be. They can keep it inflated or let it deflate. This is not a free market. Everything is an artifact so the old rules don't apply.

The squid has control of everything so things will depend on how well they can keep it together in a backdrop of real world chaos. Even if they did shit the bed they'd still swear it was the desired outcome and a perfect landing.

Inflation is the Feds monetary response to what would otherwise be a deflationary crash. They're inflating because a much needed deflationary correction would hurt the precious and bring down the ponzi.  

Hint: Just do whatever the Chi-knees do.

 

Fri, 05/20/2011 - 03:04 | 1294795 Howard_Beale
Howard_Beale's picture

You give the Fed too much credit. The market makes it what is supposed to be. The Fed cannot create inflation because it cannot manipulate psychology AND because the users at the end that need it most are being screwed by the banks.

We all give the Fed too much credit for being a superpower that can really have an effect on the economy. Funny how all the QE's have had no effect whatsoever other than to drive down the dollar. IF that is their mandate then they are showing a level of success. However, the unintended consequences of their policies to date have proved otherwise.

Poor Ben..what a phucknut.

Fri, 05/20/2011 - 11:05 | 1295454 FreeNewEnergy
FreeNewEnergy's picture

Always remember - and I don't know where I got this, maybe Malcolm Gladwell - but economies are always created at the margins. It't not LinkedIn with a $10 billion capitalization that will make change - that is simply a misallocation of capital on a grand scale - but the guy building solar heaters in his garage, or the people in Cleveland harvesting fish and vegetables in the same facility.

There may be the Google's and eBay's of the world which created great shareholder value, but, both of those companies profited on the margin of hundreds of thousands, maybe millions, of small entrepreneurs, buying and selling ads, goods, services.

I tend to think the raw data on the level of entrepreneurship in this country is vastly understated because so many people are not reporting what they are doing nor what they are making because of the absurdly high level of government invasion and regulation. There's more wealth hidden in the underground economy than ever.

Sound familiar? Same thing happened during prohibition. Read the book, "Last Call" for a clue.

Thu, 05/19/2011 - 23:22 | 1294462 sullymandias
sullymandias's picture


Right now, the full employment gap is running about 11 million jobs. That's a shocking gap and, although this is very difficult to quantify, we have a sinking suspicion that — while a number of the jobs that are being created right now might in fact be "good jobs" - they're being filled by over-qualified labor no longer able to wait for jobs at compensation levels similar to what they had before. Now, in the very long run, this might work itself out, but in the short run it doesn't do anything to change the outlook for the consumer. What it does is suggest that people are going to have to shift down the way they live and the way they expect to live — perhaps even further than they already have. Thus, the propensity to save in this country has to continue to rise

 

I've seen this kind of statement before and I just don't get it. When people start to make less money their savings rate goes up? At the same time they are forced to start buying bologne instead of beef, they are also choosing to put money in the bank?

Thu, 05/19/2011 - 23:36 | 1294488 donpaulo
donpaulo's picture

decent enough article, but then it started discussing 5% bonds ? huh ?

what is wrong with that picture ?

China's real estate bubble is as obvious as DSK's taste in oral sex.

So are the markets from Kuala Lumpur to Tokyo.

Inflation ? Deflation ? both ? neither ?

the times they are a changing

So glad I bought precious metals a few years ago. To sit on the sideline and watch silver take a shot in the teeth and still be in the money is an awesome feeling. I hope most of you have a similar position.

Thu, 05/19/2011 - 23:37 | 1294490 Quinvarius
Quinvarius's picture

Anyone who says to buy bonds about to go into default at this yield is crazy.  Even if you think deflation is coming, you are better off in cash than locked in a fiat based debt instrument which requires a functioning tax base to service its interest payments.

And the problem is not just the money in the USA.  It is the money we piped out of the USA.  There is no money in the USA except what is in the banks.  That will get mobilized when the bankers see its value dropping.  However we have been paying out 1/2 trillion a year in interest payments on our foreign held debt on top of the principal.  This guy has blinders on.  That foreign money is already being mobilized.  Every time the Fed buys a bond off China or whomever, more of that money gets mobilized.  It is bidding on the same things we are bidding on.

Every time the USD gets a tiny bump up or the market dips for a week, the crazies come out.  The fact is, it is a simple quantity of money problem.  It is just that the money is in a safe dangling dangerously over our heads where we are not looking.

Thu, 05/19/2011 - 23:58 | 1294546 JR
JR's picture

Or as Ron Paul put it May 12 before the House Subcommittee on Domestic Monetary Policy:The only reason we have not experienced hyperinflation so far is that the Fed has managed to keep the monetary base increases in check by paying interest on excess reserves held by banks. If these excess reserves begin to be loaned out, however, all bets are off.

“We are told that Congress must raise the debt ceiling limit or else the financial markets and the US economy will suffer great harm. In reality, raising the debt ceiling will allow the government to continue its fiscal profligacy. Fed financed deficits will continue; foreign investors will continue to divest their holdings of Treasury securities; the Fed will be forced to monetize new debt issuances, and prices will continue to rise as the standard of living of the average American continues to plummet. If we have learned anything from history, we should know that printing money out of thin air cannot lead to prosperity. It can only lead to penury."

Said Paul, "History teaches that the next step is severe inflation, if not hyperinflation, with investors and savers completely wiped out. "

Consumer costs to maintain a constant standard of living already are in double-digit territory.


Says John Williams:“The extreme monetary and fiscal actions taken by the federal government and the Federal Reserve to prevent a systemic collapse in September 2008 all had an ultimate cost: inflation.”

The John Williams’ Shadow Government Statistics (SGS) measure of consumer inflation that reverses gimmicked changes to official CPI reporting methodologies back to 1980, rose to about 10.7% (10.69 % for those using the extra digit) in April, from about 10.2% in March.  Wllliams' May 13, 2011 Commentary reports  :

April Year-to-Year Consumer Inflation: 3.2% (CPI-U), 3.6% (CPI-W), 10.7% (SGS)

Fed’s Dollar Debasement Efforts Boost Three-Month CPI Inflation into 6% to 7% Range

Official Double-Digit Consumer Inflation Possible in Third-Quarter; With Rising Prices Dominating Sales Gains…

Says Williams: “At the wholesale level, annualized three-month PPI inflation is in double-digits, up by 13.1% as of April’s reporting.  Annual inflation rose to 6.8%, a post-September 2008 high, with ‘core’ inflation on the rise.”

Thu, 05/19/2011 - 23:41 | 1294495 Atomizer
Atomizer's picture

Derpin usa

Take the B out of BRIC. Another propaganda attempt. IMF connection exposed. NGO's are feeling pinched to the killing of people and selling economy growth by the means of community rebuilding. You must be a prole who depends on the gtovernment to send you a monthy check.

Thu, 05/19/2011 - 23:45 | 1294515 vast-dom
vast-dom's picture

someone please explain: aren't bonds in general going to go down the toilet as we default AND interest rates go up? Why would you buy long bonds then? Am I not getting something? It's late......

Fri, 05/20/2011 - 00:06 | 1294567 Rynak
Rynak's picture

I will simplify here:

No one wants US bonds anymore. Ignoring the sockpuppets (aka TBTF-banks) the fed is lending money to itself. It's called monetization. This is why rates are so low: The fed doesn't even expect others anymore to be interested in bonds. All it now tries is monetization while keeping the "interest"-anomaly as low as possible.

Fri, 05/20/2011 - 00:38 | 1294627 topcallingtroll
topcallingtroll's picture

Central banks around the world do not buy our treasurys because they like them.

They buy our treasurys to minimize the disruption from their suppressed currencies. An addict really doesnt like the drug anymore, but will continue to purchase it.

Fri, 05/20/2011 - 01:35 | 1294702 gwar5
gwar5's picture

I'm not taking any advice to buy bonds either. The author sounds like a Brit so maybe he's not talking about US bonds?

I think the Fed holding the WRC is pot committed to inflation. They will go down still firing from the Benicopter. A collapse of the USD, per the author, necessarily means it would take more USDs for exchange of goods, which is inflation.

Still the value of things could also be deflating in real terms even as the dollar is collapsing faster and farther, so I guess this is the assymetrical effect. That would be a very disorienting economic environment to say the least.

The Fed could actually pull one our of their ass. They could say they will use our 8100 tonnes of gold to back the USD, and follow it up with a transparent audit. They could simulateously follow it up by buying gold on the open market which would also immediately send free market price discovery of gold skyrocketing over $10,000/oz, or much higher, enhancing the gold wealth effect and the USD backing.  

Or they could keep the breasticles, and just start buying gold on the open market which would, again, send shock waves through the price of gold and raise the market price to sky high values. But methinks perhaps the half measure offers to trade USD for physical gold would only make Greshams Law kick in and get no sellers.

Deja Vu: The deflationary Great Depression could have been avoided if governments had just revalued gold, but they chose not to. The CBs got rid of 9000 smaller banks that way. Gov.com eventually confiscated gold first and then revalued it. It needs to be revalued again.   

 

 

Thu, 05/19/2011 - 23:46 | 1294528 Yen Cross
Yen Cross's picture

  48 hours ago I quote "I need to get some sleep." It should have been stated , JET LAG,.

 

I was clear we were Barrimundi fishing. Daintree North!

Fri, 05/20/2011 - 00:19 | 1294594 Luke 21
Luke 21's picture

I already see enough status updates on facebook, Yen Cross. What the heck are you even talking about? You are hilarious. Please do not stop on my account. You are the man.

Fri, 05/20/2011 - 00:58 | 1294653 Yen Cross
Yen Cross's picture

I do NOT have A Face Book ACCOUNT. Wrong Hart I guess?

Fri, 05/20/2011 - 00:01 | 1294561 Luke 21
Luke 21's picture

Finally the mood has shifted on zerohedge. I really had my fill of all the hyperflationary guest posts for the past six months by Gonzalo Lira and his like. Forgive me Gonzalo and all the other hyperinflationary posters because I must admit I never read your stuff. It just felt like I would be hearing the same skin-deep analysis on hyper-inflation we have all heard a million times. It is nice to see some different opinions get some attention again. We all know the economy is in trouble but that could play out many different ways. It is never good to be married to a specific long term economic thesis when there are so many unknown variables and especially when the facts start to turn against you. 

Fri, 05/20/2011 - 00:31 | 1294610 Maos Dog
Maos Dog's picture

Well, I think it's a little disingenuous to say that you are tired of hyperinflation posts and then go on to say you never read them, then attack Yen Cross for no good reason, but, i'll bite anyway cause I'm bored:

"when the facts start to turn against you"

Can you explain which facts exactly?

 

Fri, 05/20/2011 - 00:52 | 1294646 Luke 21
Luke 21's picture

I may have crossed the line there with my comment about Yen Cross. My bad.

I am sorry I do not have the time to explain the facts. Just read the Lapolla interview again.

Fri, 05/20/2011 - 01:04 | 1294661 Yen Cross
Yen Cross's picture

Please explain. You are just covering your tracks. What La what you Child?

Fri, 05/20/2011 - 00:35 | 1294617 topcallingtroll
topcallingtroll's picture

I was pretty much the lone deflationista for the last several months. I have too much company now which worries me.

People dont understand bernanke.

With a perfect SAT score he is smarter than most give him credit. He will err on the side of deflation rather than risk hyperinflation because with fiat repudiation the fed ceases to exist and loses all authority and credibility if not actually disbanded.

The fed and bankers are highly relevant in a deflation.

The bankers prefer mass unemployment and starvation rather than fiat repudiation and hyperinflation.

Inflation is a populist response because most people are in debt, hence inflation and soft money help the little people since the little peooke dont have capital but usually have debt. By trying to avoid deflation bernanke is trying to help the little people.

Lenders universally prefer deflation. So do people who dont carry any debt.

Bankers

Fri, 05/20/2011 - 00:41 | 1294625 samsara
samsara's picture

You weren't alone. 

With losses being written off by the hundreds of billions that is money being vaporized.

All those mortgage backed securities that now in essence have No Value.... is vaporized money.

Money being vaporized is DEFLATION.

Fri, 05/20/2011 - 10:54 | 1295385 Clinteastwood
Clinteastwood's picture

Wrong.  If the Fed holds those MBS there is no effect on inflation/deflation.

Fri, 05/20/2011 - 00:41 | 1294630 Maos Dog
Maos Dog's picture

Well, about this point here:

The bankers prefer mass unemployment and starvation rather than fiat repudiation and hyperinflation.

There is some contention about that.  The argument about against Bankers actually prefer was laid out by someone much smarter than me if you haven't read this yet:

http://fofoa.blogspot.com/2011_04_01_archive.html

 

Fri, 05/20/2011 - 00:58 | 1294654 Luke 21
Luke 21's picture

Thanks for the FOFOA link. I look forward to reading. His stuff is usually pretty good.

Fri, 05/20/2011 - 01:42 | 1294707 Cursive
Cursive's picture

@topcallingtroll

People dont understand bernanke.

You are asking me to understand a man with a lot of internal conflicts.  It doesn't matter what Bernanke's IQ or test scores is/were.  I understand that the central bankers have assumed oppossing directives of "full employment" and "price stability."  As such, Benron et al are either stupid or disingenuous.  I don't care which it really is, they will fail miserably.  The reason inflationists and deflationists argue at all is that the central bankers send out mixed signals as they try to maintain this barbell strategy.  We will have bouts of inflationary and deflationary cycles until the final deflationary bust.  I doubt that more than a handful will know the deflationary bottom when it arrives.

Fri, 05/20/2011 - 02:21 | 1294756 topcallingtroll
topcallingtroll's picture

Central banks are most effective when they can conduct policy outside of the awareness of the people. I grant you that.

Ben seems clearly disingenious. He knew the start of qe2 would raise interest rates and its end would lower them but he said the opposite.

The end game will certainly be interesting. If this is a kondratiev winter it is potentially the worst one ever with the greatest debt bubble in history. I fear this plays out for a couple more decades.

Fri, 05/20/2011 - 02:38 | 1294774 blunderdog
blunderdog's picture

You were never the lone deflationista.  There's been a deflation crowd here since way before you showed up.

Bernanke may be smart, but he's not in a situation which has a clear solution.  It can't be doped out through reasoning--there are too many competing concerns and unpredictable consequences.  He's going to make a judgment call, and intelligence and judgment are way different things.

The Fed and banksters can't afford deflation because they are already insolvent and writing down their "asset" values results in going out of business.  If that $900,000 mortgage has to become a $650,000 asset, they don't get to keep playing.  Even with ZIRP, the banksters have that minimal reserve requirement that fucks their world when the overinflated credit values on their books have to get marked down.  Inflation could possibly result in the big asset values balancing out over the long term as long as everyone stays too poor for the banks to worry about overcapitalization.

The notion that Bernanke is trying to help "little people" is completely laughable.  Bernanke is a banker.  He works for a company that works for banks.  He is trying to help the BANKS, because they are his employer and all his fiduciary responsibility is to THEM.  He may well think that he has to help the banks for the little people to survive, but that's only because he's a banker and can't imagine a world that the banks don't control.

You're smart, but you're wrong on every point you mention here.

Do NOT follow this link or you will be banned from the site!