Guest Post: If This Is What Deflation Looks Like…

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Thu, 09/16/2010 - 12:42 | 585567 Pining for the ...
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Dammit, Mike.  The first rule of Fight Club is we do not talk about Fight club.  Otherwise, great stuff.

Thu, 09/16/2010 - 13:14 | 585655 B9K9
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@CogDis said “None took my advice (naturally) since Mr. Negative is too negative to be correct in the face of the MSM drone that all is well.”

Cog, the day only a small fraction of your client base begins to wake up and realize something is amiss is perhaps the earliest, and most valuable, leading indicator to which one might have access.

As many know, I happen to subscribe to the deflationary hyper-inflation hypothesis. That is, hyper-inflation won't necessarily ensue due to excess money aggregates chasing too few goods. Instead, hyper-inflation will come about as a general loss of confidence in the underlying legal tender used as the primary means of exchange. In fact, well known historical precedents of subsequent central bank reactive money printing exercises are effects rather than causes.

IOW, as it becomes increasingly apparent that the combined US public/private debt will never be re-paid (and could conceivably be defaulted outright), the $dollar which rides atop this pyramid-of-faith will collapse in value. Under this scenario, the price of goods begins to rapidly escalate as people desperately attempt to rid themselves of worthless fiat confetti, culminating in critical goods (food, oil) eventually being removed altogether from the market-place in exchange for $USD.

The action in gold we're seeing these days is only a front-runner to what is going to occur across a broader market basket of goods & services when the herd eventually panics & bolts.

You, my friend, will be able to bestow the ultimate correlation confirmation kiss. When your clients begin to reveal/confess even a shadow of a doubt, that will be the initial tip off regarding an overall loss of confidence. I just hope you share it all with your fellow ZH denizens before the cascade event(s) begins in earnest.

Thu, 09/16/2010 - 14:16 | 585861 mrgneiss
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Yes, I think the gold bears are too focused on a typical "inflation" scenario or excess money supply, and ignore the likely outcome you outlined, loss of faith in the USD here and around the world.  Do they read any of the articles like the one above and have a cogent argument against them?  Oh well, I guess it would be boring if we all had the same point of view.

Thu, 09/16/2010 - 14:35 | 585910 Bendromeda Strain
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All laid out in painstaking detail on FOFOA's site...

Thu, 09/16/2010 - 14:48 | 585934 mrgneiss
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I think he should win a Nobel Prize in economics (FOFOA)..........he's a nice change from your usual tiny nit-pick I have is how he often will bring up a tantalizing topic, then he'll write "more on that later"

Thu, 09/16/2010 - 15:14 | 585987 Pining for the ...
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+++   FOFOA is a treasure, a must-read if you haven't.

Thu, 09/16/2010 - 13:22 | 585685 mule65
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Sounding more like The Matrix than Fight Club LOL.

Thu, 09/16/2010 - 12:43 | 585571 Slartebartfast
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Thu, 09/16/2010 - 12:52 | 585591 UncleBen
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toathis, you are the same babyhomo from the gay-ass Marketwatch suck

Thu, 09/16/2010 - 12:59 | 585607 JJ McApe
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Thu, 09/16/2010 - 15:37 | 586040 FEDbuster
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Toathis, time to crawl back to Cramerica.  Jimmy has some koolaid for you to wash another blue pill down.

Thu, 09/16/2010 - 13:00 | 585612 Conrad Murray
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Wow, I guess there's no arguing with that thesis.  I mean, your refutation of the above article is stellar, and your evidence truly is beyond debate.  Well played...asshole.

Thu, 09/16/2010 - 13:12 | 585648 Missing_Link
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Thu, 09/16/2010 - 13:10 | 585637 Almost Solvent
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Thu, 09/16/2010 - 13:12 | 585647 Missing_Link
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Of course Great Depression 2.0 is "not coming."

How can it "come" when it's already here?

Thu, 09/16/2010 - 20:05 | 586764 Xedus129
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(Insert Dirty Joke Here)

Thu, 09/16/2010 - 13:15 | 585660 Pillage
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babybop from marketwatch

Thu, 09/16/2010 - 13:27 | 585697 NumberNone
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HEY...some of my best friends are alocholics. hic..we like to drink straight from the bolottles...hic

Thu, 09/16/2010 - 14:15 | 585856 Voluntary Exchange
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@Toathis   Sorry baby face. I sure wish it was so but it ain't.  The actions of the central planners both in US and globally represent a huge misallocation (theft) of already scarce wealth and resources such that what is coming down the road for us soon is going to be a monumental tragedy.  Try to live through it, remember it and  make it a permanent lesson  against monopoly governmental services, central banks and fiat currency.   Good can come from this eventually but you got to grow your thinking and come to understand what it is you are seeing now and about to see, and not fall for the same old lies and propaganda.  May I suggest you study Austrian economics to get a basic grasp as to what is happening now and what will shortly happen? Good luck!
Thu, 09/16/2010 - 15:05 | 585966 hbjork1
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Going through the "hierachy of needs".

1. Food and water - OK or not?

2. Safety, security, and protection from the elements. OK?

3. Sense of belonging - Love  OK ??????????

4. Esteem, recognition, status ??????????????????????????

5. Selfactualization ???????????????????????????????? 

All may have to "Suck it up" a little.  Many people around today have expectations that cannot be met in the long run for the total populace. Yes there will be movements and maybe riots.  But look at the bright side.  IMO, the disciplines required will not be as severe as those required prior to the "swinging 60s .  Something like the 70s should be sustainable.  The housing market that seems to be emerging gives one little straw in the wind. 


Thu, 09/16/2010 - 14:20 | 585868 doggings
doggings's picture

'kin tw@t.

none so blind as those who will not see.

Thu, 09/16/2010 - 12:47 | 585576 ZackAttack
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Bi-flation... Inflation in the things you need; deflation in the things you own and earn.

Thu, 09/16/2010 - 12:58 | 585600 SWRichmond
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So the world we are looking at is where a BLT sandwich could cost $12 and home prices drop another 20%.

Absolutely correct IMO. 

Bi-flation... Inflation in the things you need; deflation in the things you own and earn.

I'd only add this slight change: things bought with long-term debt fall in price, things bought with cash flow that are needed to survive (food, energy) go up in price, all when priced in fiat. 

Everything is deflating with respect to real money (gold), some things (houses) faster than others.  This is the thing that "financial professionals" don't get, can't get, and never will get.  So, wrt gold, we are in a deflationary environment.  When you think of it in these terms it makes perfect sense.

Investment professionals have a very hard time getting the heads around this concept for some reason but that is the reality we are looking at.

That's because they're all graduates of some stupid indoctrination B school like Wharton where they churn out Keynesian drones.  I've met and spoken with some of these people and the depth of their indoctrination is amazingly deep.  The fiat paradigm has been hammered into them.  I think in B school they get them to buy the program by first blowing a lot of sunshine up their asses, like telling them they're smarter than everyone else, then they start in with the wonder of fiat currency thingies, fractional-reserve lending, Fed-love, and hatred of gold.

Thu, 09/16/2010 - 13:07 | 585631 centerline
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Most investment professionals are completely "inside the box."  Taught economics and finance from treetop level down to the details - accepting that the given starting point is factual and sound.  It works just fine, until it doesn't.  Then, everyone is suddenly an idiot.  Amazing.

Thu, 09/16/2010 - 15:35 | 586029 maddy10
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Infact most "experts" are inside the box.

Once you stop renormalising infinities whole quantum theory fails,

Once you go into stem cells,cancer Doctors have no answer

within the constraints that we have imposed upon ourselves, we have "experts" everywhere

Thu, 09/16/2010 - 14:12 | 585846 i.knoknot
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indeflation: noun; not sure whether prices are rising or falling...


(+++ btw, SWR)

Thu, 09/16/2010 - 15:07 | 585971 chistletoe
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someone is indekitchen with Dinah ...

Thu, 09/16/2010 - 16:15 | 586148 hbjork1
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All you said and weak math.  I am just an engineer but I  had at lest one course rigorous in vector and tensor usage.  Everything that I have seen in the general economics analysis amounts to trend analysis; not much there on what goes into and comes out of the elements of the economic system. 

The famous professor Merton is reported after the imfamous LTCM meltdown that he was pessimistic on ever being able to mathematically predict risk in derivatives.  

It will never be easy but if schools like Harvard and Wharton would require a regorous course in vector and tensor math, before they start with the advanced economics courses, there might be some rollback in the "mysterys" that currently bedevil the economic academia.  

Here is one shot a better analysis of one area of the problem.


Matt Taibii's site:

Thu, 09/16/2010 - 12:59 | 585608 Dismal Scientist
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Couldn't agree more

Thu, 09/16/2010 - 13:15 | 585659 Caviar Emptor
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What I've been saying for months and months. We're going BI!

Thu, 09/16/2010 - 13:49 | 585770 SheepDog-One
SheepDog-One's picture

Exactly, a hot dog will cost $24 bucks, a 3 bdr 1, 1/2 bath will cost about $20,000, welcome to Ameribabwe.

OH, and BTW its all a moot point anyway because Ameribabwe is a -0- production economy, we dont make anything, so no one will have a job so just get a chess board and spend days in the park like they do in Havana.

Thu, 09/16/2010 - 14:56 | 585914 fiddler_on_the_roof
fiddler_on_the_roof's picture

why do you say USA don't have anything. Not True.

USA have everything - Primary : Food/best Ag lands, Armaments, Medicine,Natural Gas, Natural resources/waterways/Ports, healthy population growth ... Secondary:Computers, Software, Network Gears, Universities, Infrastructure


Thu, 09/16/2010 - 19:10 | 586660 LMAO
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I couldn't agree more when it comes to "healthy population growth"

Flashes of "The Biggest loser" zapping through my head.

No wonder health care is unaffordable. LMAO

Thu, 09/16/2010 - 14:48 | 585918 fiddler_on_the_roof
fiddler_on_the_roof's picture

Deleted, but junked you.


Thu, 09/16/2010 - 14:21 | 585871 SpeakerFTD
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I mentioned this on an earlier thread, but the inflation/deflation debate has to be looked at one the basis of Maslow's Hierarchy of Needs.'s_hierarchy_of_needs


Basically anything that corresponds with "self-actualization" will virtually go to zero, while prices soar for everything related to  "physiological"

Thu, 09/16/2010 - 15:07 | 585972 gumstick2003@ya...'s picture

no, self-actualization is a myth. not possible, because its not static. by its own definition. it can neither be deflated or inflated by anything occurring outside itself. think the Matrix.

Thu, 09/16/2010 - 12:49 | 585582 Calls and Putz
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...It's Youflation™ - where the prices of things you need go up and he prices of things you own go down.

Thu, 09/16/2010 - 14:15 | 585853 i.knoknot
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who junked *that*? i'm gonna borrow that, it's a great quote. ( naturally w/ attributions, etc.)

Thu, 09/16/2010 - 15:44 | 586051 RockyRacoon
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Attribution my fuzzy coon butt.  I'm flat stealin' it.

(Gotta uphold the coon tradition; see that mask on my face.)

Thu, 09/16/2010 - 16:38 | 586223 Calmyourself
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I would copyright dat right dere, beeaatch...

Fri, 09/17/2010 - 01:26 | 587233 Moonrajah
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Youflation - great neologism! How about we take it one notch higher and make a YouFlate site where anybody can upload their videos about the effect of ...flation in their region? Nothing like getting it straight from the horse's mouth.

Thu, 09/16/2010 - 12:49 | 585583 romanko
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why do I feel like I'm at choir practice?

Thu, 09/16/2010 - 13:23 | 585686 Hansel
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Because the priest is touching you down there?  :P

Thu, 09/16/2010 - 13:51 | 585787 Yophat
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Thanks for the laugh!!!

Fri, 09/17/2010 - 08:10 | 587481 Kobe Beef
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harharhar! good one, Hansel

Thu, 09/16/2010 - 12:50 | 585586 zaknick
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Gonna keep posting this all day because it should help clear up a lot of ambiguity and shows us how badly we've been had.

Thu, 09/16/2010 - 13:28 | 585701 ZackLo
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Some good stuff in there but, I would rather not give the power to create money to the government because if you look at the way they handle taxes now....shit we would lose half our purchasing power in a week if those crazies on the hill got the ability to print money. Also you have to remember we live in a democracy so the mob rules...and they WILL vote to steal from each other.. The fed is private and it still prints at the whim...fuck printing presses.

Thu, 09/16/2010 - 13:56 | 585807 Kayman
Kayman's picture


Yeah, it's a hell of a dilemma. Either the Fed is controlled by the democratic process (the mob?) or you let some self-important criminals control the country through the money supply.

So how's the current system working for ya ????

Thu, 09/16/2010 - 14:53 | 585933 Voluntary Exchange
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@ Kayman, Zacklo: ............................................................................................................................................. There are much better alternatives!  The establishment would rather you didn't know about them. I would strongly urge you to reclaim your "power of the purse" and only purchase security and adjudication services (what many think only a monopoly crime syndicate called the "state" can provide) from those non-monopoly services providers who respect and keep voluntary agreements among non-predatory individuals, groups and families. You could start by studying the history of Ireland before 1650. It is an example of a functioning society that lasted more than a thousand years with  a free market justice and security network without a  so  called "state" in the conventional sense. Check out: ............................................................................................................................................ ........................................................................................................................................... If you want to learn about it.  Also check out the works of Rothbard and Hermann-Hoppe.
Thu, 09/16/2010 - 15:51 | 586071 Raging Debate
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I think you got the right understanding Kayman. Do I get to vote on the next Chairman of the Central Bank? What if the Central Banks de-facto own the government? So I get to vote for the President who is told who to elect as the next Chairman which has already been nominated by the Central Bank.

Government should issue the currency and liquidity/storage function of banks should evolve into peer-to-peer lending and CB's go for a bigger supply chain based on carrots vs a gun pointed at your head.

But the Golden Calf won't decentralize itself outside of war creating pain for them as individuals (lost family members that gold just can't buy back).

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