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The New Deflation
It seems that all you hear about these days is deflation. That is certainly what the bond market is telling us, with my screen blaring at me a miserable 2.93% yield for the ten year Treasury bond.
But there is a new definition for this economic malady that applies to us hapless consumers. In the new deflation, the value of our income falls, while the prices of things we need to buy are going through the roof.
It is a particularly pernicious form of deflation, as it is burning our candles at both ends at the same time. Take a look at the chart below, showing the cost of college tuition versus the consumer price index and home prices.
This hits home particularly hard, as I have just helped put three kids through college, and am reduced to riffling through the sofa cushions looking for spare change in order to meet the bills. When I graduated from the University of California in the early seventies, the tuition was $3,000 a year. Today it is $12,000, and climbing at a 30% annual rate (click here to see the chart relative to the CPI at http://www.madhedgefundtrader.com/july-22-2010.html ).
The saddest part of the story is that rampant wage deflation means that recent graduates have a grim choice between taking a poorly paid job, or no job at all. That leaves them woefully unable to repay the student loans they ran up to obtain their rapidly devaluing diplomas.
And if you were planning on becoming a teacher, forget it, unless you want to move to Saudi Arabia, Russia, or South Korea. After watching tens of millions of jobs get shipped to China over the last decade, did you expect anything less? Just ad this problem to the ever lengthening list of ways we are getting screwed.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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DarkAgeAhead
"That said, just as in any of the more increasingly probable scenarios of the future in which "you can't eat Gold," nor can "you eat an IPhone.""
The one that bothers me is water. I see people stock up on bottled water. Fine, what happens when that runs out?
Or the newly enfarmed with ELECTRIC water pumps. Electricity fails, no water. Oh you have a generator, cool. What happens when you can't fuel the generator?
Even with a hand pump, how will you get manufactured replacement parts?
I'm not seeing a lot of people learning to use a Forge, or even traditional Coke/Charcoal/Coal ones.
Lots of once basic skills will need to be rediscovered.
Water
http://rd.tetratech.com/climatechange/projects/nrdc_climate.asp
Can't vouch for the quality of the study.
Looking forward to an "Amish University" opening soon.
Not many would graduate. There'd definitely be no grade inflation.
"Lots of once basic skills will need to be rediscovered."
Most definitely agreed. The issue, or most of it I think, is how much of a learning curve and relearning pain shall be involved.
Much of my pessimism arises from two basic realities. In the biosphere, humanity as geologic force, has caused the 6th great extinction in Earth's history, the first since the dinosaurs disappeared 65 million years ago. The result, perhaps a 50% loss in biodiversity by the year 2100.
And in the "Ethnosphere" (Wade Davis...defines as the sum total of dreams, thought, laws, etc. since the dawn of consciousness, basically the cultural analogue to the Biosphere), modernity is destroying ancient cultures, one every two weeks, with the consequence that up to half of the world's 6,000 unique, extant cultures shall be extinct by the year 2100.
http://www.ted.com/talks/wade_davis_on_endangered_cultures.html
A loss of diversity in living systems is a precursor to crossing thresholds, basically distingration of complexity, health, fertility, etc... So as we face tremendously harsh, non-negotiable and emerging Planetary Boundaries (a recent article in the Journal Nature), our shared, collective adaptive capacity is disintegrating.
So as you recognize the value of one Amish carpenter, that sort of knowledge is a living knowledge, which can be preserved only by use. Not in books or research articles, as that's a form of dead knowledge, if not practiced.
To reevolve to become an Amish carpenter, using horse as innovative technology (I just read how some Amish have a horse on a treadmill to generate electricity), if we don't preserve that knowledge by use, shall be no small pain to relearn, if it's even possible, particularly in agriculture.
Basically we've destroyed so much genetic adaptive knowledge (for the power of mimicking nature, google biomimicry), and cultural adaptive wisdom that's solved the challenges that we now face...it's hard to see anything other than a Dark Age descending right now.
Last part of the rant, as context - as one of uncounted millions of species (somewhere between 10 and 100 million), we current use or destroy 40% of the world's primary productivity, essentially the total food resource of Earth.
So your points are quite fantastic and well taken. Hand pumps break, horses get sick, tools wear out... Not good.
DarkAgeAhead
Another lost art is navigation.
I was watching the Deadliest Catch tribute to Phil Harris. Phil was talking about how his father Grant was swamped while out fishing, that was the seventies. Everyone thought Grant was lost at sea. He came limping in eight days later. Phil was amazed he could do this without electronics for navigation.
But that is what Sailors did for centuries, navigated by the stars.
Today people can't find the points of a compass and move in a simple direction.
One episode of the Wire had a Captain discussing positioning with one of his trainees. He had taught them to always know where they are, second floor third room down facing east x street.
Again very few of us are aware of just where we are.
I doubt many can read a map anymore.
Compare to the ancient Polynesians. Or some of the earliest highly-advanced navigation technologies from early societies. Technologies thought not to have existed until thousands of years later.
Complexity will collapse. Anything running on biological energy shall endure over anything running on ancient sunlight.
But water is the big variable.
Haha, fantastic point Gully.
I deal with many PhD's who ask either explicity or implicitly how to "distill" their "higher level" knowledge down to the "workforce," the plumbers, electricians, masons, machinists, etc of the world. If by higher level, they mean abstract, specialized, and reductionist beyond practical application, well then yep, it is a difficult thing to "distill" into any form of working wisdom.
And too many times I've watched the so-called experts, well funded and connected to political/university funding mechanisms, simply take a builder's, architect's, plumber's, etc...design or system and turn it into "their" next funded study. It's a joke.
Many of the unskilled, particularly those working "manual" labor, have a better instinctual sense of our democracy than many of the PhD's, incidentally.
Many of the unskilled, particularly those working "manual" labor, have a better instinctual sense of our democracy than many of the PhD's, incidentally.
It's because they see a lot more of the bad parts of it, versus the supposed good parts of it.
DarkAgeAhead
This pretty much sums it all up. Rowe starts discussing Dirty Jobs then moves into lack of interest in trade schools.
Mike Rowehttp://www.youtube.com/watch?v=IRVdiHu1VCc
Recently there was a topic on REDITT regarding a Joe Rogan joke. But it highlighted just how people lack basic survival skills and how hard it would be to rebuild civilization from scratch.
My pet peeve is all the Green " if we only installed this..." ideas. Sure sounds fine but they never consider manufacture and building costs. Plus they never consider just where money is supposed to come from. Manufacture is never taken into account because the ideas stem from acedemia, people who have never had a single relation to anything involving physical labor. At least Moore worked and had family and friends in the auto factories. At minimum he understood production and the associated issues.
Academics and the true believers never consider that tax payer funds would be spent on x product. If I buy my own Solar panel fine, but why should I pay for my neighbor who barely mows his lawn? Or for FORD?
If you spend $500 billion on alternate energy sources what in the budget gets cut? Infrastructure repair? Definitely not military. They once again do not comprehend the severity of funding problems.
Theory always looks better than implementation.
Excellent point about the illusion of Green. Most techno-political green proposals are merely ways to entrench the current system, at tremendous public expense. Most fail to account for what I think might be the biggest cost of all - the embedded transactional/infrastructural cost of all of the public and quasi-public economic development, federal, state and university entities that exist to seek and secure "public" funding for all of the Green Stuff, which is only marginally better - i.e., creates 15% more efficient houses, or 20% more efficient machines. All that does is destroy the world more efficiently. And at a huge transaction cost - here I am thinking of the large salaries and excellent benefits of federal employees, state employees at so-called "green" agencies or authorities, at the universities that embed retirement and salary and lab equipment costs into proposals. All to be paid by taxpayers. All for minimal or marginal benefit.
When one examines and sees the true scale of our ecological challenges, it becomes immediately clear that most all of these programs are the proverbial drop in the ocean, pissing into the (increasing) wind, etc...
When federal, state and even local government employees make x% more than private sector workers (I forgot how much but it is substantial), you know you've crossed a serious threshold in terms of democracy and economy... We're f@cked.
Many of the highest return and most profitable "green" development initiatives and solutions are also the cheapest. They just don't make for good press conferences for politicians or headlines. They are humble, relate more to behavior and embedding knowledge in workers to create independence (rather than continued dependency), and easy to implement, if one is so inclined.
But politicians prefer to announce things like new electric car manufacturing facilities and new "sustainable technologies" that will "create" manufacturing plants and jobs (if only we give the company enough in public subsidies to relocate to overcome the harshly limiting tax burden of doign business in that jurisdiction). Universities prefer this as well, as they receive tens of millions in funding to research these "Sustainable technologies".
The right answer was always a value change for survival, not new efficient technologies to preserve the status quo. Efficiency is ultimately death in living systems, and that's where the green community is right now. Squandering private money, or transferring wealth (rightly or wrongly), investing in technologies that only slow the impending ecological crash...
And I agree, theory always looks better than implementing, because it's so much easier to sit and theorize in air-conditioned (high efficiency!) rooms rather than "implement".
The worst is that all of this "green washing" creates the illusion that green is just another enrichment strategy or liberal way to reallocate wealth. But the ecological realities that are emerging shall shatter illusions on both sides. And at that point, it'll be much more adaptively beneficial to know how to plant a garden, deconstruct/reconstruct a durable house, live on current sunlight, rather than create the next generation IPhone or Twitter app.
[EDITED - First point - too early without coffee]
That last point, I'm not sure it's so quaint. Perhaps not prosperity, but survival with the benefit of civilization, I'll take it.
I'm guessing you couldn't afford college.
snowball777
I would have gone with Mormon bubble boy. Dissing South Park, Pizza and soda, why that's just insane.
Mormon because Twilight was never mentioned.
"In the new deflation, the value of our income falls, while the prices of things we need to buy are going through the roof."
Isn't that INFLATION?
Actually, it depends where you live. There are literal ghost towns in the southwest again. However, in D.C. and New york prices are starting to spike upwards again.
Whiz,
Yeah, in D.C.,where the Gv't is I bet it's UP.
The average wage for a Gv't worker is 60% more than someone in the Private sector.
And, (my words), the Gv't worker produces NOTHING, and is a direct cost to the Tax WE pay.
We are getting in every orfice of our bodies.....never knew you could get PORE screwed.
Welcome to the "new normal"...PORE screwed---until everyone except the top 5% becomes poor screwed.
Keep buying Chinese crap, and blaming politicians. Dont blame the CEO class that outsourced jobs and manufacturing---or the defence contractors who are laughing all the way to the bank(sters). Dont become (or fund) entrepenuers...keep hoarding gold and day trading until you cant.
Precisely. Deflationists are scurrying about trying to explain everything but the obvious: basic inputs are on the rise and show no signs of abating. Furthermore, when incomes fall (including the effect of higher taxes) and input prices increase, you get stagflation, not deflation. Obama's comparisons to Carter are fast becoming reality....
No its stagflation
thats how they taught it in my grammer school.
Evidently they were a lttle light on spelling.
...and asset prices fall. This is stagflation.
This is a little different than the inflation, deflation and stagflation cycles. I am calling the end of the inflation bull market of the US dollar fiat debt insturment of 1913-201x.
http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-rea...
http://www.theonion.com/articles/us-dollar-slips-against-canadian-acorn,...
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