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Rosenberg On Why Fighting The Fed In Real Terms Has Been Very Successful

Tyler Durden's picture




 

Today, David Rosenberg has some good commentary which proves that those who say to not fight the Fed, may be 100% wrong when it comes to fighting adjusted for inflation, or as the case may be - deflation (conveniently, few talk about what bothers even seasoned hedge fund managers such as David Einhorn - i.e., "corn and oil"). And Rosie is spot on: the deflation in all credit-intensive purchases is accelerating, and will accelerate because the only thing that matters, as we have claimed for over a year, is the shadow capital/credit contained in the shadow banking system. That is the number that is collapsing at a rate of more than half a trillion per quarter. No matter what Bernanke does to M2 will even remotely offset this deleveraging deluge. Which is why we have long claimed that the only trump card Bernanke has is to devalue the dollar (both relative to other currencies and absolutely - relative to gold) to the point that its fate as a reserve currency is imperiled, ostensibly leading to a monetary crisis. One is free to name the resulting chaos in dollar denominated prices as one sees fit. But the bottom line is that as long as the shadow banking system continues to contract, which it will for years as the bulk of the funding came from European and Japanese banks: both of which are now gripped in austerity, and not really flooded with leveraged depositor money, everything else is merely a short-term blip on a long-term decline in both economic output and market terms. Also known as noise.

As for Rosie's amusing views on why Fighting the Fed has actually been a very successful strategy in real terms, read below:

DEFLATION REMAINS THE PRIMARY RISK

The San Francisco Fed just published another great report titled The Breadth of Disinflation.

The fact that one of the most reliable research departments within the Fed system could publish such a report two years into the greatest experiment with fiscal, monetary and bailout stimulus and reflationary policies speaks volumes. Frankly, what it tells us is that the 4.3% yield on the long bond is extremely attractive in real terms.

The report found that prices are deflating now for 17% of the goods and services that people consume — “evidence that price declines are widespread.” At the start of the recession, only 34% of the consumption basket was posting disinflation or slowing price momentum. That number is now at 72% — nearly three of four items in the basket is disinflating. This is the same ratio we saw in 1981 but back then we had Volcker doing everything he could to kill inflation. Today we have Bernanke doing everything within his powers from a 0% funds rate to radical expansion of the central balance sheet to reignite inflation and all he can do is throw matches on a wet towel.

Don’t fight the Fed, indeed.

Since the first cut in the Fed funds rate on September 18, 2007 …

  • The S&P 500 has gone from 1,520 to 1,223.
  • The unemployment rate has gone from 4.7% to 9.8%.
  • Industry capacity utilization rates have gone from 81.5% to below 75%.
  • The 10-year note yield has gone from 4.5% to below 3%.
  • Housing starts have gone from 1.183 million units to 0.519 million.
  • Median real estate values have gone from $210,500 to $170,500.
  • Core inflation has gone from 2.1% to 0.6%.

Well done!

Below we again highlight the appropriate SIRP strategy for such an environment:

  1. Focus on safe yield: High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.
  2. Equities: focus on reliable dividend growth/yield; preferred shares (“income” orientation).
  3. Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios — balance sheet quality is even more important than usual. Avoid highly leveraged companies.
  4. Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc…).
  5. Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care — these sectors are also unloved and under owned by institutional portfolio managers).
  6. Alternative assets: allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.
  7. Precious metals: A hedge against the reflationary policies aimed at defusing deflationary risks — money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies
 

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Tue, 12/07/2010 - 15:58 | 786582 bob_dabolina
bob_dabolina's picture

That QE is amazing.

Just look at what the Bernank did to the TBT

GREAT JOB ASSHOLE

Tue, 12/07/2010 - 15:58 | 786586 AccreditedEYE
AccreditedEYE's picture

As usual, fantastic stuff.

Tue, 12/07/2010 - 16:01 | 786595 Shermanium
Shermanium's picture

excellent post!

Now, let's go get a Goddamn snack!

Tue, 12/07/2010 - 16:02 | 786600 HarryWanger
HarryWanger's picture

Wow! Look at consumer credit! Like I said, people are out spending money.

Tue, 12/07/2010 - 16:04 | 786606 Deep
Deep's picture

Harry for you to cheer the mess we are in, i hope you do not have children.

Tue, 12/07/2010 - 16:04 | 786607 Deep
Deep's picture

Harry for you to cheer the mess we are in, i hope you do not have children.

Tue, 12/07/2010 - 16:07 | 786618 Dagny Taggart
Dagny Taggart's picture

Harry, I want some of what you're smoking.

Tue, 12/07/2010 - 16:08 | 786622 economessed
economessed's picture

Finish your sentence, Harry.  Here.  I'll do it for you: 

Like I said, people are out spending money...they don't have.

Tue, 12/07/2010 - 17:10 | 786956 AnarchoCapitalist
AnarchoCapitalist's picture

+1

Tue, 12/07/2010 - 17:59 | 787137 Herd Redirectio...
Herd Redirection Committee's picture

The theory was hashed out months ago that people are stopping their mortgage payments, and then increasing spending on everything else.  Also, the top 5% are still making a killing, so consumption of goods by that demographic probably is pretty similar to 2008 levels. 

A lot of people are mystified how wages will rise or lending will increase.  Neither has to happen.  Foreigners just have to look to spend their US dollars/US debt on anything they can get their hands on.  If there are restrictions on owning US companies they will pile into commodities.  Another option would be default, obviously, hyperinflation (the current path) or exchanging the debt for real estate. 

I am sure the Fed would love that!  But we look to be continuing down the path of currency debasement/higher 'real' asset prices.

http://psychonews.site90.net

PsychoNews: Exposing the Oligarchy, one Psycho at a time.

Tue, 12/07/2010 - 16:18 | 786675 SDRII
SDRII's picture

Revolving credit down 8% annualized after a revised 13% drop last month and 7% in august. Nonrevolving up 6.8% annualized driven entirely by the federal gov - the picture of health lol 

Tue, 12/07/2010 - 16:53 | 786866 Caviar Emptor
Caviar Emptor's picture

Spending as a result of the inflationary component of biflation. A cup of coffee costs more, so does eating out or at home, so do personal care products, tires, gasoline, wireless bills, cable TV bills, insurance premiums, healthcare etc....Basically all the necessities for middle class life. That would be fine if the demand was commensurate. We're still in a low demand environment with boom-time level prices and deflating real incomes. 

That poses an imminent risk to the recovery. If prices rise too far too fast that will cap the business cycle, which is already under pressure from inventory/sales. 

Wed, 12/08/2010 - 00:37 | 788068 prophet
prophet's picture

They are not spending they are borrowing.

Tue, 12/07/2010 - 16:03 | 786604 Ragnarok
Ragnarok's picture

Bond market anyone?

Tue, 12/07/2010 - 16:41 | 786810 AccreditedEYE
AccreditedEYE's picture

+1 Indeed.

Tue, 12/07/2010 - 16:10 | 786633 Convolved Man
Convolved Man's picture

Oh, and reduce your affluent life-style so as not to attract undue attention to your preserved wealth.  Envy by the disaffected may inflate their sense of entitlement.

Tue, 12/07/2010 - 16:46 | 786833 jmc8888
jmc8888's picture

ROFL listen to this sophistric idiocy.

Get what you can, but hide and don't spend it.  So why attain it?

Why attain it in lieu of fixing the economy before everything crashes?  Especially if you say 'reduce your life-style'...wow.  Just wow.

What the reason behind this lunacy you say?  

The people screwed most by having no job in the British Fascist corporate states of Amerika, might see you living normal, and sense that entitlement to things like 'the ability to feed, clothe, and shelter' yourself.

Dude above is a fucking tool for the TPTB, a fascist, an idiot...well in some ways...AND myopic.  Wake him up from his little fascist supply-side dream, or he may find out that the problems he helped cause to some degree, might actually come back and fuck his shit up.  No, I know so.  Because if you think you're going to survive with guns...get real...you're NO gangsta.  The only ones with guns surviving will be the gangs that outnumber and out firepower you.  Good luck.  Then you'll wish you weren't such a fascist.  But there will be no one left to help you.  Like the holocaust poem.  What a fucktard.   NOW IS THE TIME TO REALIZE wtf is going on, not AFTER.  But for you, it'll only be after.  Sad. But at least I KNOW idiots like you will get your come-uppance.  It's inevitable.  Like the Sun rises in the East.

Anti-American thinking at it's finest on display above.  What's wrong with America?  There's no American's any more.  (not by birth, but by CHOICE)

Tue, 12/07/2010 - 17:06 | 786939 RafterManFMJ
RafterManFMJ's picture

The good news is from a prepared position, people like him will be able to take down 10+ assailants.  Also, the wounded will die from their wounds at a higher rate than that on US Civil War battlefields. 

I agree, if you have food, hide it. Wear rags and soot, and an "Obama" political pin.  Buy a George Forman Grill for making gov't cheese sandwiches.

Tue, 12/07/2010 - 16:32 | 786753 BobPaulson
BobPaulson's picture

This post was really good. Thanks for this TD. 

Tue, 12/07/2010 - 16:36 | 786757 jmc8888
jmc8888's picture

Deflation/Hyperinflation

From a really crappy song, but hey, it makes sense.

Used to think that love would be so simple
Just happy ever after one another
Sometimes it's hot to trot
And sometimes it's the old cold shoulder
Oh, you can't have one without the other, brother    <----
No, you can't have one without the other  <-------

Sounds like an oxymoron.  But in our case, you can't get one without the other.

Glass-Steagall (and say bye-bye to the faulty derivative based shadow banking system, and the bogus mortgages)

Hamiltonian (American) Credity System -  (of course Rand Paul doesn't like THAT founding father truth...because gasp...he isn't one....he's a MONETARIST...a hapsburg/austrian school for the dullards...fascist)

...and of course, the projects that get us out of the mess and create growth, and REAL not WWF/WWE sustainability.  (WWF and WWE which one is more fake lol)

NAWAPA

Nuclear Power

Fusion/Fusion Arc

Darien Gap/Transaqua/Bering Strait bridge/tunnel

Mag-lev

Space Program

All intersecting providing synergy to each other (lower cost, better quality materials and goods, 4+ million jobs just with NAWAPA, and the economic activity behind it...AND...ELECTRICITY....AND WATER)

Not to mention with Fusion program...the steps to real free energy.  PLUS Fusion Arc = replenishing elements 1-92 at our discretion.

Fuck the shadow banking system, and it's keynes/austrian way of keeping it together through Austerity or Printing.  Kabuki theatre.

You know you want a nice aged 12 years glass of steagall.

 

 

Tue, 12/07/2010 - 16:44 | 786768 akak
akak's picture

Rosenberg is smoking crack.  Again.

"Widespread falling prices" my mother-fucking ASS!

The fact that he is willing to even mention the wildly manipulated, fantasy-land "Core CPI" as reflective of anything meaningful or real within the US economy is enough for me to know that this guy is a gullible idiot, a disingenuous liar, or both.

Tue, 12/07/2010 - 16:46 | 786841 pat53
pat53's picture

LOL, Rosenberg's record is about the same as Benanke's when it comes to getting things right. And going with the Fed has been a hugely successful endeavor for the last 18 months. Fed easy money = big stock market gains. Fighting the Fed, other than precious metals/commodities, has been a big loser. SPX is going to 1250 soon, and probably a lot higher next year.

Tue, 12/07/2010 - 17:14 | 786973 Shameful
Shameful's picture

Buying PMs is not really going against the Fed.  The Fed has come out and said "We will print until we are happy.  Our only limit is the ability of our computers to handle huge numbers" so naturally PMs will do well.  So we sorta are goign with the Fed.  They want asset/commodities to shoot the moon, and we are buying them.

Tue, 12/07/2010 - 18:52 | 787283 AccreditedEYE
AccreditedEYE's picture

SPX is going to 1250 soon, and probably a lot higher next year.

Do you really believe that after today's pathetic candlestick performance? What's going to move it higher? You can only cut costs for so long before you actually can't rely on financial engineering anymore and REQUIRE top line growth to move forward.

Are you going to hit me with the standard Wall Street mantra of international demand/emerging markets? As Eurozone implodes and China finally breaks thanks to the world no longer buying their crap and their "domestic demand" failing to materialize? This market's days are numbered. A lot of people are quick to forget 666 and how quickly we got there but it will happen again. Between the loss of Shadow Banking money and the market at large realizing you can no longer paper over the losses on public and private balance sheets you will see massive de-risking across many asset classes. We are about to re-learn how painful it is to have all asset classes correlated together as there is nowhere to hide. 

Tue, 12/07/2010 - 16:52 | 786851 Shameful
Shameful's picture

"The report found that prices are deflating now for 17% of the goods and services that people consume"

WTF?!?!?!  Really?!?  Well I have a report that says my feces is worth it's weight in gold!  Who wants to buy me out?

Come on.  I know we have to look at published numbers but sweet God.  I'd like a list of those goods and services because clearly I'm buying the wrong stuff.  Making investing decisions or forecasting based on government issued reports is suicide.  Might as well go play roulette.  At least in Vegas they'll comp you a drink.

Tue, 12/07/2010 - 16:58 | 786892 akak
akak's picture

Well I have a report that says my feces is worth it's weight in gold!  Who wants to buy me out?

Sorry, I must decline your most generous and lucrative offer --- but I have no doubt that your feces, or mine, are more than worth their weight in Bernankes.

Tue, 12/07/2010 - 17:11 | 786959 Shameful
Shameful's picture

Hmm wonder if the sewer system can take them.  Would get a perverse pleasure wiping with them, and may come a time when that is the best use for them.

Tue, 12/07/2010 - 17:00 | 786916 Caviar Emptor
Caviar Emptor's picture

They still don't get it because their mind is blocking what their eyes are seeing: It's biflation. Some things are inflating, some are deflating. It's a monstrosity, something that has crawled out from the deepest pit of their fears. Something that's not even mentioned as possible in their musty books or by their dead mentors (Friedman). They can't face it. Worse, it's an aberration that rose up as a result of an overly manipulated, non-market economy. It 's the result of 40 years of loose money and the resulting bubbles and lack of price discovery. 

If they admitted it was real, they'd be out of business, their philosophies repudiated. 

Tue, 12/07/2010 - 17:09 | 786955 Shameful
Shameful's picture

Its so simple though.  Bubble popped and that asset price is declining.  They panic and hit the infinite fiat button. The former bubble asset is resisting going up but everything takes off like a rocket.  Not hard to figure out.

Really the policy makers must know this, someone in the Fed understands what is going on.  They are just filling their pockets.  But Rosenburg should know better then to trust Gov reports.  Also like how he says to hedge for deflation and currency collapse.  Well if we had deflation it would collapse the USA and the dollar with it, so I think I'll make my collapse bet and be happy.  But then people don't pay me for my advice, should have went to a better school :)

Tue, 12/07/2010 - 19:26 | 787366 CrashisOptimistic
CrashisOptimistic's picture

Why be outraged?  This is an easy parameter to check.

Ask 5 of your neighbors what the predominant expenditure is in their monthly budget.  Odds very high their answer will be housing (or rent).  Ask them what that was last year and what it is this year.

Answer.  It's down.  If your predominant expenditure is less than last year, and the same for amortized vehicle expense (the 2nd largest budget item), why would you think that food and health care (much smaller % of the budget) are decisive?

Tue, 12/07/2010 - 19:52 | 787433 Shameful
Shameful's picture

If a person bought their housing pre-bust your wrong, would not be cheaper.  Also rents are highly localized, and from what I see in my market went up not down.  They wanted a 20% increase in rent in the house I used to live in.  Also seems like a lot of the incentives to move in are drying up.  So if rental is somewhat stable and everything is going up, does that = 15% decline?  After all we know health insurance premiums are on the rise.

Ok I am wrong if the new paradigm is buy a house then never send in a payment.  If that is going into the economic calculation that people are just not paying rent then yes I can agree with you.  I would argue that is most likely not a sustainable economic cycle of eternally living rent free, but I could be wrong.

Tue, 12/07/2010 - 20:13 | 787473 CrashisOptimistic
CrashisOptimistic's picture

No, I am not talking about the pay no mortgage guys.

I'm talking about flat.  For example, if 40% of your budget is flat, 30% is up 2% and 30% is up a spanking 10%, you only get 3.6% inflation.

Housing doesn't have to actually be down to drag down inflation.  This is crushing stuff.  There is no inflation because the bulk of budgets are not spiking.  Only small portions are.  They are indeed "the most important", aka, food, but they are not **most**, aka housing.

That's why there is no inflation.  Not philosophy.  Math.

Tue, 12/07/2010 - 20:20 | 787488 akak
akak's picture

if 40% of your budget is flat, 30% is up 2% and 30% is up a spanking 10%, you only get 3.6% inflation.

You still haven't explained how all of that somehow magically adds up to "deflation".

Face it: deflation under a fiat currency regime is nothing, NOTHING but a myth and a lie.

Tue, 12/07/2010 - 20:28 | 787514 Shameful
Shameful's picture

So if energy is up, food is up, healthcare is up, rent is flat, then there is no price inflation?  Thank God!  And here I'm watching my check buy less and less, must be an economic boom driving hte prices not monetary policy.

Even if housing is flat, then the rise in the other things will be a killer, hardly "flat".  Oil is at $90 in a less then ideal economic environment, will do wonders for winter energy costs right?  I you want to belive in deflation fine, be my guest.  I'm just pointing out that the idea that prices are down more then 15% is laughable.  Might as well issue a report from the Fed that women find Zimbabwe Ben to be the sexiest man in history and he can put horses to shame with his Big Ben. If you are going to lie, lie big!

Tue, 12/07/2010 - 20:20 | 787489 jm
jm's picture

refinancing.

Tue, 12/07/2010 - 20:29 | 787516 Shameful
Shameful's picture

Isn't that a little hard to do when a person is monstrously underwater on their house?  Or are the banks still in NINJA mode?

Tue, 12/07/2010 - 21:35 | 787693 jm
jm's picture

I don't know if you can count an FHA streamline as a NINJA-type scam or not, not an expert.  And not everybody is underwater, and there was a lot of refi im this space.

No excuses here, though.  I have to admit that I've been wrong about commodity prices.  They could have a long run to go.  No doubt that Bernanke will gut and hang everyone else before banks get squeezed.  

Tue, 12/07/2010 - 17:15 | 786974 Sudden Debt
Sudden Debt's picture

I think they use pretty old data to say we have deflation.

Sure, margins have dropped in the industry, because there is massive competitive pressure.

But overall the margins dropped because basic materials went up on a massive scale to.

If you end up making the bill, everything is more expensive, we only make less money on it = less taxable income.

Starting 2011, at our company, we'll have another 15% raise in prices because container transports, basic materials AND the labor cost are WAY to high BECAUSE margins are suffering. Snake eats tail so to speak because less buying power means more competive pressure.

This year alone, we raised prices already 3 TIMES, cut our workforce to breaking point, and are have lost 21% of our client base because

1. They went out of business.

2. They are no longuer credit worthly

3. Margins are to low to longuer serve them.

And I know a lot of CEO's that confirm this is also happening in their company.

SO:

I think they look to the taxeable basis of products to calculate the inflation/deflation question.

AND NOT

the inflation/deflation question that the consumer has.

 

Tue, 12/07/2010 - 17:15 | 786975 Sudden Debt
Sudden Debt's picture

I think they use pretty old data to say we have deflation.

Sure, margins have dropped in the industry, because there is massive competitive pressure.

But overall the margins dropped because basic materials went up on a massive scale to.

If you end up making the bill, everything is more expensive, we only make less money on it = less taxable income.

Starting 2011, at our company, we'll have another 15% raise in prices because container transports, basic materials AND the labor cost are WAY to high BECAUSE margins are suffering. Snake eats tail so to speak because less buying power means more competive pressure.

This year alone, we raised prices already 3 TIMES, cut our workforce to breaking point, and are have lost 21% of our client base because

1. They went out of business.

2. They are no longuer credit worthly

3. Margins are to low to longuer serve them.

And I know a lot of CEO's that confirm this is also happening in their company.

SO:

I think they look to the taxeable basis of products to calculate the inflation/deflation question.

AND NOT

the inflation/deflation question that the consumer has.

 

Tue, 12/07/2010 - 18:00 | 787140 6 String
6 String's picture

Deflation in credit sensitive purchases after the largest bubble in U.S. housing history popped is a no-duh moment, notwithstanding the credict contraction in shadow banking. What are people going to do after being nearly wiped out, leverage right back up again on their largest asset/liability in the declining housing market? Yeah, right.

If one bought $100,000 in the 4.3% long term bond Rosie is alluding to, the only real return one would be receiving is if one were using that money to save to buy a house or a commerical property--everything else on real terms will and will continue to kill you over time: food, gas, insurance, etc.

This will continue to be particularly so as the Fed continues to print money--now by necessity to montize the unfunded deficits--as the dollar continues its slide. This is called Hyperinflation, not deflation folks.

Rosie is just begging to find material to fit his useless theses. His SIRP strategy is failing in REAL TERMS, his long treasury in failing in REAL TERMS, and his rental property theory is falling in real terms.

In others words, Rosie gives Bernake a run for his money in his data-set and predictive power-set skills. He's a numbskull. Who pays this guy?

 

Tue, 12/07/2010 - 19:07 | 787313 sandorgb
sandorgb's picture

 

hyperinflation is a fancy word people like to throw around because 'hyper-' makes it sound more impressive. 

the tail is wagging the dog right now. the credit markets dwarf the currency in circulation. we are in deflation, aka credit contraction marked to market. it is a monetary issue. commodity/asset prices can go higher in the short-run in the midst of a longer-term deflation because of demand being pulled forward and perceived currency devaluation. higher prices do not equal inflation. hyperinflation is a loss of faith in the currency which creates infinite velocity. we are not there yet in the USD. more to the point, we are having problems generating enough velocity. too little velocity (aka slack, hoarding, overcapacity, depression) is a problem, but too much velocity (aka mania, bubble, hyperinflation) can be just as bad. implosion or explosion. capitalism is manic-depressive by nature in case you haven't heard.

if and when our moment of default comes ala Greece, it will not be a hyperinflation moment. more likely a bank holiday/new currency/soft default moment. the US shafts its creditors, many of whom are its own people with devalued dollars. massive depreciation, yes. hyperinflation, probably not. Bernanke cannot fill the hole because the hole is too big. if he prints $10T to fill the hole, the world will disgorge dollars, capital flight, depression would ensue. the bond markets are in charge, not Bernanke or the ECB. The negative feedback loops are too strong now. Just look at the  havoc QE lite $600B caused in the bond and commodities markets in the past 2 months. Bernanke can't do more QE, because any time food/oil gets too high, the economy will contract. it really is throwing matches on a wet towel.

Rosie's analysis is pretty much spot on. gold is an insurance policy, not an investment. it preserves your purchasing power, but it does not make you wealthier in real terms unless you trade it for something else during the bubble. the game is how to build wealth using the available tools of financial assets, real estate and collectibles (PMs, art, etc). real terms mean how much of what you need/like can you afford? this reality is relative, so it's pretty important what you choose as your standard of value. some days, the USD is favored, other days it's the yen, Aussie, or palladium. the strategy depends a lot on how frequently you feel like rotating assets to respond changes in wind/weather. most people would rather pay someone else to make so many decisions. 

Tue, 12/07/2010 - 19:21 | 787356 Hephasteus
Hephasteus's picture

Prices drop for 6 months during the great depression and it becomes a never ending fucking myth. There's never been real long term noticable deflation by anything other than a fucking gnat or a fruit fly that lived on this planet 70 years ago.

Get out of here with your bullshit.

Tue, 12/07/2010 - 19:25 | 787360 akak
akak's picture

Well said, god of the forge!

Every time I hear some commentator or "analyst" start babbling about "the threat of deflation", I immediately stop listening and just dismiss them as yet another Establishment lackey or useful idiot.

Tue, 12/07/2010 - 19:29 | 787368 CrashisOptimistic
CrashisOptimistic's picture

Shrug.  What was your rent last year vs this year?  And what % is that of your monthly budget?

 

Tue, 12/07/2010 - 19:43 | 787390 akak
akak's picture

In fact, I DO rent, and funny, but my rent has NOT fallen one dollar in the last year --- nor has the rent of anyone I know in the real, non-Bernankean world ouside of "Core CPI"-induced coma.  Nice but pathetic try to argue your increasingly untenable thesis, but face it liar, NOBODY'S cost of living is falling --- but they ARE rising. 

Tue, 12/07/2010 - 20:18 | 787479 CrashisOptimistic
CrashisOptimistic's picture

If your rent is flat, then the bulk of your budget is flat.  Disinflation (a new word) is not deflation.  It's just . . . not much inflation.  There is no inflation.  Housing and cars being FLAT (they don't have to decline), erode any intimation of OMG END OF THE WORLD HYPERINFLATION.

It's not there because of a more powerful reason than philosophy or monetarism pontification.

It's not there because of math.  Housing flat means no signif inflation.

Tue, 12/07/2010 - 20:23 | 787493 akak
akak's picture

You are merely babbling without meaning at this point. 

Just another deflationary Chicken Little who can and should be ignored.

Tue, 12/07/2010 - 20:44 | 787561 Hephasteus
Hephasteus's picture

Let's pretend it's goddamn 1955 and sell me your fucking house for 12 k. Or get the fuck out of here.

Wed, 12/08/2010 - 09:29 | 788378 Bicycle Repairman
Bicycle Repairman's picture

I am tempted to do likewise.

All of the housing deflation that is going to take place may have already occurred.  There is potentially a lot more deflation in housing.  If the markets worked there would be more deflation, but the government and the banks have concocted various schemes to prevent this.  The taxpayer is paying for these schemes.  Paying now and paying later.

As a taxpayer with a paid-off home I know I'm being taken.

Tue, 12/07/2010 - 19:31 | 787377 freedmon
freedmon's picture

I clicked the link, hoping for an actual list of the miraculous "17%"... no such luck. All we have are claims backed up with some pretty graphs, without any specific detail. He references 5 source, one from 1984, one from 2002, and the only ones from 2010 are all published by one or another of the various mini-Feds around the country.

Tue, 12/07/2010 - 21:58 | 787744 6 String
6 String's picture

the credit markets dwarf the currency in circulation. we are in deflation, aka credit contraction marked to market. it is a monetary issue.

To argue the credit contraction to U.S. households is dwarfing the monetary base isn't right. Households total liabilities are about 13.9 trillion....consumer credit only makes up a little over 2 trillion of this (the rest is mostly home mortgages where you expect contraction).

So credit is contracting...on credit sensitive purchases (houses, cars, etc). This is what one would expect. But given the small size of this compared to the 4 trillion plus so far in stimulous and Federal Reserve balance sheet expansion--and the irrelevant now shadow banking market ZH thinks is so important, but it's hardlyi if you look at economic realty--it's a non-starter. Sure, shadow banking is contracting. But it doesn't matter to U.S. households who don't want the credit anyway.  

Tue, 12/07/2010 - 22:53 | 787831 Kayman
Kayman's picture

6 string

On a micro basis, you are assuming perfect elasticity of supply and demand in rental housing.  It is unlikely in the extreme that you are going to negotiate  a new rental price on a continuous basis, nor are you likely to incur the moving costs, unless you only own a toothbrush.

If you hold a mortgage, then your nominal costs are essentially fixed, except for government edicts, like property taxes and fees.

After tax income, purchasing power is eroding through never-ending government costs, including payroll add-ons.

I don't know this deflating world you allude to, but when you are underwater on your mortgage and finally lose your home, it is inflation that has killed you, deflation is but its shadow, trailing companion.

 

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