Two Cases Against Inflation

Tyler Durden's picture

Today's two anti-inflation perspectives come from the creme of the crop of establishmentarianism, and two of those who had no inkling the biggest financial crisis in history was about to hit until long after it did, one of whom was responsible for creating it, and the other, responsible for using up taxpayer funds to stay in business: Moody's and Morgan Stanley. Despite the firms' track records, the thoughts presented merit presentation in this most critical of debates.

First we present Moody's case, which claims that a return to the "disco" inflation of the 1970's is not happening, primarily due to the record amount of excess slack in the economy. Additionally, while not pointed out, the ongoing collapse in average wages does not bode too well for inflationists:

Expectations of much faster price inflation are slow to disappear despite the recent deceleration of core CPI inflation, limp income expectations, and the distinct possibility of another bout of home price deflation. Moreover, March’s surveys of manufacturers by the five District Fed Banks failed to uncover a meaningful increase in pricing power. We believe that those expecting a return of the “disco” inflation of the 1970s will be proven wrong if only because major upturns by inflation tend to be broadly distributed. Remember inflation’s short-lived energy led spurt of 2008 that looked pathetic compared to unprecedented home price deflation.

Of course, the one aspect that Moody's does not discuss at all is the surge in money printing. Yet as monetary aggregates are still falling, and all the excess money is held by banks in the form of excess reserves, the debate continues to be just what catalyst will force banks to part ways with this handy $1.2 trillion buffer. This is a major question especially since discount window borrowings have dropped to almost non-existant levels, plunging to just under $7.7 billion for the week ended March 31. This is the lowest amount since April 2008. Instead, here is what Moody's does focus on:

The US’ last two previous outbreaks of severe inflation were (i) the 3-years-ended January 1982 (core inflation averaged 10.9% annually) and (ii) the year-ended June 1975 (the annual rate of core CPI inflation averaged 10.6%). Comparatively high rates of resource utilization, and rapid rates of growth for payrolls, expenditures and employment income preceded those memorable episodes of severe price inflation.

The averages during the 24 months prior to the onset of severe inflation were: (i) 481K new jobs per month (adjusted for the subsequent growth of payrolls), (ii) 5.5% annualized growth for real GDP, and (iii) 12.3% annualized growth for employment income.

In contrast, the averages of the latest available 24-month spans showed (i) a loss of 349K jobs per month, (ii) a 0.9% annualized contraction by real GDP, and (iii) a 1.9% annualized contraction by employment income.

Prior to inflation's earlier surges, the averages were 5.5% for the unemployment rate and a -0.9 of a percentage point for the jobless rate’s year-to-year change. By contrast, February 2010’s 9.7% unemployment rate was up by 1.5 points from a year earlier. Moreover, the average hourly wage advanced by 7.0% annually on average prior to the previous inflation surges — compared to October 2010’s 2.5% yearly rise.

The last items of relevance, capacity utilization which is now almost 20% below where it was during prior inflationary episodes, as well as the barely noticeable increase in debt by the US nonfinancial sector. The latter is hallmark of this recession, as ever-increasing amounts of private debt are shifted to the US balance sheet.

Finally, February 2010's industrial capacity utilization rate of 72.7% revealed an excessive under-utilization of productive resources compared to both 1978’s 85.0% and 1973’s 88.3%. Q4-09’s 3.4% year-to-year increase by total US nonfinancial sector debt hardly compares to its annual charges of 10.8% for Q4-73 and of 13.6% for Q4-78. The latest upturn by nonfinancial sector debt remains tame notwithstanding an accompanying 22.7% surge in federal debt mostly because of a record deep -1.7% yearly decline by private nonfinancial-sector debt. State & local government debt outstanding grew by 4.8% annually in Q4-09.

A more comprehensive outlook on the general supply/demand mechanics comes from Morgan Stanley:

We have argued for some time now that there
are substantial upside risks to the medium-term inflation trajectory
globally. One of the main reasons - but not the only one - is the dire
fiscal outlook in developed economies. We think that central banks may
generate, allow or acquiesce to higher inflation in order to help
overlevered public - but also private - sectors with their debt
burdens: debtflation. A rational, forward-looking central bank may
decide to generate or live with a controlled amount of higher inflation
now, rather than find itself in a more difficult position a few years
down the line because of unsustainable debt evolutions.

The obvious metric is of course the total amount of public debt -
the higher, the bigger the incentive to inflate. This is borne out by
ample historical and statistical evidence on the link between sovereign
fiscal positions and inflation. But there are further factors which
determine the incentive to inflate: the average duration/maturity of
the debt; the currency denomination of the debt; the share of domestic
versus foreign ownership; and the proportion of inflation-proof debt in
the total amount of outstanding debt. This is how each of these factors
affects the incentive to inflate:


  • Public debt overhang: The higher the
    outstanding amount of government debt, the greater the burden ofservicing it. Hence, the temptation to inflate increases with the debt.
  • Maturity of the debt: The longer the
    maturity of the debt, the easier it is for a government to reduce  the
    real costs of debt service. To take an extreme example, if the maturity
    of the debt is zero - i.e., the entire stock of debt rolls every period
    - then it would be impossible to reduce the debt burden if yields
    respond immediately and fully to higher inflation. Hence, the longer
    the maturity of the debt, the greater the temptation to inflate.
  • Currency denomination of the debt: Own
    currency debt can be inflated away easily. Foreign currency-denominated
    debt on the other hand cannot be inflated away. Worse, the currency
    depreciation that will be the likely consequence of higher inflation
    would make it more difficult to repay foreign currency debt: government
    tax revenues are in domestic currency, and the domestic currency would
    be worth less in foreign currency. So, the temptation to inflate
    increases with the share of debt denominated in domestic currency.
  • Foreign versus domestic ownership of debt:
    The ownership of debt determines who will be affected by higher
    inflation. The higher the foreign ownership, the less will the fall in
    the real value of government debt affect domestic residents. This
    matters not least because only domestic residents vote in elections.
    Note that unlike domestic owners, foreign owners may not necessarily be
    interested in the real value of government debt since they consume
    goods in their own country. But they will nonetheless be affected by
    the inflation-induced depreciation. So, the temptation to inflate
    increases with the share of foreign ownership of the debt.
  • Proportion of debt indexed to inflation:
    By construction, indexed debt cannot be inflated away. Hence, the
    higher the proportion of debt that is indexed to inflation, the lower
    the temptation to inflate.

To these purely fiscal arguments we add another dimension, private sector indebtedness:

  • Private sector debt overhang: An
    overlevered private sector may generate macroeconomic fragility and
    pose a threat to public balance sheets. Hence, high private debt also
    increases the incentive to inflate.

A little discussed issue, which Zero Hedge has long pointed out as very critical in various government's desire to reflate is the average maturity of existing sovereign debt: the lower the maturity, and the US is the undisputed leader in short debt duration, the greater the risk on overall rates should inflation take hold. And despite posturing by the US Treasury that it is willing to push out average maturities, the bulk of recent issuance has been in the Bill and CMB sector, even whan accounting for rolls:

There is also little to separate the countries in our sample with
respect to currency denomination. All have debt that is almost in its
entirety denominated in their own currency. In terms of the average
maturity of the debt, the UK is a clear outlier at 13.5 years -
suggesting a significant temptation to inflate.

In the US, on the other hand, the outstanding maturity is the lowest
in our sample. However, average maturity of Treasury debt is set to
rise quickly to post-war average levels on our US team's forecasts -
and possibly beyond, if the historically strong positive correlation
between the debt ratio and average maturity is anything to go by.

With regards to foreign ownership of debt, the euro area sovereigns
have a very high degree of foreign ownership. However, because of
cross-euro area holdings, what matters in this context is the share of
debt held outside the euro area rather than outside an individual euro
area country. Even though we have no hard data to back this up,
anecdotal evidence suggests that most of the government debt is held
within the euro area - due to the high degree of financial market
integration. This would moderate any temptation to inflate, since euro
area sovereign debt is mostly held within the euro area.
Leaving the
euro area aside, the US has the highest proportion of foreign-owned
(nearly 50%) - a reflection of the dollar's global reserve
currency status - and Japan the lowest (around 7%), with the UK
somewhere in the middle (28%). Bearing in mind the caveat about the
euro area, the US certainly stands out along this dimension of
inflation temptation.

MS classifies the key countries with a massive debt overhang in terms of their overall desire to reflate.

From our bird's eye view of the numbers, Japan probably has the
worst balance sheet, followed by the UK and the US - assuming that what
matters for the euro-zone is the average and not its weakest link(s).
On the other hand, Japan's public debt is mostly held domestically and
its debt maturity is relatively short. These factors moderate the
temptation to inflate arising from high public and private
Indeed, the fact that the Japanese economy as a whole is
a net foreign creditor to the tune of 50% of its GDP is another
indication that much of the leverage of individual sectors is debt held
by other domestic sectors - public debt for example being held by
households and financial institutions. This means that the temptation
to inflate is ultimately very low, despite high leverage.

The euro-zone seems to occupy the middle ground in our inverse
beauty contest on just about all metrics. Risks to (price) stability
for the euro area arise to the extent that the average masks some
vulnerable economies. For example, there have been calls recently for
the ECB to generate higher inflation because this would help the
struggling periphery: expansionary policy would stimulate demand, and
regaining competitiveness for the peripherals would require fewer
outright nominal wage cuts. The incentive to inflate for the ECB would,
in our view, arise to the extent that it perceives higher inflation to
be conducive to rebalancing the euro-zone; this would make a
hypothetical break-up less likely, thereby preserving the status - or
even the very existence - of the Frankfurt institution.
We attach a
very low probability to this scenario, however, not least because the
institutional set-up of the ECB ensures that no particular (group of)
countries' interests prevail.

How about the US and the UK? We've already noted that both public
and private sectors are highly levered. In the US, foreign ownership of
public debt is very high, and the share of inflation-proof debt is
relatively low (though higher than any of the euro area countries in
our sample) - factors favourable to inflation.
Debt maturity is short
by international standards, but rising quickly towards the US
historical average - and possibly beyond, if the historical correlation
between debt and maturity is anything to go by. In the UK, debt
maturity is very long but the share of inflation-proof debt is
elevated. However, the UK has had a much worse inflation performance
historically: average and peak inflation rates have been substantially
higher than in the US. Overall, while the temptation to inflate in the
two countries is higher than in the euro-zone or Japan, it is difficult
to distinguish between the two

Morgan Stanley's conclusion: Central Banks are likely not incentivized to generate blow out inflation currently, and if they did, it would take at least 2-3 years before the proper mechanisms are in place for this to take place.

Of course, our list of factors is far from exhaustive. In
particular, it does not capture the ‘soft' aspects of the problem.
Reputation is clearly a factor in this context. A reputation for
stability - in the central bank context this means achieving low
inflation on a sustained basis - takes a long time to build but very
little to lose. This speaks against inflation as a course of action for
central banks.

How about timing - when are we likely to see inflation if the risks
were to materialise? Clearly, variations in the pace of cyclical
recovery imply a different near-term inflation outlook for different
economies. Our US team expects the inflation outlook to start turning
towards the middle of the year; in the euro area, inflation will likely
remain subdued for a while longer, given the tepid recovery; and Japan
will likely remain mired in deflation for some time. Hence, inflation
is unlikely to become a near-term worry. Returning to our debtflation
framework, incentives also suggest that it is too early for the
authorities to generate inflation. Some clients have pushed back - and
we agree - that, for practical purposes, the duration of debt is
shorter than meets the eye because large current deficits mean large
immediate financing needs. From a strict ‘rational debtflation' point
of view, the optimal timing for inflation would be when the bulk of
borrowing is behind us (and maturities are longer in the US). On our
forecasts, deficits will be slow to come down (see Global Forecast Snapshots: What Fiscal Tightening?
March 10, 2010). Hence, inflation may still be a good 2-3 years off.
But if we are right about output gaps being smaller than commonly
appreciated, or if strong EM economies put pressure on commodity
prices, then inflation may appear sooner than many think.

Regardless of whether MS' observations are right or wrong, one thing that is certain is that US debt, both private and especially public, is increasing. Furthermore, the asset coverage of such debt is getting increasingly tenuous, yet with baby boomers increasingly reluctant to park their money in equities, which seem to be traded exclusively by the pig farmers in recent days, this kind of forced capital reallocation into rates will simply make the inevitable rise in rates all the more painful for everyone involved. Lastly, the biggest wildcard, the record amount of money in the economy is still an undetermined factor. As the US has escaped from all empirical observations and has an unprecedented amount of excess reserves, the truth is that no economist has any idea just how this big variable will impact monetary policy at the point when the economy starts improving in earnest, and not through seasonally adjusted data subject to wildly incorrect birth-death adjustments. Which is why an ever increasing number of funds continue accenting the barbell trade: purchases of hard still cheap money-substitute commodities for that moment when inflation does run away from the Fed and the CBs, coupled with acquisitions of financials, which will be the companies that benefit the most from debt inflation. The rest of the capital is still invested in Treasury securities as a deflationary investment. However, with the 10 Year about to breach 4.0%, it may just be the case that the downside leg in the inflation/deflation trade will shortly be stopped out.



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Internet Tough Guy's picture

Wages don't drive inflation; they never even keep up with it. Hyperinflation and high unemployment go hand in hand.

What is oil over 85 trying to tell you that Moodys never will?


truont's picture

Oil over 85 is those evil specs again.  Those are the same guys that are killing Greece!  If only we could put all the speculators in a snake pit, we would have world peace and harmony!

Mr Lennon Hendrix's picture

I think it is peak oil poking its little head out again.  Like that mole in the arcade.  This time I think that mole turned into a gremlin.  But yeah, the specs were the ones that threw water on it.  This mole ain't going back in its hole though.  It will now roam the streets looking for flesh, until it gets every last suburbinite.

john_connor's picture

10 year at 3.974% and oil up to $86.40


Long bonds could collapse here. 

SWRichmond's picture

I find it very interesting that, whenever the Treasury market looks to be in serious difficulty, the radical dollar bugs start publishing like there's no tomorrow.  On a related note, I expect the markets will be crashed before any silver short squeeze gets legs, "saving" JPM.  This would also "save" the Treasury market.


john_connor's picture

I agree actually, but time is short and the Fed/O-team have lost all credibility.

An engineered crash in equities may not even save the bond market this time.

jdrose1985's picture

long bond collapse would be the catalyst to wreck equities as a panic will be engineered to fund government needs at the short end of the curve. This will not end happily for anyone besides the nimble and lucky.

4shzl's picture

one thing that is certain is that US debt, both private and especially public, is increasing.

Public, yes -- private, no.

Cookie's picture

We are on a swinging bridge, who knows on which side it will collapse, but collapse it certainly will.

4shzl's picture

Dow 11K -- it's a layup.

SPX --> 1220, next stop.  Picking a top??  Don't even think about it.

Whizbang's picture

Ok Ok, hyperinflation is happening, other than the fact that oil is still 30$ below it's high, housing is still collapsing and the government is able to borrow below historical averages, I completely believe it. The european crisis is creating another dollar squeeze, 3 million houses in shadown inventory, and a shrinking monetary supply all point towards a 48 dollar. The only things behaving in a slightly inflational manner are equities and gold. which are both completely gamed. Have fun with your hyperinflation, i'm sure that gold will be at 12,000 an oz any day now...

trav7777's picture

Gold and oil are in supply decline.

What you're seeing in pricing is a reflection of crumbling faith in fiat and credit dollars.

Demand has been artificially driven higher by an inherent loss in value of the currency.  This is *not* reflected in the DXY or the long bond.  But, there are many now who are already discounting ANY paper instruments based upon the presumption of a future of growth.

It is important never to forget that a dollar is more than a currency, but rather a debt instrument relying on a particular set of fundamental macroeconomic assumptions for it to have inherent systemic feasibility as an ongoing proposition.

tmosley's picture

Gee Whizbang, I guess you live off of rainwater and sunlight, because all of the necessities of existence are continuing to get more expensive.  

Housing can, and often does, lose nominal value during hyperinflation, especially if said hyperinflation was presaged by a real estate bubble, as ours was, because people are chasing goods for survival, and for export, and housing isn't really a necessity in either case.

But I guess you're a paper bug, so no amount of logic will ever reach you.  You keep shorting, and I'll keep buying.

the grateful unemployed's picture

one thing not considered in the quality of debt, whether is recoursing or non recoursing. is the US the worlds biggest consumer? entitlements are on the rise, and while Obama may claim healthcare is deficit reducing act, he presented reform as a consumer driven aid package, just as SNAP and Title 8, and the whole package of cradle to grave consumer subsidies continues to expand.

the point i really want to make however, is how much did we get out of the trillion we spend in Iraq, the money we are spending in Afghanistan, and the whole terrorist mole whacking game? if this was the old west and they put a price on the heads of these guys what would it be?

we've squandered our kids inheritance, and now they have to pay the bills, or walk away. in real life you can't get stuck with your parents debt.

if A) inflation is too much money B) chasing too few goods, then A we have already,and B occurs when the third world stops making our consumer crap, or when commodity suppliers sense hyperinflation and withhold supplies from the market, (they call it Peak-A-Boo oil)

when the global economy gets moving you will suddenly see a lot more production of everything. if the economy doesn't get moving then eventually hyperinflation which as ITG says goes hand in hand with unemployment.

Mako's picture

Inflation is the increase of the money supply.  In the system you have today you use credit as money.   The amount of "money" or "credit" is not inflating, it's deflating.  See Federal Reserve Z1 report.

If you can supply your own credit then there is no reason for the credit to exist to start with.  

Inflation is dead for a generation or two, if they start using nukes humans might be deflated to zero.


curbyourrisk's picture

WOW...someone else here...GETS IT!!!!!



+1.....Now, only if you could explain to crowd how inflation is driven by wages, (or perceived increases in wealth - I am done doing it.)


trav7777's picture

What happens when Credit can no longer inflate?

Your creditmoney collapses as an institution.  What is its value then?

What are the value of promises to pay in the future that cannot be kept?  There is your dollar right there.

curbyourrisk's picture

What happens?  We become Japan.  Well on our way to that now.  Are they suffering from inflation or deflation right now???

murray's picture

Japan is a horrible analogy.  Compare their trade balance and internal v. external debt ratios to that of the US.  The dollar standard will be no more

trav7777's picture

Douchinger can't ban everybody who argues with your bullshit monetarist deflation priceless fiat dollars case here, bud.

What happens to Japan?  POG in Yen at or near highs...that's what, mfer.

Japan is an exercise in coming sovereign DEFAULT.  Go ahead and stockpile the notes of bankrupt states chanting the TF meme that wages must drive inflation.

SWRichmond's picture

TF meme that wages must drive inflation.

This is why I view the inflation/deflation debate as worse than useless.  I am sure it is deliberately so.  Inflation = something bad but that we know, deflation = something bad but that we know.  Currency collapse = something catastrophic that proves that governments and central banksters are incomptent fools, liars and thieves, and therefore we won't even talk about it.

Mako's picture

Well, you can lead a horse to water but you can't make him drink.

Inflation is done for my lifetime and I would suspect a generation or two into the future. 

cbaba's picture

The inflation is waiting at the door.

46% of the TOTAL US Debt Maturity Rate is LESS THAN 1 YEAR.( as of late october 2009)

This is the highest rate among all G7 countries.

Its like a ticking bomb, waiting at the door.

Nobody knows when it will explode but at the time being this percent is increasing every month, and there will be a tipping point sometime in the near future.



Mako's picture

Sorry but that is not inflation, that's a failure of an institution unable to rollover debt at a price they want. 

tmosley's picture

That institution controls the issue of dollars.  You think they are going to put the brakes on spending?  No, they will do EXACTLY what Weimar Germany did, and print money to pay government employees and welfare programs.

Confidence is a funny thing.  It can seem unwavering, and stronger than the foundations of the Earth, when in reality its no more than a vaporous illusion.  Just one shock is all it will take, and no-one will want dollars any more.

But you keep that dollar price up while you can.  It makes it easier for me to convert my salary into REAL money.

Mako's picture

Credit is now money.  If you can fund your own credit then the credit would never exist. 

The only question since 1944 has been "when" not "if".  You can get about 60-80 years then the equation collapses due to human having no ability to supply or demand from the equation what is needed to keep it sustainable. 

myshadow's picture

If oil is allowed to be bid up to/andor past 100. you have inflation and a very long recession.

curbyourrisk's picture have another deflationary collapse as the economy slows down to a trickle.  Jeez, we just went through this.  How soon we forget.  The cycles are getting closer and closer, all thewhile getting deeper and more severe.  Don't you guys pay attention????  THIS IS WHY THE END GAME IS NEAR!!!!!!

tmosley's picture

And what do you think the Feds are going to do when income taxes disappear?  Institute austerity measures!?

They will print like there is no tomorrow, until the world realizes what is going on, at which point they will lose faith, and the last 40 years of inflation will flood back onto our shores.

Enjoy your three hundred dollar egg on your two hundred dollar slice of toast.

trav7777's picture

So, you and Douchinger will have the only FRNs left in the entire universe.  ROTFL@U

virgilcaine's picture

Reminds me of Spring 08, Oil was 145 and everyone was saying Inflation!  See oil says so.  As it was about to go to 35 $. Its just another speculative play, this all ends badly.


Virgil is as old as the hills.  He's a survivor of the 1988 Housing  maybe that one never ended.

myshadow's picture

If oil continues to spike this will obviously affect the voters mood.  This might be why POTUS got ahead of this by going 'drill baby drill' last week.

virgilcaine's picture

Its just one never ending roller coaster ride.. thats all the Economy is.  Deep turns and drop offs around every corner.. a thrill a minute.

  A trip to an amusement park would prepare kids better than college does today.


Look at that Oil and Dow go up see Johnnie thats the Market in action..  we don't make anything or produce just watch the stock market..

virgilcaine's picture

Well at Least the Bond vigilantes are returning..  though I wouldn't call them 'vigilantes' just yet.. Maybe .. vigilante junior  .If there is one thing that returns people to soberness quikly its higher interest rates.





curbyourrisk's picture

I get flamed everytime I say it.....Without wage increases...there is no SUSTAINABLE inflation.  I am done arguing hte point, I have done it over and over.  I am leaving it like that, you are free to shoot me down.  i am no longer defending it, despite the fact that the last 2 years prove my points.

Cyan Lite's picture

Well of course nothing ever lasts forever, but it can last for an extended period of time, ala the WIN - Whip Inflation Now theme of the 70s and 80s.  10 years is long enough to cause real pain for the majority of Americans.

trav7777's picture


Every massive inflation featured high unemployment - ALL of them.  That creates the condition for the devaluation.

You guys cannot see the forest for the trees...I ask you, what is the VALUE of a dollar when credit cannot and will not grow?

Gold and oil are discounting a drop in the value of the dollar.  I submit that the dollar is doomed as a forward proposition simply because credit ISN'T growing and will not grow.

All of this relentless credit deflation yet the dollar prices of commodities all across the board are rising.  Why is the Yen POG at all-time highs?  The Euro POG?  What is gold discounting in the Euro?  Collapse!  Invalidity as a fundamental institution.

You deflationists are *correctly* pointing out that we are facing a massive credit collapse, yet you cling to the debtpaper.  The dollar is a promissory note, ok?  It has no special powers because of the ink printed on it; it's just a debt instrument frankly indistinguishable from a lot of others.

When nobody will lend the US Gov't any dollars other than the Fed, what is the value of the FRN?

Cyan Lite's picture

When nobody will lend the US Gov't any dollars other than the Fed, what is the value of the FRN?

If your FRNs are worthless, please send them all to me.

tmosley's picture

People are still lending to the US government.  Or did you forget to read the first part of the sentence?

I'd be happy to send you all my FRNs in exchange for gold, at or below market rates.  Better yet, you short gold on margin, and I'll take delivery, and we'll see who wins.

trav7777's picture send me something in return that I want.

My FRNs buy 50% less oil than they did last year, bud.  I'm not happy about my priceless FRNs.

CYR comes from the TF school of Douchinger suckups who can't trust their own lyin eyes on what the almighty fuckin MARKET is telling them about fiat paper and debt!

They're as bad as the ZH goldbugs to whom every single dollar price drop in the POG is MANIPULATION.

For the TF Douchingites, every rise in the POG is MANIPULATION (by speculators).

Oil CAN'T be in supply decline, Gold CAN'T be in supply's all "speculators," just like the fuckin price of Greek bonds!  Peak oil doesn't exist, it's all just MANIPULATION and scheming by people who outwardly appear to be incompetent. 

jimmyjames's picture
by trav7777
on Mon, 04/05/2010 - 14:27
#287246 send me something in return that I want.

My FRNs buy 50% less oil than they did last year, bud.  I'm not happy about my priceless FRNs.


Your FRN's buy you twice as much oil as the did "2" years ago--

What's your thoughts to that inconvient truth?

jimmyjames's picture
by trav7777
on Mon, 04/05/2010 - 10:41



Every massive inflation featured high unemployment - ALL of them.  That creates the condition for the devaluation.


LOL again--note: 2001-2007 "massive inflation"--"low unemployment"

AR15AU's picture

Hi.  Price of oil.  kthanxbai

jimmyjames's picture
by Mako
on Mon, 04/05/2010 - 09:13


Inflation is the increase of the money supply.  In the system you have today you use credit as money.   The amount of "money" or "credit" is not inflating, it's deflating.  See Federal Reserve Z1 report.

If you can supply your own credit then there is no reason for the credit to exist to start with.  

Inflation is dead for a generation or two, if they start using nukes humans might be deflated to zero.


Your right--why people think rising oil or commodity prices equate to inflation is beyond me--

Credit is dead--banks wont lend into a contracting economy--people who want to borrow can't-people who could borrow wont-so how can that be inflationary?

Before we ever see inflation again-credit must flow first--

That isn't looking so hot at this point--

Velocity of money in circulation is contracting-even while base money supply is increasing--

Until credit starts flowing and velocity starts increasing-forget about inflation--

Unemployed people do not borrow and they curb spending-businesses-do not expand in a contracting economy and do not borrow or spend--



trav7777's picture

Sigh...why do you people retreat to your gd useless monetarist definitions of inflation and deflation!??!?

Why not just argue over how many angels dance on your pinheads?

What matters to PEOPLE is what the PRICE is, in terms of hours of my labor, to buy something.  Nobody gives two shits about monetarist M3s or other credit metrics.  What matters is the REAL price of eggs, the REAL price of oil, and the REAL price of all the other REAL things out there.

Do I give a shit if credit collapses to ZERO if the REAL price of oil blows sky high in the notes I get paid as wages?

You monetarists exist in a vacuum which PRESUMES the viability of the money that you analyze.  I will say this again: the dollar and debt in the aggregate are facing an EXISTENTIAL crisis.  Therefore, those who analyze the water INSIDE the fishtank and ignore that the tank has a large sledgehammer swinging toward it, are kind of missing the point.

JR's picture

Remember inflation’s short-lived energy led spurt of 2008 that looked pathetic compared to unprecedented home price deflation.

Oh, brother  There you’ve got it. The looters case againt “inflation”: The Fed banksters loot the equity and value of your house and earnings (deflation). Then they sock you with on-going high-energy-induced prices that suck the value out of your earnings and savings at an additonal 5.5-6% (CPI price inflation shadowstats*).  By subtracting the additional 6 percent price inflation from your 30 percent asset deflation, the result, in Fed math, is 24 percent deflation. So, why worry about prices, Joe, this is deflation.

The real world versus the banker world can be illustrated somewhat by the college loan measure that passed the House.  The $5000 government loan, which ain’t much, is enhanced through the years by being keyed to inflation.  Keying it to tuition increases that are rising like yeast, of course, would be too much reality for the politicians and the bankers and refute the banker’s lie of low price inflation. 

Of course, the one aspect that Moody's does not discuss at all is the surge in money printing. Yet as monetary aggregates are still falling, and all the excess money is held by banks in the form of excess reserves, the debate continues to be just what catalyst will force banks to part ways with this handy $1.2 trillion buffer.

Well, we don’t need for Moody’s to discuss what catalyst will force the banks to part with our money. These banksters, who should be broke and in jail, are working their way back to a 40-percent-profit share of the stock market—on our money.  One simple question may give a hint as to where some of these trillions may go: Where did Jacob Schiff get the $20,000,000 he used to finance Trotsky and Lenin in the Communist Revolution?  That $20,000,000 in 1917 would be $331,685,840.48 in 2009 using the government’s low ball CPI.  And what would the vast sums provided to the Japanese war effort against Czarist Russia in 1904 by his company, Kuhn, Loeb & Company, be worth today? (John Toland’s The Rising Sun, Vol I)

Let’s divide this inflation-deflation debate into the real world and the pretend world.  The bankers and the politicians can have their fifty categories of inflation-deflation and the hundred ways they describe and break down the costs, the prices, the past and the future, the printing, the credit, the M-1, the M-2, the M-3s, the debt overhang,  the indexing and rolodexing, ad nauseam.

For the people who actually pay for services and assets, and who actually produce and barter with “currency,” can’t we have one teeny little category that covers the remarkable increase in prices we actually have to pay?  In short, we want a stable, transparent exchange medium and a dependable barometer to show the stablilty of that medium. What we don’t want is a currency based on the banker lie.

sheeple's picture

Moody's full of f$$$ing sheepshit comparing apples to oranges.


Carl Spackler's picture

This is a tiring argument.

Why bother arguing over the cause, when the real argument here is over the definition of inflation?

Many viewpoints here are correct, depending upon how one is defining "inflation" within their argument...whether monetarist, pragmatist, or other.

The "sustainable inflation" argument (via wage appreciation) is also clear, if you believe that wages are entirely "sticky" (upward).

With the competitive forces of globalization in play, I am not so sure that wage as as "sticky" as they used to be.