Will We Have Inflation, Deflation, or Hyperinflation? Part 3

Econophile's picture

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Overleveraged_and_Impatient's picture

LOL @ the Non- pHD having comments

sgt_doom's picture

Excellent post!

My amateurish analysis (and negative on that Ph.D. in econ, but unlike most econs, I did receive a perfect score on the math achievement test on my college boards) is that there will be hyperdeflation, rolling over into hyperinflation.

Odd, but it factors out that way.  (Hope I'm wrong!)

ozziindaus's picture

I'll look forward to that whiphashing.

BTW, why can't we just call it deflation? What does the hyper do to it?

Panafrican Funktron Robot's picture

"This chart (TOTLL, YoY) reveals an increase in lending by commercial banks in Q1 2010:"

This chart (and the associated charts regarding lending) give a false picture because of the change in how these assets were accounted for due to the adoption of FASB 166/167.


Overall lending has continued it's downward spiral unabated.

Econophile's picture

You may be correct, but ... My understanding of these was that they applied mainly to securitized off-book assets and had the most impact on GSEs. It is also my understanding that most of the banks which do consumer lending, mostly regional and local banks, were not holders of these assets on-book or off-book, so I thought there would be little impact. Regardless I still think there was a blip in consumer lending during this period but that it was due to fiscal stimulus and is now continuing to decline, as the data shows. Thanks for this astute observation.

Panafrican Funktron Robot's picture

Additionally, if you buy into the idea that the Fed balance sheet guides their ability to QE, if those MBS's are ever properly audited/valued, we're talking about a 35-40% immediate drop in asset valuation, which would have a dramatic deflationary impact. 

Trailer Trash's picture

Econophile,  Thank you for your outstanding series.  Your articles are well written and concise.  You present both sides of the argument well and with good references.  I appreciate your analytical approach.  From my perspective, I see continuing money contraction.  I work in medium sized private industry.  Cap Ex spending is still pretty much shut down.  On the individual side, it looks like the young are still spending.  However, the boomers and retirees have seriously contracted on spending.  Also, many have left the stock market and gone back to CD's, maybe PM's and perhaps mattresses. Most of these people are old enough to remember the stories of the Great Depression told to them by their mothers.  They are hunkering down. 

DosZap's picture

Inflation, and lots of it................

Depression Deaux is starting............. Herr Bernanke is going to run the press until they run our of trees to prevent Austerity.

Sudden Debt's picture

Well, with credit increasingly limited, thank god consumers at least have jobs, savings and steady incomes to fall back on. Otherwise one may be forced to take all those predictions of strong retail performance in 2010 with just a grain of salt.

ozziindaus's picture

It would be interesting to see spending and savings rates in the Non-Recourse States where (I suspect) Strategic Defaults are greater.

I also suspect that the increase in discretionary spending and savings by not having a mortgage payment is, to a certain degree, going towards physical PM's due to their intrinsic value, portability and anonymity.

Eternal Student's picture

I'm not so sure of the impact on non-recourse States. I know that, at least in California, if you refinanced then your loan becomes recourse, as the law only applies to loans which are used to purchase the house (and not any re-fi's). And it seems like everyone who could did a re-fi.

But I agree, the actual data would be interesting.

Wyndtunnel's picture

Best analyis I've yet to read but unfortunately the author does NOT have a PhD in economics and therefore according to the Fed cannot be trusted.  Could someone please come up with a more complex analysis so that I may be bludgeoned into blissful submission?

economessed's picture

LOL!  This is making the Richmond Fed VERY ANGRY!  There are PhD's there who will need to have their prescription refilled after reading all of this non-peer-reviewed "yellow journalism."

EscapeKey's picture

Yeah, with an incredible track record, such as Bernanke's, this shouldn't even be called into question. I mean, he's been bang on every time.

Unfortunately, he's been consistently bang on wrong, but one in two ain't bad.

akak's picture

+10 Doctorates!

Now get back to your meaningless and menial job, peon, and let us academics and thinkers handle all the "important' matters --- trust us, we know what's best for you.

Eternal Student's picture

An excellent collection of data. Thank you. The only thing missing is the chart of M3, which has been collapsing significantly this past year.


Sudden Debt's picture

And lets not forget "consumer confidence" :)

Eternal Student's picture

:) Love the name and avatar, btw.

Gully Foyle's picture

Someone want to explain what I quoted from the article makes any kind of reasonable sense? Tax property by 40%!


Osborne's first Budget? It's wrong, wrong, wrong!

Joseph Stiglitz, the Nobel prizewinner who predicted the global crisis, delivers his verdict on the Chancellor's first Budget and tells Paul Vallely it will take the UK deeper into recession and hit millions – the poorest – badly

"Taxes also need to be restructured. Osborne has increased capital gains tax for high earners from 18 to 28 per cent. "There's absolutely no reason why you couldn't tax speculative gains [from rising house or land prices] by 40 per cent. There's no social return on it and land is going to be there whether people have speculated or not. But you lower the tax on investment in things like R&D.""

MarketFox's picture


Sustainable and reasonable economic businesses in bankable private hands....not public hands....will best leverage the gains that are made....It is not possible to further leverage nonbankable government assets....Assets have to be in private hands to be levered...


As businesses are forming...the most efficient assets are common stocks.....They best lever and distribute wealth....Why take a lessor avenue ?


Total asset valuations and credit has moved from 100/100 to 60/100....

Is there enough paper to print this level of money to make up the difference? And even if there was....the gains would be fake and dilutive....thus the 60/100 drops even further...

The ONLY solution that the government has left...is to eliminate both corporate and individual taxes....to be replaced by a 15% consumption tax....

What most people fail to understand is that the tax take from a 15% consumption tax would dwarf the tax take from the current system ....while acting as a catalyst for private growth....

And the common stock securities exchange must be built for RETAIL...

Billions of hands make for a far better marketplace than a few large hands....




sgt_doom's picture

Or, say......how about an actual tax recovery on those American-based corporations (over 70 percent at least count) which refuse to pay federal taxes?

And reinstituting the "high roller" division of the IRS (which the Bush Administration abolished) -- which went after the most lucrative tax evaders, those wealthy individuals and corporations which chose to evade their legally-mandated taxation?

Just asking.....

Bear's picture


How in the world does anyone think that spending money on government 'assets' stimulates the economy in any way. These contractors will staff up to install 'waterless latrines' and when that's done they will layoff the staff and then the States will have to pay unemployment. The only thing that has been successful has been the market pump from 666 to 1230, that this was done with smoke and mirrors and that won't last either without a Krugman Binge.

Thank's for the insights.