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Guest Post: Welcome To The Era of 'Ugly' Inflation

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith via Peak Prosperity,

The Siren Song of 'Beautiful Deleveraging'

In a world of rising sovereign debts and an overleveraged, over-indebted private sector, history suggests there are only three possible ways out: gradual deleveraging, defaulting on the debt, or printing enough money to inflate away the debt.

Ray Dalio recently described the characteristics of a “beautiful deleveraging” in which equal doses of austerity, write-downs, and inflation gradually lighten the load of impaired debt.  This might be called the Goldilocks Deleveraging, as the key feature of this “beautiful” solution is that each component is “not too hot, not too cold” – inflation is modest, write-downs of bad debt are gradual, and austerity is not too severe.  Given enough time, the leverage and debt are worked off without requiring any structural change to the Status Quo.

Understandably, the Status Quo has embraced this solution for the appealing reason it doesn’t change the power structure at all.  Everyone currently in charge remains in charge, and everyone who owns outsized wealth continues owning outsized wealth. Rather than falling onto the politically powerful “too big to fail” banking sector, the pain of deleveraging is spread over the entire economy.  There is no such thing as painless deleveraging, so the “solution” is to distribute the pain over hundreds of millions of people. That’s what makes it “beautiful” to the Status Quo: It doesn’t cost them either their power or their wealth.

The Status Quo in Japan has pursued this strategy for 20 years, and the Status Quo in Europe and the U.S. have pursued it for the past four years, ever since the global financial system imploded in 2008.

Unsurprisingly, the conventional view is that it’s working "beautifully".  Housing has bottomed, stocks have doubled since their March 2009 lows, households are slowly deleveraging, inflation is modest, and growth is sluggish but steady.  All we need to do, we’re told, is stay the course for a few more years, and the stage will be set for a return to the rapid growth of the bubble years.

Central Banks to the Rescue

The core mechanism of this “leave the Status Quo intact” solution is that central banks conjure money out of thin air (i.e., “print money”), which they use to then buy impaired bank debt (such as delinquent mortgages) and sovereign debt (such as the bonds of Spain, Italy and the U.S.)

This transfers impaired private-sector debt and sovereign debt to the central banks’ balance sheets, where they are safely sequestered from price discovery.  The central banks keep these questionable assets on the books at full value, and the Status Quo is happy.  The banks trade their risky impaired assets to the central bank for cash, which they can use to speculate or originate new loans, and governments can continue to run monumental deficits because the bonds they issue are purchased (i.e., “monetized”) by central banks.

Central bank balance sheets swell with phantom assets, but nobody cares, as the debt no longer burdens private banks and governments are free to borrow and spend.

It all seems too good to be true, and so skeptics ask: If this deleveraging is so 'beautiful', why are the developed economies sliding into recession?  If this deleveraging has worked so well, why are governments still running unprecedented deficits even as hiring, production, and lending all weaken?

Skeptics of the official “happy story” see plentiful evidence that the beautiful deleveraging of central-bank monetization is simply papering over the structural rot at the heart of the financial/political Status Quo – the shadow banking system, the risk-laden derivatives trade, the “fraud-is-our-business-model” mortgage securitization industry, and so on.

Somebody Has to Pay the Price

Skeptics reviewing history find few examples of painless deleveraging and many examples where over-indebtedness and central bank money-printing lead to a stark choice: Either accept high inflation as a way of inflating debts away, or renounce sovereign debt and devalue the currency.

Neither “solution” is ideal nor beautiful. Inflating away debt by depreciating the currency (via money-printing) allows debtors to pay debt with “cheaper” money, but inflation savagely erodes financial wealth.  If we earn $100,000 an hour, our $100,000 mortgage can be paid off with one hour’s labor, but our $100,000 in savings will only buy three gallons of gasoline – the same number of gallons an hour’s labor bought back when we earned $12 an hour. We can print money but not oil.

If a nation renounces its debt, everyone who owns the sovereign bonds loses some or all of their investment, and the currency loses value as global traders and investors recalibrate the value of the currency. Once the currency is devalued, imports such as oil rise steeply in cost, leaving less household income to be spent or invested.  Consumers pay the price of devaluation.

In other words, there is no painless deleveraging. The price has to be paid by someone, and so the battle behind the façade of “beautiful deleveraging” is over whom the cost will be transferred to.  

If the government absorbs all the banks’ bad debts and runs large structural deficits, the cost is transferred to the taxpayers.  If the central bank prints money in excess in order to absorb the banks’ bad debts, inflation rears its head, and everyone with savings and who earns wages pays the price via a loss of purchasing power.

Though it is dismissed as “impossible” – and it is politically impossible, as the banks have captured the machinery of governance – banks could be forced to into insolvency and their assets liquidated on the open market.  This would clear the decks of impaired debt and distribute the losses to those who owned the impaired debt: pension funds, insurance companies, hedge funds, individuals, etc.  Every owner would share equitably and proportionately in the losses.

But this would upset the Status Quo’s power and wealth-sharing arrangement, and so it is dismissed as unworkable.

Beautiful and Ugly Inflation

A key mechanism in beautiful deleveraging is beautiful inflation at an annual rate of, say, 3% (gosh, isn’t that the Federal Reserve’s target?) that steals 3% from the purchasing power of the currency while depreciating debts by the same 3%.

In a decade, both the value of the debt and the currency have fallen by over 30%, but the loss of purchasing power has been so gradual that the losers – wage earners, consumers, savers, and owners of the devalued debt – don’t feel enough pain to protest.

Truly beautiful inflation combines low-interest fixed-rate debt, wage and price inflation, and a stable currency.  If wages and prices are both inflating at 10% a year, wage earners don’t feel any pain as their income rises in tandem with the cost of goods and services.  Any mismatch – say wages rise 8% a year while prices rise 10% – is slight enough that the erosion won’t trigger any political fallout. With a stable currency, imports don’t cost more, either.

Meanwhile, low-interest fixed-rate debt is being wiped out at a rapid clip. In a decade of 10% annual inflation, the debt has lost roughly two-thirds of its value.  Wages have doubled at the end of ten years, while existing mortgage payments have remained unchanged.

Debtors have an easier time servicing debt, and inflation has magically deleveraged the household.  As the value of people's old debt declines and their nominal income rises, they can afford to take on more debt.

Banks can issue new debt to the newly deleveraged households, earning fat transaction fees and securitizing the newly issued debt so that it can be offloaded to investors.

The government also benefits, as rising nominal wages push taxpayers into higher income brackets, swelling government revenues. Everybody wins.  Households get to consume more goods and services, banks get to originate more debt, and the government rakes in more tax revenues. No wonder the Status Quo is pursuing beautiful inflation.

Two things can turn beautiful inflation into ugly inflation: Wages don’t inflate along with prices and the currency depreciates as money is printed excessively. This might not matter for a nation that is a net exporter of goods and services.  But for nations that import essentials such as oil and grain, this is a catastrophe, as wages are flat while the cost of imported energy and food skyrocket.  Households have less money to spend, and servicing debt becomes increasingly burdensome.

This is ugly inflation: Household incomes decline in real terms, the rising cost of essentials squeezes discretionary spending, and servicing debt becomes more difficult. Households not only cannot afford new debt; many have to default on debt just to survive.  Bank lending falters and defaults rise, eroding banks’ solvency. As household incomes stagnate, government tax revenues decline as well.

In ugly inflation, everybody loses.

Welcome to the United States of Ugly Inflation.  Real household income (i.e., adjusted for official inflation) has declined 8% since 2007; the cost of oil, medical care and higher education has climbed; and government revenues have stagnated even as demand for government services has increased.

As a result, the entire beautiful deleveraging scenario is at risk. Austerity carries a high political cost, and central bank printing appears to be fueling ugly inflation. Behind the “happy story” façade, falling incomes mean that household deleveraging is an illusion, along with bank solvency. 

What else is at work here?  Where is this leading? Possibly to destinations many reading this may not expect.

In Part II: Why the U.S. Dollar, Counterintuitively, May Strengthen from Here, we explore several key (and under-appreciated) mechanisms. Reality rarely unfolds in a tidy linear progression (if A > than B > than C) and usually involves more factors than we think to put into our forecasting models. There are several key market influences (e.g., the price of oil) and non-market influences (e.g., sovereign interests) capable of constraining central banks' ability to print money. And as a result, the currency devaluation that many see as being baked into the cake may not materialize.

Click here to read Part II of this report (free executive summary; paid enrollment required for full access).

 

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Fri, 09/28/2012 - 18:03 | 2840248 Yen Cross
Yen Cross's picture

Warren Buffet, "prodigy"?

Fri, 09/28/2012 - 18:03 | 2840253 nmewn
nmewn's picture

Obama voter.

Fri, 09/28/2012 - 18:06 | 2840263 exi1ed0ne
exi1ed0ne's picture

Corzone's cellmate.  (crosses fingers)

Fri, 09/28/2012 - 18:13 | 2840280 francis_sawyer
francis_sawyer's picture

In a case of... 'The Good, the Bad, & the Ugly', it never helps to be THE UGLY dude...

Fri, 09/28/2012 - 18:27 | 2840315 Zap Powerz
Zap Powerz's picture

Nah, Tuco did a'ight in that movie (except for always having a noose around his neck).  It was the bad guy who died.  But in today's bassackward, fucked up world, the good guys are the bad guys and the bad guys are the good guys.

Fri, 09/28/2012 - 18:37 | 2840340 killallthefiat
killallthefiat's picture

Could we please have a gratuitous shot of a GB Packers cheerleader here?  I came for the pic.

Fri, 09/28/2012 - 18:51 | 2840363 krispkritter
krispkritter's picture

Someone just posted this, have at it!

http://www.failedhumor.com/images/upload/12284335809486049gom.jpg

(The Good, The Bad, and the Flashers)

Fri, 09/28/2012 - 19:02 | 2840387 nmewn
nmewn's picture

Thank you.

You know what always freaks em out?...just tell em real boobies don't "glow" under a blacklight, try it some time, just to screw with em ;-)

Fri, 09/28/2012 - 19:12 | 2840408 krispkritter
krispkritter's picture

'just to screw with'em' Gladly! 

Sat, 09/29/2012 - 10:55 | 2841468 Thomas
Thomas's picture

"beautiful deleveraging" is a boiled frog

Fri, 09/28/2012 - 19:03 | 2840389 Precious
Precious's picture

Just another night at 7-11.

Fri, 09/28/2012 - 20:05 | 2840527 lakecity55
lakecity55's picture

They didn't make those.

Fri, 09/28/2012 - 21:36 | 2840733 Mr.Bigfoot
Mr.Bigfoot's picture

Tuco Benedicto Pacifico Juan Maria Ramirez...
....the Ugly

Sat, 09/29/2012 - 02:32 | 2841175 Ying-Yang
Ying-Yang's picture

Can we allocate some of our taxes to pay for a facelift for our ugly debt? /s

Sat, 09/29/2012 - 00:02 | 2841043 AgShaman
AgShaman's picture

Not a bad gig really. Chasin' around for some gold nugees for a few days.

Pays well....no matter what century.

Plus...the runnin' thru the graveyard with some good music

http://www.youtube.com/watch?v=ZNGe7iK1O-4&feature=youtube_gdata_player

Fri, 09/28/2012 - 18:16 | 2840281 nmewn
nmewn's picture

Not as long as he keeps raising the buckage for O'Barry...

http://www.weeklystandard.com/blogs/jon-corzine-still-bundling-obama_640493.html?nopager=1

The law only applies to the "common folk"".

But to the authors point about wages keeping pace with devaluation...er, um, inflation...

http://news.investors.com/092512-626958-household-income-down-82-under-president-obama.aspx

Fri, 09/28/2012 - 18:16 | 2840284 LMAOLORI
Fri, 09/28/2012 - 18:21 | 2840300 nmewn
nmewn's picture

Hey!!!...some of my best friends are old hippies ;-)

I guess it was different regionally (on the hippy thing). Most of mine are fiscal conservatives but socially they are moderate...they don't bogart the joint...lol.

Fri, 09/28/2012 - 18:34 | 2840330 LMAOLORI
LMAOLORI's picture

 

 

lol I don't bogart the joint either just making an observation as to whether he was an obama voter he looks the part and Hippy came to mind as a descriptive term.  Your friends don't dress like that do they Big Eyes.

Fri, 09/28/2012 - 18:35 | 2840334 TheFourthStooge-ing
TheFourthStooge-ing's picture

A friend with weed is a friend indeed.

Fri, 09/28/2012 - 18:51 | 2840366 nmewn
nmewn's picture

Oh yes.

Only a few more years until I retire, you can cut the hair off the freak but you can't cut the freak from the flag...the kiddies will never get that ;-)

Fri, 09/28/2012 - 19:09 | 2840397 LMAOLORI
LMAOLORI's picture

 

 

A friend without weed is a friend in need.

You didn't Bogart that Joint someone else Bogarted that Joint 

Fri, 09/28/2012 - 20:03 | 2840526 lakecity55
lakecity55's picture

You didn't roll that joint.

And I'm breaking in line.

-Choom Boy

Fri, 09/28/2012 - 18:22 | 2840301 kito
kito's picture

@nmewn....actually an obama voter would have perfect pearly whites..........medicaid pays well for dental..................

Fri, 09/28/2012 - 18:43 | 2840347 nmewn
nmewn's picture

I thought about that after I said it...lol...helluva a world we live in.

It'd be real easy to capitulate to the evil that is nanny statism wouldn't it? But then I'd be addicted to the states buying my sleeping pills for me because I couldn't sleep with myself. Then, its off to state provided "counseling" sessions to find my "inner self"...seems like a vicious cycle of circle jerk to me, with me as the pivot man.

I think I'll just pay for services rendered and not take the stroll through statist hell ;-)

Fri, 09/28/2012 - 19:00 | 2840382 Dr. Engali
Dr. Engali's picture

Come on nmewn give into the machine. Uncle Sam will take care of all your needs. Just close your eyes and succumb to the sweet embrace of the nanny state.

Fri, 09/28/2012 - 19:22 | 2840430 nmewn
nmewn's picture

Its what they're after Doc, I know it and you know it, it keeps them as being seen as "needed".

Sun, 09/30/2012 - 04:15 | 2842765 Just Ice
Just Ice's picture

Then, like present day elder Greeks and Spaniards, there is simply no one to turn to or count on, including yourself, when your socialist State caretaker has run out of other people's money to provide.  How many of those elderly folks had suicide as part and parcel of their individual retirement plans or their resolution for health and well being during old age?  Individuals, counting on themselves for their own needs, and taking responsibility for same early in life, is absolutely the way to go.

Sat, 09/29/2012 - 09:48 | 2841386 jekyll island
jekyll island's picture

WTF is beautiful inflation?  Is that like saying cancer is beautiful because it clears out the old and genetically susceptible?  Inflation is a TAX on the wealth of the nation.  I guess old Charles Nelson-Riley likes taxes, pay your "fair share" and all that.  

Sun, 09/30/2012 - 04:30 | 2842774 Just Ice
Just Ice's picture

Exactly.  No such thing as "beautiful" inflation.  The notion that everyone wins under the proposed "beautiful" inflation scenario is absolutely ridiculous.  Savers and fixed income folks who are not receiving compounded interest and/or COLA increases that also keep them ahead of the rate of inflation are losers as are the investors or creditors who hold the fixed debt instruments.

Plans to inflate away debt are just theft schemes of burdening persons, other than those entities that took on the risk, with payment of the losses and costs.  Being  deceptive about it cannot make it beautiful.    

Sat, 09/29/2012 - 10:54 | 2841466 slaughterer
slaughterer's picture

I think I saw that guy in the photo in Punta Gorda, FL with a roll of duck tape and a can of Bud Lite.  

Fri, 09/28/2012 - 18:08 | 2840267 Binko
Binko's picture

Yeah wonderful! Sounds like "beautiful deleveraging" for the wealthy but "big fat screw up the ass deleveraging" for everybody else.

Fri, 09/28/2012 - 23:41 | 2841000 Arnold Ziffel
Arnold Ziffel's picture

"beautfiul deleveraging"

Oxymoron of the decade.

Fri, 09/28/2012 - 23:45 | 2841007 RiverRoad
RiverRoad's picture

Yeah, it only works if you're one of the beautiful people like Ray is.

Fri, 09/28/2012 - 18:14 | 2840268 falak pema
falak pema's picture

hey thats a Zh memba!

The libertarian typa!

bootiful deleveraging that sounds terribly sensual; like red sails in the sunset!  

What a way to lose your front teeth! 

thats ugly deleveraging.

A shark once got deleveraged, it ended up all shrunk and marinated in a tin box; then they called it a red herring! 

Fri, 09/28/2012 - 18:10 | 2840269 alexanderstollznow
alexanderstollznow's picture

gosh, it must be so annoying for authors like this, that there hasnt actually been any inflation to "inflate away the debt".  he may like to call on imagery from Goldilocks; i prefer to think of The Kings New Clothes.  all these twits running around for the last 4 years terrified of hyperinflation and currency collapse, and, darn it, it just wont happen.

not with $2.2tr of QE already.

but now, $40bn per month of QE is suddenly going to turn the US into depression era germany.

and commenters on this blog have the audacity to talk about "sheeple".  what a joke.

Fri, 09/28/2012 - 18:18 | 2840288 akak
akak's picture

I would say "open your eyes", but open eyes do little good for someone with a closed mind (or terminal stupidity).

Fri, 09/28/2012 - 18:23 | 2840305 Yen Cross
Yen Cross's picture

 May I make a "suggestion"?   Perhaps, your drive for perfection has "obscured" your original intensions?/

Fri, 09/28/2012 - 18:28 | 2840317 akak
akak's picture

You may very well be correct.

My ability to suffer fools, and foolishness, continually diminishes as I get older (or as the world goes ever deeper into insanity and Hell).

Fri, 09/28/2012 - 18:43 | 2840348 Yen Cross
Yen Cross's picture

 Does that mean you are "submitting yourself" , to a world of Chaos? I thought you were a man of conscience?

  Intuitive, and full of Ideas?  I like " LEADERS akak". Do you fit that  [ Film/Velum]?

Fri, 09/28/2012 - 18:52 | 2840372 kito
kito's picture

the world according to akak.....i shall hope that his intolerance..... arrogance.....his venomous nature...his vitroil... will not be emblematic of the post collapse mindset.....................

Fri, 09/28/2012 - 19:02 | 2840377 akak
akak's picture

I have long ago lost hope that the blinkered and stubborn close-mindedness, and outright insanity, of those such as yourself --- the teeming and gullible masses yearning to be led and ruled --- will not be even more as emblematic of the future as they are already of the present.

Fri, 09/28/2012 - 19:05 | 2840392 kito
kito's picture

you need to expand your vocabulary.....im seeing blinkered too often in your posts...try provincial, perhaps? or myopic, or perhaps self aggrandizement????....oh wait, that last one would apply to you....................... 

Fri, 09/28/2012 - 19:11 | 2840402 Dr. Engali
Dr. Engali's picture

Friday night fights. I'm gonna grab a beer.

Fri, 09/28/2012 - 19:22 | 2840429 kito
kito's picture

doc, are you anywhere near the three floyds brewery? arguably the greatest microbrew in the country...........

Fri, 09/28/2012 - 19:29 | 2840441 Dr. Engali
Dr. Engali's picture

No I'm about as far away from there as you can get. I'm on the complete opposite end of the state.

It looks like Akak just went from a fight to a brawl.

Fri, 09/28/2012 - 19:12 | 2840407 akak
akak's picture

If the blinkers fit ....

 

(and they do)

Fri, 09/28/2012 - 19:16 | 2840416 kito
kito's picture

im betting akak grew up with no love........................

Fri, 09/28/2012 - 19:29 | 2840447 akak
akak's picture

And I am betting that your mother smoked and drank during her pregnancy .....

Fri, 09/28/2012 - 21:33 | 2840723 kito
kito's picture

wow, i take a few hours off and we have devolved into mother jokes............

Fri, 09/28/2012 - 21:41 | 2840741 fonzannoon
fonzannoon's picture

Where you been man? Me and doc have been at bat for you for a while. Since you are back, what about the remnimbi bank account...do you leave the money there? Or open it, have the conversion, then close it? I am pretty convinced akak is right, those accounts don't stand a chance when the shit hits the fan

Fri, 09/28/2012 - 21:53 | 2840788 kito
kito's picture

fonz, im touched, you two are the only ones who have my back........very brave of you to defend such a nefarious character......i represent all that is evil in the world for having a mind of my own (sane or otherwise)............you need to open a dollar account and then transfer it into a renminbi based account....the money stays there, earns the same paltry interest that every account offers....i certainly wouldnt put a large part of my savings into it...but even a $5,000 bet could yield you $20-$30 grand if the renminbi ever goes par with the dollar.................i feel the upside is pretty up......

Fri, 09/28/2012 - 21:59 | 2840811 fonzannoon
fonzannoon's picture

when u see some idiot stumbling around equador with some reminmbi and a gold coin please come over and show me around.

Fri, 09/28/2012 - 22:06 | 2840830 kito
kito's picture

ha, its possible we wouldnt get down to ecuador fast enough..........complete border closures, martial law are probabilities.................good to have plan a and plan b......................

Fri, 09/28/2012 - 23:47 | 2841010 Dr. Engali
Dr. Engali's picture

For the record kito; I don't defend people I think are nefarious. I only defend those people I think have integrity , no matter how misguided they may be on how things may play out :->

Fri, 09/28/2012 - 20:12 | 2840528 TWSceptic
TWSceptic's picture

Inflation is everywhere, you just need to look. The inflation that is not there where you expect it is only delayed. People like you will suffer the most, but I can't say I feel bad about that.

Fri, 09/28/2012 - 18:11 | 2840272 fonzannoon
fonzannoon's picture

The dollar will strengthen against what? Pig shit?

Fri, 09/28/2012 - 18:19 | 2840293 Yen Cross
Yen Cross's picture

Fonz I clearly stated the 23.6% Fibi retracement on $, a week and a half ago. I said it would retrace, before it's final plunge.

  The plunge is now! The race to the bottom will be violent, {but} I could see DXY in the (low mid 70's), in short order!

   I'm being oxymoronic.

Fri, 09/28/2012 - 18:21 | 2840297 fonzannoon
fonzannoon's picture

Hey yen, you are the currency king. I can't follow it all blow by blow like you can. I just buy gold and will stand in the end zone and wait for the ref to signal touchdown. More power to you man, make money.

Fri, 09/28/2012 - 18:28 | 2840316 Yen Cross
Yen Cross's picture

 Fonz, if yer going to stock up on "XAU", BTFD, just before Christmas. Buy hard and long! I guessing mid 16's, before it goes parabolic in 2013!  I'm not a gold bug. I'm a currency trader.

   These guys/gals on Z/H know what they are talking about!

Fri, 09/28/2012 - 18:47 | 2840354 kito
kito's picture

fonz---hop on the 6 train to chinatown, open a a renminbi denominated account at the bank of china branch, wait for china to de-peg and end the treasury gravy train, and bam.....youve just made 200-600%............

Fri, 09/28/2012 - 18:51 | 2840368 akak
akak's picture

Yep --- just in time for the US capital controls, and for the Patriot Act VIII to declare all non-dollar-denominated accounts to be "domestic financial terrorism" and be "asset forfeitured" by the federal government

Fri, 09/28/2012 - 19:01 | 2840384 kito
kito's picture

yes, and im certain that when that occurs, gold would never be on their agenda, perhaps a 90% transaction tax? and illegal transport of gold across state lines or cross border? im glad you have ALL THE ANSWERS, you are the one to have figured everything out PERFECTLY.....only YOU will survive whats coming, because nothing could deviate from your vision........................ 

Fri, 09/28/2012 - 19:05 | 2840394 akak
akak's picture

What an asshole.

Rational and intelligent discourse is impossible with a fool and idiot like you.

Fri, 09/28/2012 - 19:12 | 2840405 kito
kito's picture

i would gladly engage in discourse with you, as i do with many others here.................but your temperament prevents me from doing so......

Fri, 09/28/2012 - 19:28 | 2840434 akak
akak's picture

No, you lie, as most of your posts prove --- you are utterly closed to facts and logic which refute your stubbornly-held but erroneous (and laughable) statements on ongoing currency depreciation and the "threat" of so-called "deflation".  You are a disingenuous and dishonest troll, just as the vast majority of those spewing such gross lies and bullshit are as well, and I am past the point of trying to be civil and patient with you lying and malicious bastards.

But if in truth you DO actually believe the outrageous crap which you continually spew here on deflation, then the inevitable reality of financial and monetary collapse will in the end be your own well-deserved punishment.

Fri, 09/28/2012 - 19:52 | 2840502 Dr. Engali
Dr. Engali's picture

While I disagree with kito's strictly deflationary thesis I'd hardly call him a liar. I think we all have our different opinions on how things will play out, that's why I like to read what everybody is thinking. If I wanted an echo chamber I'd talk to myself in a cave. Calling somebody a liar because they post what they believe is off base ... IMHO.

Fri, 09/28/2012 - 20:04 | 2840524 akak
akak's picture

I call him a liar only after careful consideration and examination of his posts, and interactions with him, going back almost two years.  He has repeatedly and consistently misrepresented the views of so-called "inflationists" ("realists" would be more like it), fled from debates in which he was soundly trounced only to continue to repeat those same discredited arguments again and again, and in general has behaved and interacted with others here like a suspicious and/or arrogant prick.  He is far from the worst or most active troll on this board, but my bullshit detector is virtually always spiking whenever I read one of his posts.  I simply do not trust him.

Fri, 09/28/2012 - 20:09 | 2840531 fonzannoon
fonzannoon's picture

He made good on a Turkey sandwich. That goes a long way in my book.

Speaking of which was Sheepdog banished from this thing or what?

Fri, 09/28/2012 - 20:19 | 2840543 akak
akak's picture

I really don't know anything about Sheepdog, but I note that there is no user listed under than name, so perhaps he as banned?  If so, I can't imagine why.

Fri, 09/28/2012 - 20:22 | 2840551 fonzannoon
fonzannoon's picture

He was anti QE to the enth degree. He said he was going to upload a vid of him eating his straw hat if they did it. My guess is after they announced it he lost his freakin mind. I am not there yet. By QE5 I will eat my straw hat and by QE6 I will be gone too.

Fri, 09/28/2012 - 21:04 | 2840637 TheFourthStooge-ing
TheFourthStooge-ing's picture

No, he wasn't banned:

http://www.zerohedge.com/users/sheepdog-one

It looks like his most recent comments were a couple weeks ago.

Fri, 09/28/2012 - 21:21 | 2840691 seek
seek's picture

His screen name is "sheepdog-one" and account is still here, but no postings since 9/14. I think the QE theory may be correct, he was positive it wouldn't happen and instead we got the QE to end all QEs.

Fri, 09/28/2012 - 21:01 | 2840586 Dr. Engali
Dr. Engali's picture

Well while I haven't interacted with kito the entire two years I've been here I have not seen him misrepresent another's argument, and I've not seen him be disrespectful. And any man who makes good on a bet with somebody he has never met is okay in my book.

One thing I will say is that I believe all of the inflationists and deflationists are surprised it hasn't played out either way by now. I can't count how many times when we all thought" this is it". So I will reserve my judgement for the end game. For the record I think we will fall into a deflationary event but Ben's medicine will cause the dollar to blow up in a hyperinflationary supernova.

Fri, 09/28/2012 - 22:03 | 2840826 kito
kito's picture

thanks doc.......and you are right........neither side of the debate has anything to hang their hat on yet...........bernanke is doing a masterful job of keeping the status quo alive..................defibrillators, oxygen masks, ivs, dialysis, morphine, etc.......sooner or later the terminal patient goes....................

Fri, 09/28/2012 - 21:56 | 2840803 kito
kito's picture

fled from debates?????.....come onnnnnn akak....when im wrong, im wrong.....i owned up to poor timing on qe3...and i fully acknowledged it....and paid my turkey sandwich bet........your bullshit detector needs new batteries.........careful, i hear the fire department is doing inspections soon....................

Fri, 09/28/2012 - 20:30 | 2840566 Cosimo de Medici
Cosimo de Medici's picture

Facts?  Facts?  There are facts around here?  Godot has arrived?  Call the non-MSM! Facts in the comments section are as rare as Jews at a KKK---strike that---at a Zerohedge Komment Kings Konvention.

Then there's the Sacred Equation, which is: 1 opinion + 3 links = 1 FACT

And riddle me this:  if The Creature From Jekyll Island meets a Lizard Skin Luciferian Illuminati, who has Pay-Per-View rights and international DVD sales?

Fri, 09/28/2012 - 21:39 | 2840739 kito
kito's picture

akak, is your entire world divided into enemy/deflationists and friend/inflationists???????............anybody who offers an opinion that diverges from yours is one automatically borne by dishonest trolls/idiots/fools??????? 

Fri, 09/28/2012 - 23:05 | 2840926 akak
akak's picture

Yes, I confess, my ENTIRE world consists of black-and-white, cut-and-dried dichotomies, with utterly no room whatsoever for any other possible opinions or beliefs to intrude into the brilliant perfection of my dualistic and completely artificial mental constructs.  You really nailed me there ---- I stand completely exposed and naked before you, the innermost and shamefully dank recesses of my hateful soul revealed by your rapier-sharp analytical insights.

Now, remind me again about your typical deflationist's argument of "hyperinflation or deflation (and no other possibility)".

Fri, 09/28/2012 - 20:01 | 2840522 fonzannoon
fonzannoon's picture

This is where I am surprised you guys disagree. I think you are both right. If it gets bad enough bothh hard assets and non dollar currency accounts will be on the menu.

Fri, 09/28/2012 - 20:11 | 2840529 akak
akak's picture

Actually, the funny thing is that I DON'T disagree with what Kito said above regarding gold --- but you will note that he speciously jumped to conclusions and put words in my mouth, dishonestly attributing to me views and opinions which I had not stated nor hold.  It is THIS kind of thing that makes me find him so disagreeable and suspicious.

Fri, 09/28/2012 - 20:13 | 2840533 fonzannoon
fonzannoon's picture

I get from Kito that cash will be king. Gold will at best preserve your purchasing power and more likely it will lose value against the dollar. I actually agree with him about cash. No one has any. They have digits in a bank account, but no cash. I can see cash as a valuable asset to trade with. I just think precious metals will be the default currency until the rest of the world backs their own currencies with it.

Fri, 09/28/2012 - 22:09 | 2840769 kito
kito's picture

wow, we agree on something akak........with two polar forces converging for just a moment, shirley it must be a sign that the end is near....................and akak, calling me dishonest, a liar, (fill in disparaging remark).....that could never be jumping to conclusions, could it???.......................

 

 

Fri, 09/28/2012 - 23:12 | 2840952 akak
akak's picture

Hell, I have even agreed with JimmyJames and LetThemEatRand at times, so very little is outside the realm of possibility. 

Fri, 09/28/2012 - 23:56 | 2841031 kito
kito's picture

You see akak, we can get along ;)...even if my mattress may be one day filled with confetti as I scream " you cant eat gold, you cant eat gold"...........

Sat, 09/29/2012 - 03:52 | 2841212 akak
akak's picture

;-)

Fri, 09/28/2012 - 19:53 | 2840506 fonzannoon
fonzannoon's picture

Kito, I remember when they allowed those accounts to be opened at the Bank of China. I swore I would go open one. I still have not made it. Here is the thing, don't you think if things get bad enough that China and the US would be in a race to seize those accounts? I don't know who would take my money first if there was a currency war. Or do you mean open the account and then close it out and take the remnimbi?

Fri, 09/28/2012 - 18:49 | 2840361 SmittyinLA
SmittyinLA's picture

probably not, if there's a pig shit market, its inflatable!

Fri, 09/28/2012 - 18:15 | 2840282 q99x2
q99x2's picture

It would be beautiful for the US because the freakin US doesn't need anything from the rest of the world. So repudiate all debt arrest the banksters and lets live a life of joy in the land of milk and honey. Fuck the globalists.

Fri, 09/28/2012 - 18:16 | 2840283 kevinearick
kevinearick's picture

it was all fun and games, until germany got poked in the eye...now, all that technology fixed cost is chewing eveyone a new one. they can't keep up with the bridges to nowhere, and dc tech maintenance cost, with increasing weather variability, is several orders of magnitude more expensive.

they call it marginal utility of INTELLIGENT labor, a-holes.

Fri, 09/28/2012 - 18:17 | 2840285 taraxias
taraxias's picture

Who stole my fucking avatar?

Fri, 09/28/2012 - 18:52 | 2840371 krispkritter
krispkritter's picture

Don't know, but there's a couple of dudes on the phone whining about copyrights and kneecaps...they want to talk to you...

Fri, 09/28/2012 - 18:17 | 2840286 evolutionx
evolutionx's picture

DEUS EX MACHINA

With most of the world’s major economies as well as the financial system bankrupt, there is only one solution that can save the world economy. Like in the Greek tragedies, Deus ex Machina is now the only way that the world can avoid a total economic collapse. This would involve God being lowered down onto the world stage and miraculously saving the plot.

 

http://www.mmnews.de/index.php/english-news/9031-deus-ex-machina

Fri, 09/28/2012 - 18:18 | 2840287 ebworthen
ebworthen's picture

With minimum wage at an all time low and career employment evaporating I see ugly.

Not that it will hurt the bankers.

Bullish for golden toilets.

Fri, 09/28/2012 - 18:23 | 2840302 Perdogg
Perdogg's picture

I wonder if he has an 0bama phone.

Fri, 09/28/2012 - 19:57 | 2840513 lakecity55
lakecity55's picture

My partner and I count the number of bunnies we see drving thru crackville on the way to jobs.

So far, 75% are using their o-phones while walking, running, drinking 40s, carrying brown bags....

The other 25% are sitting down beside cars with blue lights on them.

Fri, 09/28/2012 - 18:26 | 2840312 fonzannoon
fonzannoon's picture

OT but pretty cool. Note to Arod

Infielder Tsuyoshi Nishioka waived $3.25 million in future pay and was granted his release from the Minnesota Twins after saying he was ashamed of his poor performance. Nishioka will forgo the $3 million he was owed in 2013 on the final year of a three-year deal, and a $250,000 buyout, according to a statement released today by the Major League Baseball team. The 28-year-old had asked to be released and is now a free agent. Nishioka said in the statement that he refused the money because he was disappointed in the way he has performed in his two major-league seasons, both in Minnesota. “I take full responsibility for my performance, which was below my own expectations,” he said. “At this time, I have made the decision that it is time to part ways. I have no regrets and know that only through struggle can a person grow stronger.”

Fri, 09/28/2012 - 18:36 | 2840335 cbxer55
cbxer55's picture

I only gave the article a one because I hae to pay to read part II. And that'll never happen, since my wages are not keeping up with inflation.

Fri, 09/28/2012 - 18:57 | 2840378 Dr. Engali
Dr. Engali's picture

I only gave him a one because he suggests the dollar may go higher. Anybody who thinks that isn't .. Well thinking.

Sun, 09/30/2012 - 05:12 | 2842793 Just Ice
Just Ice's picture

Okay, guess I will add non-thinker to being a flat-earther.  *sigh*

Fri, 09/28/2012 - 18:41 | 2840342 Dr. Engali
Dr. Engali's picture

There is no way the dollar is going higher. Even when you look at the basket of shit it's measured against. Take a look at the five year chart and the dollar is making lower lows and lower highs. That fucker is going to spiral like a turd in a toilet bowl.

Fri, 09/28/2012 - 18:49 | 2840358 Yen Cross
Yen Cross's picture

The retrace is in. The monkey in the works, is how much global ponzification there will be!

  The $ can't drop when every ship in the " ARMADA,", is sinking to!

Fri, 09/28/2012 - 21:10 | 2840542 fonzannoon
fonzannoon's picture

If you are going backwards on a train 20mph and another train passes you going backwards 30mph that does not mean you are going forward. Thats the dollar to me. It may be going down less at some points but they are all circliing the same toilet.

Fri, 09/28/2012 - 18:46 | 2840351 SmittyinLA
SmittyinLA's picture

Gawd I hope this shit happens, because my portfolio is strategically positioned for ugly inflation, I'm counting on it. 

Fri, 09/28/2012 - 18:50 | 2840364 Yen Cross
Yen Cross's picture

Did I mention my +AAA credit default swap purchases?

Fri, 09/28/2012 - 18:49 | 2840359 Town Crier
Town Crier's picture

Marc Faber said, "The US dollar is going to zero."

Fri, 09/28/2012 - 18:54 | 2840374 The big unzip
The big unzip's picture

Ben did you write that?  He's such a joker!

Fri, 09/28/2012 - 19:54 | 2840470 billsykes
billsykes's picture

Dalio gives way too much credit or respect to the Government or fed doing anything efficiently which is impossible.

Like calling your attempt to put your autistic son in a garbage bag and thowing him off a bridge beautiful, when really its just fucked up.

Fri, 09/28/2012 - 19:53 | 2840507 lakecity55
lakecity55's picture

Wow, those obamacare dentists need more practice.

Fri, 09/28/2012 - 20:19 | 2840535 razorthin
razorthin's picture

If we earn $100,000 an hour, our $100,000 mortgage can be paid off with one hour’s labor...

Can we please stop assuming that wages will ever rise with monetary inflation?  Won't happen.  That only happens when inflation is caused by real consumer demand, not debasement and market speculation by a few, Mr. Chairsatan.

Fri, 09/28/2012 - 20:57 | 2840591 WhiteNight123129
WhiteNight123129's picture

In beautifull inflation, capital owners (bonds and stocks get fucked). Rich people with lots of bonds and stocks get wiped off, corporation not spending their net cash punished. If you tilt the long end (30 years) yield up just enough, people sitting on idle cash will fall off the bed.

Wallstreet is wasteland and Chicago is boom town in inflation (commodities)

The good news for America, yes this year was a bad crop but America beats any nation maybe a draw with Brazil in Agriculture and Amercia is rapidly decreasing its oil consumption while increasing its production fast. Welcome beautiful inflation in America (and I am not American). Bring GDP targeting on.

In beautiful inflation, commodities traders and shrewed equity investors play capital structure transfer in commodity related companies make a killing, yummy!! :-)

PMs do very nicely of course (after a sharp sell-off once the Fed stops printing because the process get kicked started --the Fed stops printing as soon as the rich start spending their bonds and equities in desesperation)

The real bad part is the small guy playing by the rule, the small guy who did not buy a house he could not afford and tried to save in dollars :-((((

This is bad bad bad for that small guy, breaks my heart... ...

 

Fri, 09/28/2012 - 22:11 | 2840845 JR
JR's picture

Inflation is a banker commission and when they can force us to accept interest rates below inflation while they’re inflating, it’s double commission.

Let’s face it, their public larceny is bad enough but every night they go into the Treasury and haul out stuff under cover. Talk about ugly inflation, the bankers are some of the ugliest performing humans that have walked God’s earth.

Fri, 09/28/2012 - 21:05 | 2840641 JR
JR's picture

Lenin may have been the master of the Red Terror. But, in fact, he was a multitasker when it came to destroying societies, such as his use of the money printing press. It was only by Herbert Hoover sending foodstuffs to Russia that Lenin’s dictatorship was saved from popular revolt in the early 1920s.

Here is how Lenin began to “build” his “Socialist Order,” according to A. Ralph Epperson :

Lenin, in keeping with Marx's teachings that the state should create a central bank and have an exclusive monopoly on the issuance of money took control of the Russian banking system. His first priority in this move was to create massive inflation. He “... used the printing press to destroy the people's savings and redistribute the wealth by sharing the poverty. In 1921, Communist economist Eugene Preobrazhensky had even dedicated a book to the 'printing press of the People's Commissariat of Finance,' which he described as that 'machine-gun which attacked the bourgeois regime in its rear—its monetary system — by converting the bourgeois economic law of money circulation into a means of destruction of that same regime and into a force of financing the revolution.'35

Lenin used the printing press to increase the number of rubles in circulation "nearly 20,000 times from 1921 to 1923."36

In fact the quantity of rubles issued each month was so staggering, the Communists weren't even capable of remembering the exact quantity issued. "In March, 1922, the Commissar of Finance... announced that the issues of that month alone amounted to either twenty-three of twenty-four trillions, he wasn't sure which."37

The resulting inflation raised the general index of prices to 16,000 times what it was in 1913. It had its desired effect. The middle class was eliminated as a class in Russia. Now that the local banks had been nationalized, the next step was to create an international bank, which was formed in the fall of 1922. It was based on a "syndicate that involved the former Russian private bankers and some new investment from German, Swedish, American and British bankers."38

So Lenin now rewarded those who had helped him finance the Russian Revolution by allowing them to become part of the international bank he was creating. In fact, the Rockefellers were included in his plans as well. "In the 1930's the Chase National was one of four American banks and financial houses to institute relations with the Soviets (in addition to Equitable Trust, Guaranty Trust, and Kuhn Loeb.)"39

It was in 1929 that the final piece fell into place. The Russian government made it a crime for the Russian people to own gold in any form. The people had lost their right to check government's intrusions into the money supply by their ability to print increasingly worthless paper money. Now that the middle class had been destroyed as a class of people through inflation, the Soviets focused their attention on the poor. The starvation continued, even after Lenin died and Stalin replaced him. In 1930 Stalin began his campaign to confiscate the lands of the peasant farmers…

http://www.scribd.com/doc/80080666/10/Chapter-10

 

Sun, 09/30/2012 - 05:32 | 2842802 Just Ice
Just Ice's picture

Thank you for posting that.  More people need to be aware of the evils sewn by money printing.  Many have a vague idea of Weimar Germany as to currency destruction via debasement but that's about it.

Fri, 09/28/2012 - 21:08 | 2840649 Lord Drek
Lord Drek's picture

A full 1/5th of my family's meager weekly income is spent on food. Inflation is here. Still can't decide if Walmart or Kroger is the cheapest...

Fri, 09/28/2012 - 21:51 | 2840780 dragoneyes74
dragoneyes74's picture

An excellent article that nails it.  I might just join Peak Prosperity because of this.  Thanks as always, ZH!  You guys rock. 

Fri, 09/28/2012 - 23:03 | 2840940 e_goldstein
e_goldstein's picture

Know what would be beautiful?

Price stability.

Sat, 09/29/2012 - 06:37 | 2841255 WhiteNight123129
WhiteNight123129's picture

only achievable if you have Hong-Kong like banking system.

 

Sat, 09/29/2012 - 00:32 | 2841084 gorillaonyourback
gorillaonyourback's picture

Fuck dalio, his mantra, privitize the gains and socialize the loses,

Anybody that watched his interview with bartoromo could see what a tool he is.

Sat, 09/29/2012 - 12:57 | 2841642 boiltherich
boiltherich's picture

"...there are only three possible ways out: gradual deleveraging, defaulting on the debt, or printing enough money to inflate away the debt."

 

Gradual deleveraging = paying down debt out of current income and surviving on what remains. On an aggregate basis this is not actually possible in a contracting economy where real prices you pay are rising whether or not the government/Fed adequately counts the price increases in the CPI. Deleveraging is only possible where there is real surplus and rising income to do the repaying with. If it is not REAL income increased by rising productivity then it is actually rising income based on printing which means that gradual deleveraging is actually nothing more than inflating away debt. Both are a form of default. So, in the absence of increased productivity and prosperity all of the above are default in reality.

But wait... we have seen massive increases in productivity so why is there a problem with debt repayment? Ah, I am glad you asked.

Because the benefits of the increased productivity went to corporate "citizens" and not their employees, and with the massive increases in productivity they also bought and paid for massive tax cuts and loopholes you can sail an aircraft carrier through, none of the rising productivity was taxed to repay anything. What TPTB did instead was invent faux money which they channeled to the "people" as long as that money went into residential real estate which Loanspan knew would inflate a huge housing bubble, then prick the bubble and trap millions and millions of families in a negative equity situation they can't get out of, in effect confiscating more than 7 trillion in middle class "wealth" because almost all wealth in the middle was in home equity. Then presto change-o- you write off the toxic but totally invented debt on housing and add on an inflation tax by under counting inflation in the CPI and you have a miracle of endless ownership and prosperity for the 1% and the total billing goes to the 99% who are now cornered and cowering in shame, fear, and envy. They will not rise up, they traded away their freedoms and QE 3 was their epitaph.

 

Sat, 09/29/2012 - 13:34 | 2841683 socalbeach
socalbeach's picture

This article says,

"A key mechanism in beautiful deleveraging is beautiful inflation at an annual rate of, say, 3% ... that steals 3% from the purchasing power of the currency while depreciating debts by the same 3%.  In a decade, both the value of the debt and the currency have fallen by over 30% ..."

I think he arrived at the over 30% figure from (1.03 ^ 10 - 1) or 34% expressed as a percentage.  So by his math an inflation rate of 3% over 25 years would cause the currency's purchasing power to fall by over 100% (1.03^25 - 1 or 1.09). 

Regardless, his over 30% figure is wrong.

 

Sun, 09/30/2012 - 16:23 | 2843420 MillionDollarBoner_
MillionDollarBoner_'s picture

Whaaaat? No free lunch?

But you promised...

Do NOT follow this link or you will be banned from the site!