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Russell Napier: "We Are On The Eve Of A Deflationary Shock "

Tyler Durden's picture


In the aftermath of Ray Dalio's conversion to an inflationista earlier this year (even if he has since once again been pushing a deflationary agenda when he once again went long Treasurys in late September as Zero Hedge reported previously), which promptly got such permanent deflationists as David Rosenberg to change their multi-year tune, it seemed as if there was nobody left in the deflationary camp. Which, implicitly meant Bernanke was winning as the world's expectations for a return to inflation were rising (remember: hyperinflation has nothing to do with inflation per se, and everything to do with loss of confidence in a currency, even if formerly a reserve), and also meant the Fed would need to do less to further its reflationary agenda.

Alas, as the Taper Tantrum and the shock upon its subsequent withdrawal showed, not to mention the recent outright disinflation in Europe, any rumors that the Fed was back in control were wildly exagerated, and here we find ourselves, entering the last month of 2013 with loud speculation that not only will the BOJ increase its own QE but the ECB itself will have no choice but to join the QE party (even as the Fed may or may not taper although it is increasingly looking likely that with an economy this late in the cycle, Yellen will simply forego tapering altogether, and may even navigate Bernanke's chopper) in order to stoke even more inflation as the current amount was, surprise, insufficient. We ignore all discussion of what such a reckless action would mean for the credibility of fiat, although we remind readers that right now both the US and Japan monetize 70% of their gross bond issuance, and thus deficit.

So with everyone expecting deflation to have been conquered early in 2013, only for events to once again show that neither is it conquered, nor are central banks in charge despite having a collective balance sheet of over $10 trillion, we have once again gotten a demonstration of Bob Farrell's rule #9: " When all the experts and forecasts agree – something else is going to happen." And yet, that is not exactly true: not all "experts" think the Fed has won the fight, and the deflation has been conquered (what the Fed's response to even more deflation will be is a separate topic altogether, but it is not rocket surgery to assume "more of the same" until one day the Fed breaks the dollar itself). CLSA's Russell Napier has just written perhaps the most vocal pro-deflation piece we have read in a long time. It is titled, appropriately enough, "An ill wind."

Selected extracts from CLSA's Russell Napier:

Inflation has fallen to 1.10/0 in the USA and 0.7% in the Eurozone and we are now perilously close to deflation. Reflation is needed to relieve debt burdens throughout society and in doing so to bolster corporate equity. Investors are cheering the direct impact of QE on their equity valuations, but ignoring its failure to produce sufficient nominal-GDP growth to reduce debt. In a market where such bad news has been seen as good news (as it leads to more QE.), the reality of QE's failure will become bad news as we head towards deflation.


When US inflation fell below 1% in 1998, 2001-02 and 2008-09, equity investors saw major losses. If a similar deflation shock hits us now, those losses will be exacerbated, since the available monetary responses are much more limited than they were in the past.


For investors who cannot take the risk of leaving the bull-market party too early, this report focuses on three leading indicators of imminent deflation: copper prices; inflation expectations, as implied by the difference in yield between five-year Treasuries and Treasury inflation-protected securities (TIPS); and the spread on BAA corporate bonds.


With US inflation already dangerously low, a significant decline in copper prices would signal a major deflation shock. Investors should sell equities if the five-year TIPS-implied inflation rate falls from the current 1.86% to 1.50% or below, or if the spread on BAA corporate bonds rises from the current 262bps to 300bps or higher.


Deflationary winds are strengthening Japanese corporations continue to cut their US-dollar selling prices, forcing Chinese and Korean exporters to follow suit, A further major fall in the yen would ratchet up the pressure. Meanwhile, broad-money growth remains anaemic across the developed world. In the USA, the Fed's failure to create normal broad-money growth is intensifying as bank credit growth slows rapidly, while in the Eurozone, bank credit to the private sector is now contracting more rapidly than it did in 2009. The failure of monetary policy to defeat deflation is about to become apparent, with dire consequences for equity prices.




We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels. This research seeks to provide investors with some lead indicators as to when the current disinflationary forces erupt into a destructive deflation. Each investor must decide for themselves just how close to midnight they want to leave this particular party. The advice of Solid Ground is leave now as it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations. Indeed, when key prices are already falling across the globe, one should expect one key major credit event to occur.


Three times since 1997 inflation has fallen below 1% with very negative impacts for equity investors. On all three occasions an existing low level of inflation was forced lower by dramatic events: the bankruptcy of Russia and collapse of LTCM in 1998; the terrorist attacks of 11 September 2001; and the bankruptcy of Lehman Brothers in September 2008. While nobody would attribute the 11 September atrocity with extant global deflationary forces, the other two episodes can clearly be associated with such forces. So perhaps it is global deflationary forces creating a bankruptcy event, somewhere in the world, that is the catalyst for a sudden change in inflationary expectations in the developed world. It can all happen very quickly; and it is dangerous to stay at an equity party driven by disinflation when it can spill so rapidly into deflation.


In 1998 falling export prices triggered a Russian default, and in 2008 falling US house prices triggered the Lehman bankruptcy. Going back further, deflation in the oil price in 1982 produced a Mexican default and a credit event which threatened to bring down the US banking system. Deflation in these key prices produced a credit event which rapidly produced a major reassessment of the outlook for the general price level. Across the world today we see falling commodity prices and, primarily due to the weak yen, falling manufactured-goods prices. When there is plenty of leverage in the system and any key price starts to decline then a credit event and a sudden change in inflationary expectations are much more possible than the consensus believes. So watch the TIPS, BAA bond spreads and copper if you must, but this analyst prefers to observe the party from outside.

* * *

We wonder how long before the lack of controlled (that being the key word) inflation will the recent inflationary converts throw in the towel again and once again start pounding the deflationary drum. Actually, in retrospect, we couldn't care less. The bigger question, as has been the case from Day 1 of QE, is how long until the disproportionate response to even more deflation will the Fed react, as it always does, with even moar stimulus, until it finally does just enough to force consensus to finally begin doubting the viability of the current reserve currency under the mentorship of the Marriner Eccles monetary mandarins. Because as we never tire, no monetary system (or nation, or civilization for that matter) has ever ceased to exist due to hyperdeflation - the cause has always been the response of the ruling class to said deflation.


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Sat, 11/30/2013 - 18:34 | 4202499 the 300000000th...
the 300000000th percent's picture


"Inflation has fallen to 1.10/0 in the USA and 0.7% in the Eurozone and we are now perilously close to deflation. Reflation is needed to relieve debt burdens throughout society and in doing so to bolster corporate equity." Wow, I guess my natural feel of the inflation I HAVE BEEN EXPERIENCING IN THE THINGS I CONSUME is running more like 3-6% yoy. Also NO THANKS on the "reflation"!!!!!! I welcome deflation , I welcome a rising dollar. I don't need your stinking inflation. 

Sat, 11/30/2013 - 19:09 | 4202540 nuinut
nuinut's picture

Russell Napier: "…one should expect one key major credit event to occur."


Here's a feasible one that meets Russell's definition: the ECB defending the stability of the euro, their single and only mandate, and moving to prevent outright monetary deflation in the Eurozone with the last remaining tool at their disposal: printing euros to bid for open market gold.

The value of everything outside the HICP is beyond the ECB's mandate, but gold distinguishes itself by being the very furthest item due to its absence of utility, thus the one used in extremis. The ECB has a single priority: stability. When they run out of other tools, this is what they'll do.

CB gold reserves are Chekhov's Gun.

Anton Chekhov: "If it's not going to be fired, it shouldn't be hanging there."

Sat, 11/30/2013 - 19:09 | 4202562 max2205
max2205's picture

JC Penney is sure to bring down the world. ....

Sat, 11/30/2013 - 19:11 | 4202564 max2205
max2205's picture

Oh and bankruptcies aren't allowed for the next few years

Sat, 11/30/2013 - 19:28 | 4202584 nope-1004
nope-1004's picture

No nation has ever crumbled from deflation - EVER.  Those targets Napier refers to are indications of credit weakness and debt systems failing, not monetary deflation.  Prices are not falling because money supply is shrinking.  In a debt based economy, you can call the above events he refers to as both inflationary and deflationary for the simple reason that an insolvent entity kept alive and not allowed to go bankrupt has not been accurately defined in economics, so the economy is both deflationary (threatening bankruptcy) and inflationary (ficticiously kept alive).

Laws of economics are horribly violated when bankruptcies are forbidden, therefore the definitions are all outta whack.


Sat, 11/30/2013 - 19:38 | 4202598 pauhana
pauhana's picture

"Here, Schrodinger.  Here, kitty-kitty."

Sat, 11/30/2013 - 21:50 | 4202793 LawyerScum
LawyerScum's picture

I say we modify that experiment, put bankers in the steel box and make it so the poison gas is released 100% of the time.

Sat, 11/30/2013 - 23:51 | 4202983 Captain Benny
Captain Benny's picture

But, you won't know the banker is dead unless you open the box!  I say that each time, we have the next banker open the box.  Remove whatever contents is left inside, then push the fucker in.  Who's next?

Sun, 12/01/2013 - 00:00 | 4202997 IPA
IPA's picture

I hear there are places where many bankers work side by side, presumably with centralized air conditioning and lockable front doors. 

Sun, 12/01/2013 - 06:23 | 4203188 NidStyles
NidStyles's picture

Oh what horrible conditions, I pity them for their suffering. I bet their misery is rather extreme and putting them out of it would be the best.

Sun, 12/01/2013 - 07:41 | 4203218 GetZeeGold
GetZeeGold's picture



Russell Napier needs to visit a Walmart......where electronics are going down in price.....but everything else you actually need to live on is going up in price.

Sun, 12/01/2013 - 11:53 | 4203439 Richard Chesler
Richard Chesler's picture

The only thing that's deflating is the living standard of America. Yes we can!

"This year, 65 percent of Americans said they were living paycheck to paycheck, up from 61 percent last year, in part because their purchasing power has been eroded."

Sun, 12/01/2013 - 16:07 | 4203981 markmotive
markmotive's picture
Marc Faber: "One day this asset inflation will lead to a deflationary collapse one way or the other"

Sun, 12/01/2013 - 16:34 | 4204044 LawsofPhysics
LawsofPhysics's picture

Correct.  The "flation" debate is pointless as deflation is a fucking myth.  7+ billion ( and growing) all competing for a better standard of living and no society/currency has ever collapsed/died because their purchasing power became too strong.

Controlling the language to control the sheep, nothing more...

Hedge accordingly.

Sun, 12/01/2013 - 21:15 | 4204944 All Risk No Reward
All Risk No Reward's picture


It depends on one's perspective.  Argentina, Weimar, Zimbabwe were all deflations - from the perspective of the international banking cartel's main debt based currency...  the US dollar.

Perhaps the better question is whether the international banking cartel has every hyperinflated the currency they hold when they are the majjority holders of the currency.

Surely, they used hyperinflation to economically attack and subjugate varios nation states, but they've never done it to themselves.

Be careful to not apply the rules of apples to oranges.

Governments are NOT in control, nor are they sovereign. 

The international banking cartel is the sovereign and all nation states are subjugated to them via their debt money tyranny.

A nation state that depends on private interests for money is no more sovereign than a small child dependent on their parents for money.

Napoleon understood this insight...

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
? Napoleon Bonaparte

You are betting against the self interest of the international banking cartel when you claim they will hyperinflate while they control trillions in money and trillion in debt paper.

They are the decision makers, NOT governments.

I believe they may well choose to bust the bond market they use as a societal yoke, but they will make sure they are divested of trillions of dollars and trillions of debt holding BEFORE they do so.

That is what a rational actor would do.  You can pretend the people who run the world are stupid, but I'd argue you've simply fallen victim to a Sun Tzu, Art of War tactic...

"PRETEND inferiority and encourage his arrogance."
~Sun Tzu, Art of War


Sun, 12/01/2013 - 23:51 | 4205517 tpgaynor
tpgaynor's picture

BINGO!! Nuff said.

Sun, 12/01/2013 - 14:41 | 4203804 Nehweh Gahnin
Nehweh Gahnin's picture

I can't imagine why anyone, EVER, would need to visit a Walmart.

Sun, 12/01/2013 - 16:13 | 4203995 stocktivity
stocktivity's picture

...and the packaging is getting smaller but the prices stay the same. That's not inflation?

Sun, 12/01/2013 - 11:13 | 4203389 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Why in the hell did he choose a cat. 


Run with that for awhile.

Sun, 12/01/2013 - 12:30 | 4203519 sunnyside
sunnyside's picture

He wanted to test the theory that us men have to live with, namely, that pussy is and always will be undefeated.

Sun, 12/01/2013 - 12:48 | 4203558 willwork4food
willwork4food's picture


Sun, 12/01/2013 - 14:59 | 4203844 ebear
ebear's picture

I dunno.  Pussy Riot were pretty soundly defeated.  I don't think we'll be hearing from them anymore.

Sat, 11/30/2013 - 19:42 | 4202602 zaphod
zaphod's picture

We are currently living with significant inflation in food, land, services, healthcare, education, etc, and the government has the gall to describe this as a deflationary environment. Just what will 'stable inflation' look like? 100% YOY food price increases?

Sat, 11/30/2013 - 20:38 | 4202669 Tippoo Sultan
Tippoo Sultan's picture

"Who do you believe - me, or your eyes ?"

- BSB, Ph.D

Sat, 11/30/2013 - 20:43 | 4202677 0b1knob
0b1knob's picture

Current inflation rate by any honest measure is nearly 10% per year in the USSA.

Sat, 11/30/2013 - 21:42 | 4202777 Oldwood
Oldwood's picture

There is only inflation in what we must buy. There is deflation in what we have to sell.

Sat, 11/30/2013 - 22:16 | 4202835 kridkrid
kridkrid's picture

Including our labor.

Sat, 11/30/2013 - 22:18 | 4202838 MontgomeryScott
MontgomeryScott's picture


"We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels...."


WTF are 'equity valuations', anyway?



The whore waits, as the man she was 'with' begins to lose his erection, and withdraws his softening penis. After placing his money on the dresser, she smiles, and says 'you were the best.'. He puts another bill on top, and says, "You were a loose little slut, but because you said that, I will give you a tip."

She turns to him, laughing, as she looks at his small cock, withering and shrinking.

"Next time, I want DOUBLE, you little-cocked man!"

She starts to masturbate as he replies, "Well, I have a credit card..."

Sat, 11/30/2013 - 23:07 | 4202912 Papasmurf
Papasmurf's picture

Try "Dear Penthouse Forum".

Sun, 12/01/2013 - 00:40 | 4203035 cynicalskeptic
cynicalskeptic's picture

We are seeing massive (but lied about) INFLATION in the price of the things we NEED to buy - food, energy, etc.  I am shocked at food prices when I go shopping - a roast at over $50, OJ at $7.99 a half gallon and even bacon over $7. Heating oil is well over $4 a gallon and gasoline remains over $4 as well.  But government manipulates statistics regularly (see to show lower CPI, Unemplyment and higher GDP.

We are seeing DEFLATION in the things we do NOT 'need' - electronics,  cars, etc.


As another pointed out we are also seeing the effects of inflation in the 'tangible assets' used by the very wealthy to preserve wealth - expensive artwork is setting new records, high end real estate (places in Manhattan for example) and other high end 'collectibles'.  Of course the stock market is also reflecting massive inflation as the billions given to banks are finding a home there instead of going back to Main Street.


Sun, 12/01/2013 - 11:35 | 4203416 jerry_theking_lawler
jerry_theking_lawler's picture

I may be wrong here....but eventually Hedonics will reach the lowest possible denominator and it can't be adjusted any more, right? Like hedonic adjustments on inflation from Steak to Hamburger to Chicken to Hotdogs then ultimately to dogfood. This has to be the lowest form of food, right? So why not just measure the inflation in the dogfood then?

Sun, 12/01/2013 - 12:35 | 4203536 Libertarian777
Libertarian777's picture

because you could replace dogfood with squirrel and tree bark, both of which are free.

there's no inflation here, move along, nothing to see.

Sun, 12/01/2013 - 12:45 | 4203553 Jlasoon
Jlasoon's picture

And eventually "Soylent Green".

Sun, 12/01/2013 - 17:07 | 4204166 LawsofPhysics
LawsofPhysics's picture

Stop thinking in terms of "prices" (they are all made up anyway), think in terms of calories.  At this point, the paper-pushers will continue to push on a string until essential commodities can no longer be delivered at any "price".  Then and only then will shit get real, not before.

Same as it ever was (apparently humanity never really learns).

Sun, 12/01/2013 - 16:26 | 4203708 ToNYC
ToNYC's picture

But they measure Inflation by what you have to sell, and Deflation by what you must buy less of, so they balance out in the parallel universe of AdvertAmerica.

Sun, 12/01/2013 - 17:05 | 4204161 LawsofPhysics
LawsofPhysics's picture

"There is deflation in what we have to sell."  -  Bullshit.  I grow and sell soybeans, corn, sorghum, pecans, peachs, etc.

What?  Are you stupid enough to really think there isn't someone else on the other side of those sales?

Ignore "prices" think in term of calories.  The cost of energy for me has also been going up.   Things won't get interesting until the providers of essential commodities can no longer deliver those commodities at any price.  Then, and only then will shit get real, not before.

Same as it ever was.

Sun, 12/01/2013 - 11:18 | 4203398 ZH Snob
ZH Snob's picture

the current deflation is a crying, dying plea from the markets to put the beast out of EVERYONE'S misery; and the inflation is the perverse life support that continues to deny a natural death, thus creating a zombie economy.

Sat, 11/30/2013 - 20:50 | 4202684 logicalman
logicalman's picture

There are no laws of economics, only theories.


Sat, 11/30/2013 - 22:24 | 4202845 MontgomeryScott
MontgomeryScott's picture

If your outgo exeeds your income, your upkeep will be your downfall.

One plus one (minus one point one)...

Sun, 12/01/2013 - 11:27 | 4203409 Keyser
Keyser's picture

Meh, more like some bullshit artists quoting theory to support their conjecture as to WTF is going on with the economy. All the time manipulating the data to support their belief system. In the mean time, we are the guinea pigs. 


Sun, 12/01/2013 - 12:43 | 4203546 DaddyO
DaddyO's picture

How about MATH?

Any laws there?


Sun, 12/01/2013 - 17:09 | 4204172 LawsofPhysics
LawsofPhysics's picture

Maybe, depends on the scale/dimension.  In the world of quantum mechanics, it would seem all bets are off.

Sun, 12/01/2013 - 14:30 | 4203780 icanhasbailout
icanhasbailout's picture

"The market always seeks The Greatest Fool" appears to rise to the level of an economic law.

Sat, 11/30/2013 - 21:25 | 4202744 stocktivity
stocktivity's picture

It's all Billshit!!!

Sun, 12/01/2013 - 16:10 | 4203989 AngelEyes00
AngelEyes00's picture

Nope-1004, maybe you're right, that's why I'm so confused whether we are suffering inflation or deflation.  After reading 50 billion articles claiming one or the other, it's actually the collapse artificially being held at bay by an opposing force, QE.  Without QE it's deflation, and with it deflation is counter-balanced with minimal inflation.  Stop all the QE antics - let it fall!

Sun, 12/01/2013 - 16:49 | 4204101 Pareto
Pareto's picture

Price delfation was always a silver lining in a correction that comes as a result of the FED interfering in the market in the first place.  To clear the monetary malfeasance prices have to fall because propping them up at $85B/month only delays the inevitable.  When prices fall, collateral based on speculation falls to zero and real assets exchange hands (from the dumber to the smarter - or from the speculator to the producer).  This is the mechanism by which markets fetter out crap and start anew.  Inflating reduces the value of collateral since the level of collateral (real stuff) hasn't increased much as this site has demonstrated y/y.  So as inflating rises, the collateral is spread thinner and thinner until there is no collateral left at all.


There's no free lunch.  That much I know and may be all I know.  

Sat, 11/30/2013 - 20:29 | 4202654 edwardo1
edwardo1's picture

We agree. Revaluation of phsyical gold is the least painful and destructive option and therefore the one that will be employed.

Sun, 12/01/2013 - 16:36 | 4204058 AGuy
AGuy's picture

Napier: "When US inflation fell below 1% in 1998, 2001-02 and 2008-09, equity investors saw major losses."

Ugh! You forgor the most important issue Russ, No QE in 1998,2001, and 2008!  The Rally is all about QE, its the one any only thing that is causing the meltup. Everytime the market is about to correct, the Fed trumps by annoucing more QE!.  Duh!



Sat, 11/30/2013 - 19:04 | 4202551 garypaul
garypaul's picture

Where the fu** is Napier et al seeing falling prices???

Sat, 11/30/2013 - 19:22 | 4202580 Skateboarder
Skateboarder's picture

Certainly not at the grocery store. That is the stuff of the plebs.

Sun, 12/01/2013 - 00:45 | 4203039 cynicalskeptic
cynicalskeptic's picture

Domino Sugar is now in 4 lb bags - replacing the old 5 lb bags.  This right before the holiday baking season.  

Everything is now coming in smaller sizes.  Dial soap has a huge scoop out of the bar now.

Sun, 12/01/2013 - 01:13 | 4203065 Curiously_Crazy
Curiously_Crazy's picture


The tobacco I buy comes in two sizes. 50 grams and 30 grams - well it used to - now the more expensive 50 gram pack is still 50 grams but the 30 gram pack has been reduced to 25 with no reduction in price.

The cerial I buy is still in the same sized box but contains 5% less in weight. If that continues in several years time we'll be paying as much for the bloody box as what is actually contained within it (which will be mostly air)

Sun, 12/01/2013 - 15:22 | 4203892 mt paul
mt paul's picture

eat the box ....

Sun, 12/01/2013 - 11:08 | 4203381 Town Crier
Town Crier's picture

Don't forget watermelons the size of softballs for $7.

Sun, 12/01/2013 - 11:46 | 4203431 Keyser
Keyser's picture

How about $83 watermellons, in 2001!!!


Sat, 11/30/2013 - 22:34 | 4202856 MontgomeryScott
MontgomeryScott's picture

The 'Obamacare derivative negative-positive hedge' seems to be falling, rather slightly.

Also, futures derivitives in TEPCO seem to be declining rather rapidly.

Oh, shit...


You're not a member of the 'ELITE'.

Sorry, you didn't see my report. NO, forget what you saw.


Sun, 12/01/2013 - 12:03 | 4203462 yogibear
yogibear's picture

This guy like others only go to Mark prices up by 4x stores to shop. So prices are already outragiously high. Benanke and Yellen, Dudley and others do the same.

Their out of touch with wihat the small people experience. I see either package sizes shrink (from 16oz to 12 oz)  of prices rise.

These people need to get out of their ivory towers, look around at prices around the country and content sizes.

There's plenty of inflation.

Sun, 12/01/2013 - 12:07 | 4203463 rbg81
rbg81's picture

How do I measure inflation?  I look at my property taxes.  They've been rising about 5% at least per year for as long as I can remember.  The last few years they've been rising 10% annually.

Sun, 12/01/2013 - 18:15 | 4204388 shiftless
shiftless's picture

"Inflation has fallen to 1.10/0 in the USA and 0.7% in the Eurozone and we are now perilously close to deflation."

Has this stupid fuck been to a grocery or hardware store lately? How the fuck has inflation "fallen" to anything?

Sat, 11/30/2013 - 18:37 | 4202503 derek_vineyard
derek_vineyard's picture

tax collectors love inflation

Sat, 11/30/2013 - 18:37 | 4202505 Confundido
Confundido's picture

How someone can see deflation in a world where stock prices go up by 30%, real estate prices climb, gold has to be manipulated, utilities prices keep increasing, a cup of latte is almost $4 or pennies are withdrawn from circulation (i.e. Canada) because the metal is worth more than the nominal beyond my mind...Does this person actually believe in the notion of a price index? Furthermore, does he think that the price index measurements reported by the plutocracy are real???

Sat, 11/30/2013 - 18:53 | 4202532 seek
seek's picture

Look at velocity. It's plunged, they're having to literally pour money into the system, and it's still not working because that money is only going into investment asset classes.

So yes, we have real deflation happening if they're doing that to no effect.

The mistake here is they're pouring money on the wrong people. Send out $3,400 checks to every person in the US and you've spent the same as QE, but you get more actual spending.

(Both are a terrible idea, btw.)

Sat, 11/30/2013 - 19:08 | 4202559 OneTinSoldier66
OneTinSoldier66's picture

Are you defining deflation as a lack in the velocity of money?

Sat, 11/30/2013 - 20:25 | 4202650 seek
seek's picture

No, the deflation itself has barely happened yet -- primarily because of QE propping up / launching to the moon investment assets and monetary base. Without QE there'd be no question that deflation was occuring. Hence my comment about "real" (ex QE) deflation.

MV = PQ, they're cranking up "M" to cover up for the collapse of "V". If Q stays constant, P, the inflation/deflation term, is the variable. Ergo, without QE cranking "M" up, we'd see obvious deflation.

Now Q (GDP) probably isn't constant, and indeed may be falling with V or even faster, but that's something they're working really hard at covering up if true.

Seriously, look at this velocity chart -- it screams something is broken and deflating:

Sat, 11/30/2013 - 20:31 | 4202658 OneTinSoldier66
OneTinSoldier66's picture

Thank you for the reply, explanation, and link. Just to let you know I've seen quite a few of those MV charts in recent times. Especially here on ZH.

Sat, 11/30/2013 - 22:50 | 4202881 MontgomeryScott
MontgomeryScott's picture

If you are interested in getting a little TRUE feedback, it would be in your favor if you explained your understanding of the terms 'velocity', as well as 'money' (as has been explained to you in your edumacations).

For example: The word 'Velocity' may be defined in several connotations, mostly called 'speed' in the common vernacular. The SPEED at which the whirlpool draws your boat in to the VORTEX may be defined in mathematical terms, any of which might 'define' the 'VELOCITY' at any given point on this journey to ZERO.

Maybe, someday, saved by 'Zero', you will continue to your conclusion, and come to an understanding.



'Money Velocity', perhaps?


Sun, 12/01/2013 - 03:02 | 4203127 WeekendAtBernankes
WeekendAtBernankes's picture

Instead of writing three paragraphs you could have written three words and had your answer:

Sat, 11/30/2013 - 21:34 | 4202765 Orly
Orly's picture

I'm so glad there are still posters on here who get it.



Sat, 11/30/2013 - 23:00 | 4202899 akak
akak's picture

Still enjoying those $0.99/lb chicken breasts Orly?

I'm glad there are still posters here who are utterly clueless ... and who like to lie through their teeth.

Sun, 12/01/2013 - 01:47 | 4203087 Miffed Microbio...
Miffed Microbiologist's picture

Oh pleeez akak, get a frigging clue. They're $0.79/lb now haven't you noticed? Get out of that bubble world you are living in and experience reality for a change. Everything is deflating everywhere. Gold, chicken breasts, flat screen tvs....My God, just wait long enough and it all will be free! We're living the American Dream so go to sleep so you can experience our Brave New World.


Sun, 12/01/2013 - 02:10 | 4203100 Harbanger
Harbanger's picture

Everything around me (NH) is only going up in price.  Maybe I live inside the bubble zone and don't know it.

Sun, 12/01/2013 - 12:52 | 4203567 DaddyO
DaddyO's picture

Your locale may have something to do with price.

Here on Main St America, inflation is real, portion sizes are shrinking while price remains the same.

I shop around and have to measure fuel spent vs product costs to justify savings.

Since I live a ways from the nearest store all things have to be factored to calculate costs.

Growing my own stuff has had some impact though.


Sun, 12/01/2013 - 12:31 | 4203522 yogibear
yogibear's picture

LOL. Your stuck in time. The lies. Oh, there's inflation.

Remember this pack used to be .69/lb not long ago? About a decade ago they were $.39/lb in bags.

Look at it now. It's .99/lb for drumsticks and thighs.

 Just looked at sales on chicken breast and I seel them on sale for $2.99/lb. 

You can buy a case of chicken breast for $1.64/lb but you have to buy 40 lbs and their frozen from Costco.


Sun, 12/01/2013 - 15:44 | 4203931 Miffed Microbio...
Miffed Microbiologist's picture

Last year we did an experiment to see if it was possible to raise turkeys and meat chickens ourselves cheaper than store bought. We realized at the start we couldn't do it fully on organic feed cost effectively so we opted for no antibiotic feed. Our 4 turkeys had a combined weight of 130lb after slaughter and we spent $100 in feed. They also were raised on pasture to suppliment. Our 15 meat chickens came close to $2.00/lb but didn't have access to pasture but were offered our veggie scraps.

All the butchering was done but us and 2 friends as a repayment for a favor ( how utterly delightful not to have your labor taxed!). A friend told me recently she saw organic chicken breasts at $9.00/lb at a store recently. We clearly beat that. My friend who was the butcher was absolutely amazed at the meat quality. Everyone of his friends and family said it was the best turkey they had ever tasted. He is begging me to do it again next year and wants to try pheasants too.

I never thought we could approach commercially raised meat costs. We were low volume as well as couldn't purchase feed in bulk for discount prices. People need to wake up you are paying a fortune in convenience as well as USDA regulation ( which is a farce).


Sun, 12/01/2013 - 15:24 | 4203896 mt paul
mt paul's picture

4 skinned chicken breasts

ten bucks


north of the alaskan range 

Sun, 12/01/2013 - 17:28 | 4204226 akak
akak's picture

Yeah, but ptarmigan are cheap, anyway (well, except for the ammo).

The eternal question when carving up a ptarmigan: "Would you like black meat, or black meat?"

Sun, 12/01/2013 - 18:11 | 4204372 Miffed Microbio...
Miffed Microbiologist's picture

We have lots of wild turkey here but after processing there really isn't much meat and it's quite tough and stringy. Being arid, I don't think they get enough good forage. I figure if I am truly starving, they are a back up plan. My butcher hunts them with his bow every year ( I know how to pick good friends). I'm assuming ptarmigan is tastier.


Sun, 12/01/2013 - 18:24 | 4204410 akak
akak's picture


I'm assuming ptarmigan is tastier.

Well, Miffed, "tastier" is one way to put it --- or perhaps, let's say, at least the most charitable way to put it.

I can honestly say that I have NEVER tasted any kind of poultry, or bird, that was as strong-tasting as ptarmigan.  Far and away stronger.

Sun, 12/01/2013 - 18:34 | 4204447 Miffed Microbio...
Miffed Microbiologist's picture

Hmmmm. This sounds a bit too gamey for my taste. My friend wants to do pheasant this year which he describes as " rich" tasting. Since the minimum order I can find is 15 birds, I'm a bit reticent purchasing so many of something I have never tasted. I might become a bit querulous if they turn out to be durians with feathers.


Sun, 12/01/2013 - 18:41 | 4204474 akak
akak's picture


durians with feathers


Ptarmigan are not quite THAT bad --- but not too far off that mark, either.

As an aside, talking about poultry, I made a chicken liver pate for Thanksgiving, from free-range chickens which I helped my friends butcher, that was to die for, if I do say so myself.

Sun, 12/01/2013 - 19:30 | 4204626 Miffed Microbio...
Miffed Microbiologist's picture

Omg! Your are a man after my own heart! I absolutely love pâté and terrine du canard of which only in Paris have I found to be stellar. There is a restaurant here called the Blue Boheme that has excellent pâté that is the closest I have found to what I had experienced. The waiters know me and practically have it in front of me before I order. I am tempted to try to make it but the recipe seemed a bit daunting. I do have turkey livers ( and gizzards which I'm trying to figure out how to prepare) in the freezer and may make an attempt.

I hope your thanksgiving was delightful. If not, it sounds like the food made up for any fractious family.


Sun, 12/01/2013 - 19:59 | 4204700 akak
akak's picture

Miffed, that was only the second time I had ever made that chicken liver pate (or any pate for that matter), and the process was indeed rather daunting, at least in terms of time as well as the profusion of dirty bowls, plates, and utensils that resulted.  But the results were well worth the effort!  My only regret is that now, after having made the recipe twice, I have no more of the free-range chicken livers from the chickens which I helped butcher, so if I want to make it again before next fall, I will have to use store-bought, factory-raised chicken livers instead.

If you like, I can write down and send you the recipe.

Sun, 12/01/2013 - 23:28 | 4205422 Miffed Microbio...
Miffed Microbiologist's picture

You got me fired up and have been perusing my cookbooks. I found 2 recipes in my Silver Palate and Cordon bleu cookbooks but both look very involved. I have the livers from the 15 meat chickens and it would be perfect if I could pull this off. I was wondering how I could use them.

Please, if I could have your tried and true recipe it would help especially any notations that would help in the process ( the Cordon Bleu seems to assume the chef has some experience in pate making) My sous chef has agreed to help with my endeavor. Luckily for me he has a forgiving palate and will consume my culinary disasters. I get artist's rage and toss it to the dogs or chickens who are less discriminating.

My gut instinct tells me it may not be wise consuming conventionally raised chicken liver. At least, not on a regular basis. The liver would probably be saturated with all the nasty toxic chemicals and antibiotics the poor things were exposed. The FDA has only recently banned arsenic in chicken feed. That they dragged their feet at such a proposal is quite telling.


Mon, 12/02/2013 - 00:36 | 4205609 akak
akak's picture


If you have a copy of "The Joy of Cooking", I could direct you to the original recipe, and then give you my modifications of it, which lie mainly in the spices and seasonings (I used more than they called for).

Please let me know how I can send that info to you.

Mon, 12/02/2013 - 01:00 | 4205652 Miffed Microbio...
Miffed Microbiologist's picture

I am embarrassed to admit I don't have The Joy of Cooking considering what a classic that is. I realize there must be numerous instructions so I don't feel comfortable asking you to go to such lengths unless you have a scanner. I will see if I can access a copy or just purchase the book which should be in any cooks collection. Perhaps you can just send me your modifications? My email is If you rather do snail mail maybe we can connect by chat sometime and I will give you my address ( chat doesn't work on my iPad so I must borrow my husbands laptop). I don't feel comfortable revealing it on a public forum considering how many droneable offenses I have committed.


Mon, 12/02/2013 - 02:28 | 4205767 akak
akak's picture


I was wanting to write out the recipe anyway, for my own future reference, so sometime this week when I get the chance I will do so and then send it to you as an attachment in an email.  You can expect an email from an obviously Alaskan sender.  It's not really a big deal, as I am a pretty fast typist --- the most time-consuming part of writing down recipes for me is simply properly formatting the ingredient list.

Sun, 12/01/2013 - 12:16 | 4203480 rbg81
rbg81's picture

The only thing keeping the US Economy afloat is massive deficit spending on the national credit card.  At one time, deficit spending actually paid people to work in the US--we got real products, even if they were roads and bombers.  Now we just pay people to sit on their ass and import cheap crap products and food from abroad.  Oh, and on top of that we encourage more [illegal] clients to cross the border.  

The big beneficiaries of this policy are the consumer product companies and the retailers that sell the shit (e.g., Walmart).  They just better hope interest rates stay low, because if they go up (even to 4% on the 10Y UST), they can't sweep these problems under the rug any more and the Merry-Go-Round finally runs out of gas.  Then things will get really interesting.

Sat, 11/30/2013 - 22:47 | 4202878 Pumpkin
Pumpkin's picture

95-97% of money within the economy is credit.  The velocity of money is directly related.  The credit portion of the economy has shrunk and is getting ready to shrink even more.  Deflation will be the result.

Sun, 12/01/2013 - 06:29 | 4203189 NidStyles
NidStyles's picture

Credit is not money. I don't knwo why so many of you still push that lie. 

Sun, 12/01/2013 - 16:30 | 4204025 CHX
CHX's picture

Fiat currency is credit, gold is money.

Sun, 12/01/2013 - 22:38 | 4205273 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

"Fiat currency is credit, gold is money."
And silver is money,
and U.S. Notes are money (even though they are "fiat"...)

Money is any accepted purchasing media that has no interest owed on it.

Various forms of real money can have vastly different values but they are still money.

Sat, 11/30/2013 - 19:13 | 4202567 max2205
max2205's picture

We're going to need a bigger boat!

Sat, 11/30/2013 - 19:16 | 4202571 jon dough
jon dough's picture

Thanks, I was hoping I wouldn't have to look too far for the correct answer.


Sat, 11/30/2013 - 21:24 | 4202742 Uber Vandal
Uber Vandal's picture

Wait until Janet unleashes the Krakken called nominal NIRP*.

*Credit cards and any/all loans excluded.

Sat, 11/30/2013 - 22:31 | 4202850 HulkHogan
HulkHogan's picture

I've always assumed deflation, then inflation/hyperinflation. Yellen can't print us into hyperinflation until a deflationary event happens.


Sat, 11/30/2013 - 22:52 | 4202886 Uber Vandal
Uber Vandal's picture

She does not need to print at all.

If one has a choice of losing one's money to donating it to the bank with nominal negative interest rates or throwing it at anything, what will the person that does not frequent sites such as this and has something in the bank do?

Such person's are not likely to buy shiny barbaric relics, or even bit coins, but probably distort any and all markets even more than we have already seen until we hit some kind of singularity that even Data or Spock from Star Trek couldn't wrap their heads around.


Sat, 11/30/2013 - 23:12 | 4202920 fonzannoon
fonzannoon's picture

I just got this from Kito...


"Never to stray from controversy, Martin also made a final prediction. Regarding recent comments by Larry Summers on stimulating people to spend their money by charging them to hold money at the bank—that is, through negative interest rates—he said, in the next economic downturn, expect the Federal government to simply outlaw cash altogether. With rates already at zero and the Fed’s tools for stimulating consumption all used up, the only way to prevent hoarding of cash, gold, or other tangible forms of wealth outside of the banking system is to go 100% electronic. Unfortunately, "It [also] means 100% of everything you ever do is taxed," he added.

Perhaps that's why art, diamonds, and Bitcoins are going through the roof?"

Sat, 11/30/2013 - 23:20 | 4202927 seek
seek's picture

This probably isn't hurting bitcoin too much either. If you have tax havens outing their clientele, they're going to go elsewhere, and when there's nowhere else to go, off into cyberspace.


Sat, 11/30/2013 - 23:33 | 4202949 fonzannoon
fonzannoon's picture

hey seek so here is where I am at man. I saw the 0.1 bitcoin show up in the big file. I tried to move it to the smaller one and I got the same fee message. So I moved 0.09 bitcoin over there (it asked me to make a donation of the other 0.01 to allow the transfer and I did.. So as it stands I see 0.1 bitcoin in my multi bit folder with an attached value of $120.40. shoot me your wallet again and I will get it back over to you. I assume I will have to chip in that 0.01 "donation" again to get it through. That is a bit heavy, no?

Agreed on your comments above btw. 

Sun, 12/01/2013 - 00:08 | 4203011 seek
seek's picture

That is way heavy. The standard fee is 0.0005 right now. You should have an option to change the fee. Even a zero fee transaction will eventually get processed.

I'm at 1HyFzfNgiWBLD6uzwnc53Mj7rZa5CVf3vC for this message. Feel free to keep some for yourself! No need to refund any actually, those are education coins I put out there.


Sun, 12/01/2013 - 00:05 | 4203006's picture

We are going to see massive inflation of centrally controlled currencies vs btc/cryptos which will cause deflation in real world goods and services.  In the past, people didn't have somewhere to put their hyperinflated money.  Now we have a better currency system to dump it into.  After we experience deflation in goods and services central banks will try to print us out of it unsuccessfully. 

Sun, 12/01/2013 - 12:32 | 4203527 Confundido
Confundido's picture

Dude, velocity of money is a totally flawed concept. It is a circular argument.

Connected with the concept of the velocity of circulation of money is the mental image that money generates its usefulness only at the instant of transaction, but is "idle" and useless at other times. A distinction between active and idle money is also made when one speaks of money hoarding and proceeds to a comparison between the "hoarded" quantity of money and the quantity of money that would be necessary to perform the monetary services; what distinguishes this from the previous case is the way in which the boundary between active and idle money is drawn. Both distinctions must be rejected.

The service of money is not confined to transactions. It fulfills its task not only at the moment it passes from one hand to the next. It also performs services when it rests in the till, as the most marketable good, in anticipation of its future use in trade as a generally used means of exchange. The demand for money of individuals, as well as the entire economy, is determined by the desire to maintain a cash balance and not by the aggregate of transactions to be carried out during a certain time period. It is an arbitrary procedure to divide the money stock into two parts: that which is designated to perform money services proper and that which serves as a money hoard. Monetary problems are economic problems and have to be dealt with in the same way as all other economic problems. The monetary economist does not have to deal with universal entities like volume of trade meaning total volume of trade or quantity of money meaning all the money current in the whole economic system. Still less can he make use of the nebulous metaphor "velocity of circulation." He has to realize that the demand for money arises from the preferences ofindividuals within a market society. Because everybody wishes to have a certain amount of cash, sometimes more, sometimes less, there is a demand for money. Money is never simply in the economic system, in the Volkswirtschaft, money is never simply circulating. All the money available is always in the cash holdings of somebody. Every piece of money may one day—sometimes oftener, sometimes more seldom—pass from one man's cash holding to another man's. But at every moment it is owned by somebody and is a part of his cash holdings. The decisions of individuals regarding the magnitude of their cash holdings constitute the ultimate factor in the formation of purchasing power.
Sun, 12/01/2013 - 13:58 | 4203677 OneTinSoldier66
OneTinSoldier66's picture

I think that money and how it works is not that complicated. If you have to write a dissertation on it then something is wrong.


Let me give you an example. You either have money, or you don't. Pretty fuckin' simple.


Now, perhaps the complicated question in a Central Banking World is, what is money?

Sun, 12/01/2013 - 16:19 | 4204004 Ghordius
Ghordius's picture

one sure thing: your unit of calculation/valuation. and an optional one: your unit of saving

Sat, 11/30/2013 - 21:50 | 4202716 dryam
dryam's picture

"How someone can see deflation in a world where stock prices go up by 30%, real estate prices climb, gold has to be manipulated, utilities prices keep increasing, a cup of latte is almost $4 or pennies are withdrawn from circulation (i.e. Canada) because the metal is worth more than the nominal beyond my mind...Does this person actually believe in the notion of a price index? Furthermore, does he think that the price index measurements reported by the plutocracy are real???"

Look at my avatar showing an exponential equation. That represents our debt based fractional reserve money system.  It inherently has to grow at an exponential rate, otherwise it collapses.  The slope of the line approaches infinity.  Infinity does not exist in our finite world.  Yes, asset prices are rising as you state, but the levitation act can only last so long, either currency loses it's meaning or there's a massive default resulting in a hyperdeflationary collapse unlike any other.  It's easy to conceptualize money printing, but it's a little more difficult to conceptualize currency destruction as debt is defaulted on.  There is massive debt as far as the eye can see in every direction.  That debt will never be paid, ever.  In our debt based money system that means massive contraction of the money supply.  Accounting rules for the banks are fictitious, otherwise we would see them for the increbile black holes of debt that they are.  So, it seems to me that the author is saying that with all the various asset bubbles it will only take a small hiccup anywhere in the system to set off a deflationary collapse system wide.

One last point, cheap fossil fuels are the reason this world has been booming starting with the industrial revolution and then really taking off with the ability to harness oil in the early 1900's.  We are past cheap peak oil.  It's getting increasingly more difficult to find and extract oil, and it's getting much more costly.  This is the biggest real world deflationary pressure that would impede our economy even if our financial system was somehow on strong footing right now.  Thus, not only is our money system failing, the world's resources are failing to keep up with maintaining our current standards of living.  We have contractionary forces upon contractionary forces.

Sat, 11/30/2013 - 22:44 | 4202872 HulkHogan
HulkHogan's picture

Great post.

Several months ago, I was listening to Shiller's Yale courses online through iTunes U. He described how economics and finance is an evolving "tool" created by humans to better life, and went through a little history lesson on finance. When the lecture was over, all I could say was BULLSHIT. It's easy and cheap energy and resources that creates prosperity, not finance. Romans prospered with slaves (energy) and farming, then the West found America (resources) and used African and Asian slaves, and now we have oil and slave labor in China.

Sun, 12/01/2013 - 03:44 | 4203151 John_Coltrane
John_Coltrane's picture

Actually, cheap fossil fuels are a consequence of the great scientific and technological advances which gave rise to both the industrial and the current electronic age.  Greater knowledge and control of our environment using the scientific method is the only reason for the immense wealth creation of the last 200 years.  All the new materials available to humans are the real secret to our prosperity.   So, the breaking of chemical bonds via combustion to release energy is hardly the limiting factor for humans, especially when mass to energy conversion via fission is so much more efficient.  However, destruction of the environment via overpopulation is the limiting factor to any power law (i.e. exponential) growth as you observed.  It will be truncated as all such power laws in nature are.  We are approaching a critical point and can expect an interesting phase transition.  I just hope we don't have to endure hundreds of years of a new dark age.

Sun, 12/01/2013 - 11:43 | 4203428 jerry_theking_lawler
jerry_theking_lawler's picture

Trust me, you won't have to endure hundreds of years of a new dark age....unless you are a vampire....or Jamie Dimon.

Sun, 12/01/2013 - 07:23 | 4203194 TheHound73
TheHound73's picture

Aye, debt really exploded when cheap oil dried up.  I think the former is an attempt to cover up the later.

I tend to think more in terms of wealth destruction vs. wealth creation rather then deflation vs. inflation.

Sat, 11/30/2013 - 18:39 | 4202511 WTF2
WTF2's picture

ZH code for sell all your gold and silver?

Sat, 11/30/2013 - 18:48 | 4202525 Tyler Durden
Tyler Durden's picture

Reread the last paragraph

Sat, 11/30/2013 - 19:08 | 4202558 knukles
knukles's picture

Reading, watching and listening carefully to the words and actions of the Fed, it seems rather clear to me that their greatest fear is that of deflation.
Else why the persistence of QE, knowing full well that monetary efficacy is majority wedded to inflation as opposed to the real level of economic activity (a la, Friedman & Schwartz, et al.)
That is not to say that I or anybody else believes that to be the case, the major fear or risk.
But then again, my job is not to choose who I think is the prettiest girl in the beauty contest, but who the judges believe to be the prettiest.

Further, whether stated overtly of not, it is also clear that they believe the US if not global economy(s) to be fully assimilated in a Liquidity Trap; which are monetary phenomenon caused by non-monetary factors.

The Fed neither speaks nor acts like an entity even casually concerned with inflation.  Else would they be pondering targeting Nominal GDP?
Ah, the Japanese Model, once again.

The Unintended, the Unanticipated, that which is the Least Pondered and Prepared for is Likely the Most Significant Future Event.

Sat, 11/30/2013 - 19:43 | 4202606 kaiserhoff
kaiserhoff's picture

Reminds me of one of the few sensible things I learned about business law. 

"The law is what people think a judge might do."

I still think the wild card is ObumerCare.  Those price increases are starting to scare the shit out of the working class.  Something's gotta give.

Sat, 11/30/2013 - 20:59 | 4202698 knukles
knukles's picture

My sentiments exactly.
The Law of Unintended Consequences is Coming Home to Roost.

The folk in DC are so far removed from reality they've no bloody idea just how large the impact of the ACA is going to be.
Massive hidden tax increases upon a badly damaged credibility with many more surprises yet to arrive.

Let me put it this way.  My own insurance broker has warned me that my next round of price increases may hit 300%.  Come next 4th quarter as I'd done an early renewal.
So, I've yet to write an e-mail to a chap I've know for some 30 years with who I've a subscription to his investment service. 

It will say something along the lines of guess what, but its hitting you directly, the secondary effect of ACA price increases.  You're one of my cancellations.  Sorry bud, but money don't fall from DC to me....

I didn't cancel this all by myself


Sat, 11/30/2013 - 19:47 | 4202607 Skateboarder
Skateboarder's picture

Tyler's message in the last paragraph is quite clear. It's the same tireless message 'He' has been hammering since day one.

ZH code to sell gold and silver? Hell naw! You think a billion chinese and a billion indians are friggin stupid?

Unless and until that one asteroid full of <element> lands here or is brought here, Au/Ag are our units of trade. An electronic device and a means to post an opinion does not change the course of man's experiment with metal.

Sun, 12/01/2013 - 16:06 | 4203980 ebear
ebear's picture

 "You think a billion chinese and a billion indians are friggin stupid?"

Well, that's a whole new topic right there, but from my own observations I'd say yeah... at least as stupid as people in the west.  They are, after all, only human.

Sat, 11/30/2013 - 22:01 | 4202811 FredFlintstone
FredFlintstone's picture

What is the response of the ruling class to deflation?

Sat, 11/30/2013 - 19:32 | 4202594 ToNYC
ToNYC's picture

Be prepared to eat it when funds are short for good food-at-hand.

Sat, 11/30/2013 - 20:15 | 4202636 SunRise
SunRise's picture

Probably tastier than paper.

Sat, 11/30/2013 - 23:09 | 4202915 MontgomeryScott
MontgomeryScott's picture

When the Tylers tell you to reach down and kiss your ass goodbye, you will have gotten the word to sell.

By then, of course, it won't matter much to you (or anyone else still sentient).


Sat, 11/30/2013 - 18:45 | 4202519 kaiserhoff
kaiserhoff's picture

There are new things on the holiday party circuit.  I've noticed that no one who owns a house is bragging about what a great deal it is, or is expecting any sort of real profit, ever.  The problems with real estate never got fixed.  The markets for commercial and residential have never been allowed to clear.  Look out below.

Sat, 11/30/2013 - 18:47 | 4202524 I am Jobe
I am Jobe's picture

Ah the party circuit chats , same as it was and then what happened? Short term memory for very many 

Sun, 12/01/2013 - 16:39 | 4204069 ToNYC
ToNYC's picture

Location, Location, Location gets sticky here with scale, like Rome in Anno uno as I remember it now.

Sat, 11/30/2013 - 18:45 | 4202520 buzzsaw99
buzzsaw99's picture

He is out of his frigging gourd if he believes that shit.

Sat, 11/30/2013 - 18:48 | 4202526 PTR
PTR's picture

"The only winning move is not to play."


Sun, 12/01/2013 - 00:52 | 4203044 cynicalskeptic
cynicalskeptic's picture

 Impossible 'not to play' thjis game unless you're living off the grid and self-sufficient

Sun, 12/01/2013 - 14:20 | 4203744 JohnnyBriefcase
JohnnyBriefcase's picture

There are varying degrees to which you can play.

Try to limit your play and you win moar?

I don't fucking know...

Sat, 11/30/2013 - 18:47 | 4202527 debtor of last ...
debtor of last resort's picture

"Monetary mandarins..."

Quite right.

Sat, 11/30/2013 - 18:57 | 4202533 akak
akak's picture

I think Russell Napier is very confused as to what "deflation" actually means. (Hint: The falling prices of formerly bubbled-up assets does NOT constitute deflation.)

All this fearmongering of a deflationary boogeyman is nothing but pure bullshit; it is historically proven that a bankrupt government going ever-deeper into debt and fiscal irresponsibility inevitably finds its currency LOSING value, not appreciating in value.

Sat, 11/30/2013 - 18:57 | 4202541 OneTinSoldier66
OneTinSoldier66's picture

Yep. Now, if he had talked about The Fed ending QE tomorrow and selling off it's balance sheet as being deflation...

Sat, 11/30/2013 - 19:29 | 4202590 razorthin
razorthin's picture

Bah, Rumsfeld was the test case to show just how easy it is to "lose" a $Trillion.  Somehow, I think that when the Fed dissolves, there shall be no accounting.  FASB on steroids.

Sat, 11/30/2013 - 19:32 | 4202595 oddjob
oddjob's picture

If somebody is willing to admit losing 1 trillion dollars, the real figure is probably a great deal more.

Sat, 11/30/2013 - 21:06 | 4202697 Teddy Tenpole
Teddy Tenpole's picture



you know akak I agree with you :0

Deflation, ya the kinda wrong definition we all accept, was a force with computer technology, strong u.s. dolla, and grossly mispriced EM labor as price inputs.

Debt is a different beast BECAUSE MONEY iS LOANED INTO CREATION!  Inflation is always and everywhere a monetary phenomenon...  just never know when the full faith and credit is lost.

The Fed is allowing the banks to 'hoard' all this new money as governed by paying interest on deposits.  The claim is against all dollars as new dollars are created and the Fed makes interest on the loan side.

Currently they are sharing part of that usury, yes Biblical, with their bank buddies.  Sure the demand for loans is weak but banks are happy to take the free parking money.  Given the destruction of our laws and the pillars of the financial system it's even better as the trading desks at these banks can lever up on the free money and as we've seen trade every single day without loss.

The Corporations are wise and they are shrinking the portion sizes but more important diluting the quality of the goods we consume.

Populism has quickly led to fascism...

The point is that incomes in China are now rising and they are moving to serve their own economy.  the race to the bottom currency war ensures that deflation is unlikely to occur.

Question?  Does the new concept of our energy self-sufficiency perhaps contribute to a 'deflationary' force?

All the above is the simple corollary for why gold is surpressed -- there can never be an 'off world' store of value alternative for investors to believe in.

Yes, asset prices are now 'in a bubble' because simply a future dollar of income is worth the same as current dollar of income.  You buy assets when the future is heavily discounted and sell them when it's all priced back to today.

The problem is that nobody's selling yet!  (stupid boomers!)

(and all you doomers sold when the future looked bleak and discount rates were high)

 Oops, got off topic... the punchline is that the Fed can unleash the pent up dollars by not paying the banks to day trade the money.  This is the 'good news is bad' trade as the healthy economy starts borrowing and spending and igniting the inflation.

The problem is that the pesky new normal isn't allowing for any good news.  the employment data is being manipulated to signal taper.  those cunts are going to paint the good news data and unleash some inflation on us in the face of a truly weak economy.

and ya, grade that paper all you closet econ profs because WE ARE GOING TO HAVE STAGFLATION.



Sat, 11/30/2013 - 21:14 | 4202721 Harbanger
Harbanger's picture

"it is historically proven that a bankrupt government going ever-deeper into debt and fiscal irresponsibility inevitably finds its currency LOSING value, not appreciating in value."

Very true, however we have a special circumstance of multiple bankrupt governments and a global currency war backed by military force.

Sat, 11/30/2013 - 19:38 | 4202536 OneTinSoldier66
OneTinSoldier66's picture

Can anyone tell me where all this deflation is coming from?

Can anyone tell me where all this inflation is coming from?



Sat, 11/30/2013 - 21:00 | 4202706 NoDebt
NoDebt's picture

Deflation:  Your paycheck.

Inflation:  Everything you need that paycheck to buy you.

Sun, 12/01/2013 - 12:18 | 4203491 centerline
centerline's picture

Equals stagflation.  The primary trend though is deflation in real terms.

Sat, 11/30/2013 - 18:55 | 4202538 Iam Yue2
Iam Yue2's picture

Napier goes for broke.

Sat, 11/30/2013 - 18:57 | 4202543 disabledvet
disabledvet's picture

the response to date has been to raise taxes and cut/deny spending on a truly grand scale. anything but inflationary. the ACA is looking like nothing but a massive tax increase actually. I don't think this is going to go over very well with the American people...but i'm no expert on that fer sure.

Sat, 11/30/2013 - 19:17 | 4202570 max2205
max2205's picture

10% min for those who have to actually pay up

Sat, 11/30/2013 - 19:01 | 4202550 HFT1
HFT1's picture

Rocket surgery

Sat, 11/30/2013 - 19:21 | 4202573 max2205
max2205's picture

Go easy on the UK Tyler

Sat, 11/30/2013 - 19:07 | 4202554 ILikeBoats
ILikeBoats's picture

I like what one poster on ZH said, "it is not DEFLATION ...  it is DEFAULT".

Sat, 11/30/2013 - 19:25 | 4202585 max2205
max2205's picture

Shoppers spend $9.74 billion at US stores on Black Friday, 13.2% less than last year, ShopperTrack data shows - @AP


Thats worth 1, 000 point down open and 50 chapert elevens and a 30% UE rate


Sun, 12/01/2013 - 14:27 | 4203755 JohnnyBriefcase
JohnnyBriefcase's picture

1,000 point down open for gold maybe.

They'll just "adjust" last years numbers to 20% lower and voila! 7.2% increase from last year!

Economic recovery for everyone!


Or maybe they'll attribute it to that supposed mall shooting in NJ and that people were afraid to go shopping due to all the gun violence. 

You will then need to be disarmed to allow for moar ecenomic recovery. I don't own guns so I'm good.

Sat, 11/30/2013 - 19:08 | 4202556 Martdin
Martdin's picture

Are we possibly looking at a matter of who's going to blink first? Should the ECB do nothing, does the FED then have to pick up that slack?

Sat, 11/30/2013 - 19:12 | 4202565 Conor
Conor's picture

The only truth is that nobody knows what is true. Is anything safe?

Sat, 11/30/2013 - 19:19 | 4202575 OneTinSoldier66
OneTinSoldier66's picture

+1 I think it was Socrates that said, "the one thing I know for certain is that I know nothing at all."

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