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Russell Napier: "We Are On The Eve Of A Deflationary Shock "
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.
Conclusion
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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Yes, Socratic Irony. Socrates introduced the concept of subjectivity to mankind, particularly as related to morality.
He was killed by the Greeks because he listened to the wisdom of his daimon, instead of the Greek gods.
? The Truth is illegal.
Step away from the crack pipe Russell.
Fucking idiot! You been to a grocery store lately? And anyway just keep paying shit wages and print that money for the bankers and all other parasites so they can esploit the stupid patriotic slaves and savers and pensioners. As if that was the way to build a sustainable economy and society. Fucking crooks at the top bending us over and then calling it love. Right!
Bullshit!
Karen: It's like I have ESPN or something. My breasts can always tell when it's going to rain.
Cady: Really? That's amazing.
Karen: Well... they can tell when it's raining.
The Greatest Quotes from Mean Girls
http://www.youtube.com/watch?v=9YUaQGEQ8-Q (5:04)
I think they've all lost their friggin minds. What the Fed has really done is destroy price discovery. We're applying our conventional understanding of price calculations based on metrics that are no longer valid and are coming up with no answers. That should be enough of a warning that something is seriously amiss.
This is classic tsunami indicator... before the flood waters slam into the shores with 60-foot waves... the coastal waters quietly and stealthily receed, almost unnoticed.
Woe, the unprepared.
You have market 'intervention' that distorts pretty much all financial markets AND you have deliberate LYING about economic indicators (like employment stats). Instead of having truly INDEPENDENT people determining economic stats (and using consistnet methodology) we have politically manipulated numbers with totally bogus methodology - 'birth/death' job creation (out of thin air based on WHAT?) ....we're now including intangibles in GDP....WTF?
Exactly, pricks like him sit in front of a computer looking at government force-fed bullshit figures enjoying the latest ramp-up that was whispered into their ears, while selling us bullshit. Just because you can fool people and take their hard earned money by flim-flamming them doesnt mean you should sit there drinking your expensive import wine while writing another article supporting the machine that rapes the people that supply you with your sustenance. Now excuse me please while I go puke.
I suppose on the surface it sounds crazy to seriously mention "deflation" in a world of fiat currencies where banksters are printing like crazy. But that is just the surface, and more importantly, is only short term thinking.
Imagine a world in which every country switches to fiat, debt-based currency. Further imagine a world in which endless advertizement and willingness to offer "easy loans" pushes regular old braindamaged sheeple-folks to buy, buy, buy... on debt, debt, debt.
What do people think the major credit cards are? They are mechanisms to make it easy for people to get into debt, and then charge them fees and interest.
What do people think credit cards from large retailers are? They are mechanisms to convince people to buy stuff in their stores before they buy in competitor stores.
Everything is designed to convince people to "buy today, worry tomorrow".
In the short run, such a system does indeed create demand, and demand does indeed tend to keep prices rising. After all, this is a world in which people are spending much more per year than they earn.
In fact, this is a world in which people are spending several times more than they earn. Do you think that's an exaggeration? Then think again. Consider the behavior of about 2/3 of individuals. When they are 20 to 30 years old and earn $50,000 per year before taxes (and $30,000 per year after all forms of taxes) borrows and spends $250,000 for a house and $50,000 for furniture some year... well, they just spent ten times what they earn that year. But let's average it out over 10 years to consider the medium-term. In those 10 years they've earned $300,000 and spent $300,000 for 1/5 equity in their house, plus another $300,000 for cars, food, vactions, education and everything else.
So even over a fairly long term (10 years), they've spent at least twice as much per year as they've earned. And this assumes they have acquired ZERO college loans, ZERO credit card debt, ZERO car loans, ZERO other debt. Thus, to say that people spend twice as much as they earn in such a system over the medium term is very conservative.
In fact, most people today consider to accumulate more and more debt, and they are encouraged by every "official" channel to do so. The world didn't work like this 50 years ago, when credit cards were only recently introduced, not owned by everyone, and people not brainwashed into adopting endless debt as standard operating behavior.
So now let's consider the natural consequences of this approach in a slightly longer timeframe (say, 20 years instead of 10 years). As their debt load increases, people need to spend more and more and endlessly more of each paycheck to service their debt. I mean, this only makes sense too! If people spend twice what they earn for 10 years, then they need to spend half what they earn for 20 years to compensate --- and that assumes they lose nothing to interest payments!
But wait one second here. If that second 20 years people spend only half what they earn on products (in order to pay off the debts on their excess consumption in earlier years), what consequences does that have?
The answer is obvious! People are actually spending the same every year. But in the first 10 years they are spending A LOT OF MONEY ON PRODUCTS (twice what they earn)... while in the next 20 years they are spending A LOT OF MONEY ON DEBT REPAYMENTS and ALMOST NOTHING ON PRODUCTS.
Now, some of you might say, well that's natural, and they don't need to spend much money on products, because they already have a house, they already have a couple cars, they already have their entire two-car garage packed to the gills with totally useless old junk products... so they don't need to buy much of everything.
BUT WAIT. That's not the point. We're talking about the possibility of deflation here, even in the face of massive money printing. We were asking, "is that possible?". And this phenomenon we just identified is interesting, no?
Yes, we have just identified that in such a system, when this kind of "life of debt" becomes widespread and mainstream, that it leads to:
#1: LOTS OF BUYING IN THE SHORT TERM - year 1 to 10.
#2: VERY LITTLE BUYING IN THE LONG TERM - year 11 to 30.
But wait! What happens in that year 11 to 30 when 100-million people pretty much switch from "excessive buying of products" (twice what they earn) to "very little buying of products"?
Can we spell... massively lower demand for products? Yes we can! This is an unavoidable consequence of short term thinking and short term behavior.
I mean, if you're not convinced yet, consider the extreme case to understand how this works. Assume EVERYONE in the USSA went absolutely bananas-crazy the past 10 years spending like drunken sailors on everything from homes to furnishing to cars to vacations to education to clothes to jewelry to whatever-you-like. So now the entire country is deep in debt, and needs to pay out virtually ALL their income for the next 20 years to pay off these debts?
Exactly how much demand for products would this create? Answer: almost none.
And what happens when demand for products drops very low?
Standard answer: lower prices!
And the other name for "lower prices"? DEFLATION.
Now... if the fiat pushers were NOT printing like drunken sailors, which generates a natural tendency towards inflation, what would be happening now?
MASSIVE DEFLATION.
So the reason the hyperinflation camp has been "frustrated" isn't because they are wrong, but because they have only identified HALF the situation, and thus only see how the inflation part should occur. What they don't see is the fact that the current system after a decade or so of causing inflationary pressure... naturally causes deflationary pressures.
And those deflationary pressures are compensating for the drunken sailor printing.
So there you go folks. That's what the banksters know that you don't. They scammed the masses into deep, deep debt, thereby causing the current deflationary scenario. The inflationary pressures during the ramp-up period were offset by the cheap-labor-in-China syndrome, where 1.5 billion people were making goods for 600-million people for pennies an hour. If not for that, inflation would have gone wild. That provided cover for the banksters to get everyone in debt without causing an inflationary boom. Got the boom, but not nearly as much inflation as would have happened if everything purchased was produced by western labor.
The deflationary forces are real... and will remain real... as long as humans continue this completely irresponsible, inefficient, insane debt-based lifestyle.
But watch for hyper-inflation, because that's not inflation, but instead just a widespread recognition that fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-note toilet paper is not only worthless, but is a massive scam.
Thorough exposition, Ann. Well done.
+1
Nice one Ann. But you forgot something...
Debt is wealth
Ahhh. But then I forget, you're not a bankster! Lol
Debt is bankster wealth... on paper anyway. Well, I suppose you should have pointed out that we do have high inflation... in the banksters personal accounts.
You got me on that one!
They've pulled consumption forward so far that we're tapped out. Now they'll have to wait for us to reload.
:D
Great explanation.
In short, the credit bubble of the last 40 years WAS the hyperinflation. Now we will have deflation. Even the Fed can't stop it.
Actually, no (I'm not the one that neg'd you btw.)
The credit bubble was the credit bubble, pulling forward demand. It certainly has a role in what happens next, but...
Now we have deflation, and they're prining like mad to compensate for it -- and barely keeping up. The issue is that at some point the deflationary spiral hits bottom, and now there's a ton of cash floating around in a much-shrunken economy, and people wake up to the fact that it's worth way less than it used to be, and lose confidence. Where velocity collapsed to a standstill, now it's skyrocketing because no one wants to hold on to devalued money. That is hyperinflation
Deflation is basically a precondition of hyperinflation. We're following the textbook examples here, again and again.
The problem with your argument is when you say "and people wake up..." You could punch the vast majority of Amerikans repeatedly in the genitals and they would not "wake up."
Fair enough argument... which means we will have deflation as the primary trend (stagflation to be more correct in terms of what people "feel"), leading more likely than not into war instead.
They wake up because they're forced to. When you're paid $200/week and food costs $250/week, the grumbling in your stomach opens your eyes.
I have no doubt the onset of awareness will be delayed by programs like SNAP, but that will just result in a more rapid shift to awareness when the time finally comes
holy fuck, you can chew bubble gum and type like that at the same time?
shopping mall economics...
Look, we've hit the bottom on interest rates so it's party over on the U.S. Dollar as reserve currency. We just rode the deflation for how long?
The oppression is forcing money into the trap at the top!!!
My problem is that it is a curse to know this as there is really not much one can do other than watch Rome burn.
Cue war.
Peace out there Doomer Douche Bags
well ann, you do write them long, ... I hope all can get through...
First I would like to address the 'hyper-inflation' camp, they were sold a ton of shit by the PT Barnums, ... simply understand economic history shows how rare hyper-inflation is,
On the other hand a consumer mercantilist 'debt economy' always ends this way 100% of the time, goinh back to 2000BC.
Mercantilists offer credit consumers consume, but the debt gets out of hand, consumers MAX out their debt and quit consuming and they sell their shit rather than buy, then the producers have to lay everyone off cuz nobody buys the new shit,
The fast shit sells off the more deflation, like now the gold bugs of the past 10+ years have to sell their gold now cuz they're unemployed.
***
I like to reduce the whole show into one sentence.
1.) What people NEED rises in price, what people don't need collapses.
That's it, now we need FOOD&FUEL and they will go up, in the sense that the USD is more worthless everyday.
On the other hand nobody needs a car, or a boat, or gold, or any TOY, so every body sells their shit, and of course the demand for new goes to zero, which means everybody looses their job.
Gubmint prints more money in a panic to keep the status quo in power, but eventually the farmer rejects worthless 'money', and then the civilization collapses.
read 'decline of the west' 1918,... goes back to 2000 bc to 1918 and talks about how every fucking civilization in world history collapsed, and the USA today is no fucking different.
+1 Carlin. You are bringing some really good discussion to ZH. Thanks and hope to see you around.
inflation used to be a relief valve on excess debt. inflation without raising personal income is stagflation. (two sentences)
Yes, I often think my attention to detail and causality, plus my ability to type at warp 9.95 causes me nothing but trouble. But I also assume some people who don't understand these things yet need to walk through very slow, step by step, to understand what is happening.
You know, even I tend to fall into the "hyper-inflation camp", even though I understand the many deflationary aspects of the current fiat-scam-ponzi-system. Why? Because the evidence implies the predators will push it beyond the point of collapse, because they benefit all the way. And, in fact, predators absolutely love catastrophes most of all, because they are masters at turning catastrophes into justifications for overwhelmingly egregious practices.
Nonetheless, it is important I not lose sight of the very real deflationary aspects of the current fiat-scam-ponzi-system, otherwise I'd be at a loss for comprehension like so many other folks in the "hyper-inflation camp".
Could have said it simply: oversupply produces slack demand, or the same demand at a lower price point. That's what we have today.
Very good but let's carry the scam a few steps farther
1) Destroy the economy by sending manufacturing jobs overseas
2) Keep the economy going by encouraging everyone to live it up on borrowed money.
3) When everyone is tapped out and so deep in debt they can't afford to spend anymore, and it's all they can do to cover the minimum payment
4) Wipe the slate clean through default, bankruptcy, writing off debt, collapse of the housing industry
5)Pass the bad debts over to the government so the banksters lose nothing
6) Continue the scam like nothing happened
7) $$$$$ Profit $$$$$$
Yup. There's a lot more going on besides deflation pressures versus inflation pressures.
I'm not so sure about #4 though. One of the top agendas for the predators-that-be who make all this happen is... to return to a world in which virtually everyone accepts the "masters and slaves" (predator and prey) theory of human existence as utterly natural and unavoidable.
One of the best ways to achieve this is to let the predators default on their debts (and crimes), but attempt to keep all others (middle class and below) trapped in debt-slavery for life.
Of course, there are limits beyond which people just give up, and say "do with me what you will", and the predators prefer not to push that too far, because keeping slaves in jail does little for them except consume resources (about $50,000 per year).
But other than this minor quibble, I can't disagree with anything you say.
QE is deflationary. By propping up asset prices you direct spending into asset prices instead of into goods and services. If you want inflation then you have to let assets become cheap. I find it hilarious how the central banks are feeding the black hole and wondering when it will stop.
SWRichmond from a few days ago..........
''Because after all, all QE really is, is an attempt to inject money into a deleveraging system and to offset the resulting deflationary effects.
Everyone on mutherf*cking planet earth needs to read and re-read that statement until they understand it. The Fed is printing "money" in an attempt to offset "credit destruction" caused by "capital destruction" of likely between $3-5 Trillion in the US alone, and in a leveraged, fractional-reserve system.
Are "money" and "credit" the same thing (hint: NO)?
HOW MUCH "MONEY" DO YOU THINK THEY WILL NEED TO PRINT?''
http://www.zerohedge.com/news/2013-11-25/chart-day-how-chinas-stunning-1...
No all that QE is, is the FED giving uncle sam money every month to pay his bills, as uncle sam is fucking broke,
There are no tax revenues, and nobody on the fucking planet willing to buy US Debt, so uncle sam, is now 100% dependent upon UNCLE FED.
Uncle FED can pull fake money 'electronic USD's' out of its arse forever, not unlike BTC's.
Deflationary event? Surely that means selling gold and silver ASAP?
Well in USD gold could go to $50k,
But in Bitcoins GOLD could go to 0.001 BTC's, ...
the problem is not to think about the buying power of the USD, but to think that folks need to DUMP their shit in order to get cash to buy food.
As food becomes more scarce, it will cost an ounce of gold to buy a pound of rice, so fucking what if you have gold, eventually your gold will be gone,
Probably this is a good reason, if you understand history that Jim Rogers is correct "BECOME A FUCKING FARMER".
...and just hope your farm is not in the Fukushima district
HAHAAHHAAAA I'm buying 200 lbs of rice today so I can exchange it for 200 oz of gold in the future!
I'm going to buy some wheat berries too, even thought I have no idea what the are!
PMs, like everything else, have a time to be sold and time to buy. PMs can rise in deflation actually. It all depends on capital flows, actions of desperate governments, etc. And it most certainly does not guarantee that a stacker will live like a rock star if gold skyrockets. Value, even for PMs, is relative.
all right i'll explain it to you zhers though i doubt you will understand the fed qe's to devalue the dollar lest the dollar rises & asset values fall one day & no one knows when this will fail kyle bass who is lot richer then me thinks its the day the japs can no longer pay their bills other people have other days for me its when italy leaves the euro but no one knows but the day will come miss piggy will announce a huge qe & you know what people will still want $'s (i knew you wouldn"t understsnd)
"(i knew you wouldn"t understsnd)"
I hate to break it to you, but NO ONE can understand a monkey scribbling with crayons...
Do you have any idea of the date when you expect Japan to leave the Euro? That would be a SIGNIFICANT Black Swan.
Oh! oh OH!! deflation talk orgasm.
Mamas (moms) don't let yer babies grow up to be deflationists.
Now on to the subject of defaltionary shocks. We have been having them since 2001/2. The Japanese can't even look out the window without seeing deflationary ISON's zip by. The JCP retirees are about to have a deflationary shock.
What we are not having yet is "the big reset" or the Credit Anstalt event. Instead we are pulling the keynesian band aid off slowly and when a whisker gets plucked out its a deflationary shock. One by one there are implosions and restructurings.
We have a lost decade, another, etc how long can this go on? What is important is that it IS happening and with a world of central banks printing they can't stop it.
I almost wrote in the Yin/Yang version but yes, we already had our deflation and know we're headed back to inflation.
o.K, AKAK I've misjudged you... Russel Napier is actually Super Douche!!!
We just watched bond yields hit the low people!! Yin was a fuckin bond bubble for those who didn't notice. Yang is inflation and the bursting of that bubble!
The corruption of the system and the fascist regime under which we are now operating is masking the true gravity and/ or laws of physics.
haha, maybe that douche from Phoenix asset management can copy me and title his post, "Yang proof your portfolio".
Deflation is in the worthless mortgages the Fed is buying every month at full value.
The purchase of MTG by FED is a finger in the dike to keep the real estate prices HIGH,
If the RE prices were to collapse to where they should be, back to 1970's prices, .e.g. DETROIT today, $15k for a house, then 90% of the folks with MTG debt would walk away,...
The FED is the only reason we don't have a fucking RE deflation YET, but the fact is we do if you look at detroit and any other similar city that houses are worth close to zero.
I agree that the talk of deflation is one of the few voices of reason on ZH,
Rather than talk of inflation, sure things that folks need to up, cuz the value of the money is going down,
But things people need, is quite different than what they don't need,
and folks are SELLING everything they don't 'need' including their gold, which is why gold is going down,
real estate will also go down, once the gubmint quits giving away free money to buy homes, and and this will end,
the way to look at it is what people NEED will go up, like food and fuel, and what people don't need like houses, cars, and gold and toys they will collapse
The BTC only goes up cuz the QE flowed to social-network IPO's and the geeks used that money to buy btc's and mining machines,
But deflation is what we have and it is the real enemy of Bernanke, as once the value of real estate collapses then the books will show that the USA is 99% in debt, or better yet that it has a negative net worth,
But people will sell everything thing they own to get food, and this is what deflation is all about,
inflation for things i need (food, energy)
deflation for things i want (flat-screen)
Can you just imagine how many people stop paying their mortgages when the houses deflate to true value of a box with a roof. EPIC.
... for me to poop on your coupon!
I am confused by evething I read and see.
Nothing to be confused about. The Fed has a printing press and is not afraid to use it.
No, gold is not going back to $24 oz and a Buick won't go back to $695.
But maybe a Buick goes for 24 oz and Au goes to 695 0.
yep, after slashing a bunch of zeros off the dollar (eg 1000 current USD = 1 new/future dollar). has happend many times throughout history, and the world has never ended when it occured, and it won't when it will occur again.
The Buick may go back to 695 ounces of silver.
thank you i thought it was crystal clear, and better written than most deflationary scenarios. the fact the average guy doesn't get it means its probobly correct (dont worry hang around you'll get it)
That's just common sense. Once you burn through that everything will be all right
suppose housing prices dropped to a level where working people could afford a home? imagine what that would do for the economy? massive inflation pickup (so when bernanke says he wants inflation but he uses QE to build asset prices he's lying) he could have all the inflation he wants, just dump that MBS you're holding onto the market. nixon fucked up badly by implementing price controls, bernanke is price controls on steroids, and he's not even the president!! obama has professional jealousy of course, so he appoints yellen, because he thinks white women have a thing for black men. he may have to OJ her before its over. (shes ends up a bloody corpse and he is in jail) not a fairy tale ending ducklings
Working people? I've seen more UFOs than working people over the last few weeks.
I bought a $45 shirt for $2.75 today. Some sectors are in a Downward Deflationary Death Dive.
However, my health insurance (forced off my personal plan b/c of Bamacare) has increased 23%.
Mine up 100% in Cali with the pullout of Aetna ... Obama's my man
But how much did that stun gun cost you to enable you to acquire that $2.75 shirt?
Your experience is apropos, but, concerning health care, look at the aggregate demand. If HC prices increase by 23%, 50%, 150%, aggregate demand will fall, if only because some people don't need HC (young people without kids) and others will simply walk away and take their chances (people in good health in their 40s, 50s and 60s who understand math - i.e., $800 a month for a policy with $7000 deductible, or similar).
ACA will end up being wickedly deflationary in the aggregate due to non-participation rates. The death dive is coming.
Can't wait.
Don't overlook the rise of alternative health care. When the flu can cost you your house, eating dried weeds and hiring a hippy to wave crystals over you can look like a sensible alternative.
It is easy to understand how massive deflation is possible in the current system. Money is created as debt, and the total amount owed is always greater than the amount borowed. Thus, the sum total of all monetary assets is a negative number, and the more Central Banks print, the more negative that sum becomes. It is only because the due dates are spread out over a long time continum that these negative sum effects are not terribly obvious. And when population isn't growing much, if at all, new generations aren't borrowing more to buy more stuff than the previous generation. Ultimately, deflation has to occur.
But once there is massive defaltion, the system will have a phase change induced by the political emergency. It will change from a system based on loaning money into existence to one based on pure seigniorage. Seigniorage has always been present of course, but far more money is actually created by loans than by government seigniorage. Once this situation gets inverted and seigniorage becomes dominant, that ends the deflation and brings on inflation. But political pressures to spend spend, spend, and help out squeezed constituents triggers a runaway inflationary condition that starts feeding on itself. Once inflation enters a positive feedback loop, it quickly progresses to hyperinflation.
I'll bet you 2 billion 0.40 hollow point bullets that there are low-lifes in high places planning on a big cutback in real government spending. But we can't do that while all these crazy beer guzzling, bourbon drinking redneck pseudo citizens still have guns. What we need is another and bigger massacre of tiny tots. Then roll in the crisis actors and roll the cameras, only this time give them a serious fucking audition. We need actors who can shed tears on demand without prepping for 5 minutes on stage while some jerkoff is filming the warm-up and uploading it to youtube. Eventually the sheeple will realize that only Obama, Eric Holder, Keith Alexander, and the Zetas (referring to the Mexican drug lords and not the bugeyed aliens) are sane enough to manage lethal weapons. Maybe the bugeyed aliens also. Krugman would know.
Problem is if you build your theory on official inflation numbers I've got an other bridge to sell. But if there's disinflation going on there this is indeed deflationary although real inflation may still stay stubbornly high. Because disinflation still isn't deflation especially not if you're trading in dollars and that's were it all went wrong. Which side is 'winning', Deflation or Inflation?
DEFLATION
- Massive Fraud
- City's and Country's Insolvencies Via Fraudulently Imposed Very Toxic Bank Balance Sheets - Over-indebtedness
- Stagnating and Declines Wages
- Record Unemployment – Record Food stamps and No Jobs!
- Record Bankruptcies in Small, Medium and Even Big Businesses
- Bursting Bond Bubble – Higher Interest Rates - Which Blows Up The $1000 Billion Derivatives Market - Sky rocketing Debt!
- Bursting Stock Market Bubble – Lower Company Value - No Consumers! (Buying up your own company stocks with funny money doesn't work forever)
- Bursting Housing Bubble – Declining Housing Prices - Again!
INFLATION
- High Oil (Which is in every product also food) - Thus High Food!
- Overnight Devaluation of the Dollar - Hyperinflation!
Deflation = prices move where they belong to.
If oil and gas is abundant and the costumers can not afford to buy then prices are going down. With all the negative consequences for the oil and gas producing countries. Be it Saudi, Russia, Iran, Iraq, etc. The natural outcome is the revival of OPEC extended by the natural gas sector. And thi means, price may go down but not to levels not sustainable for the above mentioned countries and other producer countries of course.
stock prices going down dramatically. The valuation is then returning to its normal level. A stock is value by its present substnce and future dividend payments and its stability.
governemnts can then not anymore serve their debts, nor are they capable to raise new debts. The results are riots, trouble and hunger in many parts of the world. Then everybody wants debt foregiveness because without it there is no new start possible. This can be done in an organized way or by hyperinflationary deflation. It looks to me that we are heading towards hyperinflationy deflation. This is going to hit the whole world but some do perish more and some do less. The whole currency wars and other economic warfare is all about that. The Brics do not like anymore to pay the bill for the US/UK. for good reason because the loser is not a loser just for now but for the decades to come. This is going to be an economical armageddon for the losers while for the winners the future looks quite bright once the power of their main rivals is broken.
And the loser is in my opinion: US/UK empire most probably. It all depends on the power of the fomer allmighty US Dollar.
I don't know why bears keep predicting deflation when there is NOTHING TO PREVENT THEM FROM PRINTING. They won't stop printing and they can buy anything they want with it so how do you expect people from circumvent their 'pricing' mechanism?
The only time we will see deflation is when the Fed decides to 'create' deflation by shutting off the printing presses. Thus, deflation won't be an event, it will be a choice
Total world debt levels are many multiples of total dollars. They do not really want to destroy their precious dollar.
I think that of you review some hyperinflationary events of the past, you will find that debt defaults are the fast track to worthless currency. I believe they are slightly delaying the ultimate horrorshow by printing money now to stop some defaults. But it is just a delaying tactic.
"The only time we will see deflation is when the Fed decides to 'create' deflation by shutting off the printing presses. Thus, deflation won't be an event, it will be a choice"
Inflation causes deflation. Japan has had 20 years of deflation despite running printing presses. As i have also read recently, QE is deflationary.
A cycle has two phases, up and down.
Don't fight the fed. I don't know how, but they will find a new way to steal from you and pretend the economy is improving with new ways to lie we haven't thought of.
Jim Rickards and Peter Schiff have commented on deflation masking the inflation. We would see more inflation if not for the deflation. Prices should be going down more but inflation is holding the prices up. Does that sound right?
Definitely.
Just imagnie what the world would be like if the TBTF Banks hadn't been bailed out. We'd have actual price discovery. Or at least something much closer to it. Instead, we now have prices being smothered in an ocean of what's called cheap, easy money. And it's only the beginning. Just imagine what will happen if, what has GROWN to, $2.3 Trillion in excess bank reserves get out in a fractional banking system.
Georgre W. Bush - "I've had to abandon free market principles in order to save the free market."
Yes there is some truth to that imo.....there is inflation in some areas (health care, education, taxes, food, equities) but not in others (commodities, retail goods) and there is inflation in some parts of the world (India, Brazil, China) and not in others (Europe, Japan, USA)....so what gives? It would seem that the QE and ZIRP have created a god-awful mess that is very hard to figure out....printing dollars and exporting inflation, creating a deflationary environment in their own countries. If they were to stop manipulating rates/currencies then things would even out but that is not going to happen as it would cause a crash in the US/Japan/Europe....interest rates there cannot be allowed to reset as debt is too high. The imbalances caused by this situation are highly unstable/unpredictable (a bit like waving a lit cigarette around in a closed garage with gasoline on the floor and in open jerry-cans)........I don't think anyone has this under control although they might think they do........just don't drop that ciggie, Janet!
Yo-Yo to index finger: Yo'all come back now.
QE for un-regulated entrepreneurs and incentivized police to join the real force of animal spirits.
Another trap they have gotten themselves into with their bullshit. They have understated the inflation figures for years by rigging the calcualtions. Now their phony figures are in danger of going negative even though it is really 5% - 10%. So they are in the unpleasant position of being force to put inflation into overdrive or let it appear to go negative, which they have been saying (falsely) would mean the end of the world.
Catch 22. The best catch there is.
when the market tanked in 08 i said to several people, dont worry interest rates will go up. the problem with the market is that risk isnt being priced. there is no problem with economic activity, this is a financial crisis, the banks and so forth. the only logical thing to do is raise interest rates, though this might cause some pain for mortgage holders, it will clear out the weak hands, and DROP home prices to where economic activity can resume at a normal pace. i said be careful when you (refi) mortgage bank folds they sell the paper to another who can call that paper or renegotiate your interest rates. so if youre with a solid bank, no problem. if youre with countryslide, hold on to your hats. as the mortgage market expanded so shall it contract. i also said the gold stocks should do real well. i was wrong about everything, though i can make the argument that i should not have been, and the deflationary event has morphed into deflationary policy. as long as i am being wrong, when they start shrinking the money supply that will become apparent (just as the BOJ did back in the day)
"i was wrong about everything"
Same here.
But you see, we're the little people. Our problem is we don't work for the Government. You know, those people who can't possibly ever be wrong about anything.
That's a bit of an overstatement to try and make a point. I cannot say that everything the Gov't does is bad and/or wrong. Anyway, I'm sure you get the idea.
Ditto. That is until now?
Had the PTB allowed the rules to be followed and allowed bankrupticies to occur, prices to drop, etc then you would have been correct BUT rules don't exist for them only for you and I so don't try to extrapolate what will happen when the rules have been suspended. I'm in the same boat as you as all of my knowledge of economics led me to believe certain things which never happened.
"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.
BASSACKWARDS
Deflation is needed to relieve debt burdens. Reflating an exisiting bubble increases debt obligations, as money is created out of DEBT. The tax payers owe trillions more to pay government debt, than they did 5 years ago.
There is no deflation. Tail events are not allowed in a rigged market. Arguments defeated without ever even addressing the fact that they were totally baseless. We are hyperinflating. If you want to tell me the Fed is going to purposely put the DOW down 1500 points, ok. But don't start with that deflation horseshit.
"There is no deflation."
Yet, anyway. What is the cure for higher prices? Higher prices. A burst bubble is deflationary. Have you noticed the bubbles?
Currency purchasing power is in a bubble.
Deflation = prices move where they belong to.
prices move up or down to where they belong based on price discovery. give everyone a million dollars and prices will jump.
Have to tick this down because it is patent nonsense. Deflation = bad debt cascade.
We are facing hyper-stagflation, a massive collapse in the wealth of the 99% and a massive spike in commodity prices, as all the money is hoarded and printed for the 1% who control commodities.
I take a different view of what constitutes inflation and deflation with reference to disposable income. In my books if one out of two breadinners in a family lose their job then that family has experienced 100% inflation. So even if prices are falling, the loss of jobs or a fall in wages could in effect have the perverse effect ofinflation in reality.
The point I am therefore making is that we need to closely look at employment and wage levels in charting the infation/deflation debate as all too often we have seen both operating side by side depending which asset class, which cosumable and which economy we are looking at at any given point in time.
Does a major deflationary event trigger a drop in gold and silver prices historically?
If gold prices don't go down then your gold's buying power has increased without its price increasing.
The real problem with answering your question is that the level of rigging of the gold and silver price does not allow a clear answer at least up until now.
In the meantime keep an eye on comparative vlues rather than price.
in the 30's they took your gold, but money simply disappeared. if you took your cash out of the bank and buried it in the backyard, that was the best financial advice at the time, and probably still is.
"I don't know why bears keep predicting deflation when there is NOTHING TO PREVENT THEM FROM PRINTING"
So why aren't they printing 500 billion a month, if there is nothing preventing them from printing?
I think the short answer to that is that so far the money they have been printing has been used by the elite to push up asset prices. Had they been distributing the printed matter to the plebs it may well have ignited much greater inflation.
Apart from the reason of self interest , the reason why they chose the former is that at least on the books they still have an asset from all their money printing (even though it is of questionable value) whereas distributing free cash to us plebs leaves them with more debt and no corresponding asset.
This is my view, but I defer to the smarter people on this blog who may have a better explanation.
yes printing money for main street would have created the inflation they want, therefore they are goddam liars who should be frogmarched into prison. everyone can see whats happening. there is no rocket science here, things are just what they seem (for once)
The printing is of treasury bonds which have been given to banks in exchange for bad mortgage derivative producst. So the banking trash get richer and muggins the tax payer is lumbered with rubbish.
Helicopter Ben has very select LZ's.
Hint: We ain't in em.
printing money only worsens the problem. in secret these guys know that deflation is happening, and they are trying to figure out a deflationary policy that wont send everyone screaming into the streets. look at money velocity, (which could go negative), what happens in a TRUE deleveraging is that money disappears, (this is money all built on the come, margin on top of margin) now the Fed is not so quietly reflating the big institutions (by stealing from widows and orphans, not nice) if it takes 15% phony stock market gains to keep assets prices at zero, where the fuck are we? we have to make the case that structural changes to the global economy are bringing down values, and they are doing the only thing they know how to do. but its hard to pump air into a tire while the car is moving.
If the Fed cannot cut an 85 billion dollar monthly QE to a 84.999999999 billion dollar QE it should send a very clear signal that they don't even believe their own Ponzi scheme. They just want to retire and die before it crashes and leave the roadkill to everyone else. We have an economy built on the 70s game Kerplunk in which sticks hold up marbles and the loser is the one that pulls the stick that causes it all to fall away. Meanwhile the greatest wealth transfer in the history of the solar system continues unabated. They will then cry poverty and take everyone's social security and 401Ks.
For older or EU members: Kerplunk = Jack Straws
What BS.
Look at taxes, fees and healthcare costs. All have increased. Some by as much as 100% in the last 4 years.
Tolls on roads doubled in some places. Rapid transit prices have also increased over 50%.
Look at education costs. Some schools had a 30% yearly increase in tuition on the last 2 years because the states cut funding due to state fiscal problems.
These people don't get out much. Oh, there's plenty of inflation.
From friends and their private healthcare cost....
50 % increase already since 2010 and going up again.
Guess people can't afford consumer items as much because the money is being diverted to pay healthcare, increasing entitlements as well as government workers and their guaranteed pensions
Bubbles Chronicles: Bill Still Is Pumping Quark vs Bitcoin - Collapse Is Near
All world has gone mad: Bill Still is pumping Quark! Just watch this video and remember how the Bubble stage looks like and what are the arguments presented to buy something "which definitely will go up." We must be very close to the Bitcoin final parabolic rise before the Crash. If Bill Still can not withstand the plot to get fast rich scheme, what can we tell about the other people? It is very interesting that Bill talks about another 30 crypto-currencies and there are at least 100 else are in existence. Why on Earth to buy Bitcoin at $1200 if you can buy "the better" Quark, which was pumped by Bill Still only to 4.5 cents by now (more then 2000% as Bill proudly has noted!?). Just Sell you Bitcoin now and move down the food chain - "it will be a sure thing: all crypto-currencies will go up once Chinese will be able to buy it, particularly after the Bitcoin will be Crashed." It looks like we have found finally our own youth portion and will spread our bets evenly among all 100 crypto-currencies, with this kind of sure gains how can we lose anyway? Can you imaging if India will join this crazy feast, what about Malaysia? Can somebody tell Obama to put NSA to proper work finally? Just make the super duper NSAcoin with triple encryption, warranted from Spying and accepted for Tax payments and let Obama to Pump it a little bit ... 17 Trillion in Debt will be repaid very soon - at least we will have better roads and bridges. Can we get into this one as well at the start of Pumping? And yes, who needs Gold and Silver any more, particularly, when it goes nowhere in price or even down compare to Quark as Bill is reporting? All that dirt, billions of investments - who are those silly people buying all that Gold any more?
http://sufiy.blogspot.co.uk/2013/12/bubbles-chronicles-bill-still-is.html#
Aren't we also on the eve of Kirk Cameron of Growing Pains fame to be starring in Left Behind 4.... the bitcoin story?
http://tradewithdave.com/?p=19339
Gotta be glad that all of the printing has kept granny's annuity payment coming. The same with all of the other fed, state, local govt and corp pension plans. Use this time wisely.
1.10/0 is not a number.
Whats a person to do? Keep high savings and wait for a major deflation event? Buy gold and silver? I'm confused... Thanks
It means this guy is 1 guy flying in the face of all those who think inflation is the way its going to go.
This guy's main premise rests on ONE EVENT to trigger the deflationary spiral. The inflationary guys also rest their outcomes on ONE EVENT.
I'm waiting for the ONE EVENT...........and that's the Rapture (which has a better chance of occuring than the ONE EVENT all these guys think is going to happen when we've got the whole world manipulating markets).
PS: go about your business. save what you can. cash reserves are good. gold just lost $100/ounce over the last month (I don't know if it was manipulaton or if the dollar is getting stronger - and why would that be? who's buying it? who trusts it?), stocks are frothy but with Yellen in and still going QE infinity the bubble gets bigger so ride the expansion but beware and get ready to get out very fast (so that means you've got to pay daily attention), and then there's geopolitical developments that should be taken into effect but are made meaningless by central bankers. Got it?
You mean there is an economic consequence to the manipulation of currency and precious metal prices??!!
I wish I could tell what will happen, but there are too many imponderables. I would prefer a deflation of the money supply, because that would be less damaging to the country. It would take monumental stupidity for the FED to provoke a hyperinflation. A hyperinflation would take massive intervention. But, even so, that's the way I'm betting.
These are Liberals, as well as Keynesians, after all, and they never do anything right or sane.
Somebody's gonna let loose a wet burrito fart and everybody's gonna run for the exits.
I'll be laughing my ass off looking through the window.
It'll look like this:
http://farm7.staticflickr.com/6181/6131005166_76dc62b905_z.jpg
Lots of folks will abandon efforts to pay back debt. They need books like my "Debt Hope: Down and Dirty Survival Strategies."