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Inflation Vs Deflation – The Ultimate Chartbook Of 'Monetary Tectonics'

Tyler Durden's picture




 

Financial markets have become increasingly obviously highly dependent on central bank policies. In a follow-up to Incrementum's previous chartbook, Stoerferle and Valek unveil the following 50 slide pack of 25 incredible charts to crucially enable prudent investors to grasp the consequences of the interplay between monetary inflation and deflation. They introduce the term "monetary tectonics' to describe the 'tug of war' raging between parabolically rising monetary base M0 driven by extreme easy monetary policy and shrinking monetary aggregate M2 and M3 due to credit deleveraging. Critically, Incrementum explains how this applies to gold buying decisions as they introduce their "inflation signal" indicator.

 

GoldSilverWorlds.com has done a great job of summarizing the key aspects (and the full chartbook is below)...

The authors introduce the term “monetary tectonics” as a metaphor for this war. Similar to tectonic plates under a volcano, monetary inflation and deflation is currently working against each other:

  • Monetary inflation  is the result of a parabolically rising monetary base M0 driven by the central bank monetary easing policy.
  • Monetary deflation is the result of shrinking monetary aggregates M2 and M3 because of credit deleveraging.

The following chart clearly shows that 2013 was a pivot year in which the monetary base M0 grew exponentially while net M2 (expressed on the chart line as M2 minus M0) declined significantly.

deflating credit vs inflating monetary base 2000 2013 money currency

The chartbook shows several trend which confirm the deflationary monetary pressure:

  • Total credit market debt as a % of US GDP has been shrinking since 2007 (“debt deleveraging”).
  • US bank credit of all commercial banks is stagnating (close to negative growth), similar to the period 2007/2008. See first chart below.
  • Money supply growth in the US and the Eurozone is trending lower. See second chart below.
  • Personal consumption expenditures are exhibiting disinflation .
  • The gold/silver-Ratio is declining. Gold tends to outperform silver during disinflationary and/or deflationary periods.
  • The gold to Treasury ratio is declining. See third chart below.
  • The Continuous Commodity Index (CCI) has been in a steep decline since the fall of 2011.

US bank credit commercial banks growth 1974 till 2013 money currency

 

money supply growth M2 vs M3 1991 till 2013 money currency

 

gold to bond ratio 2002 2013 money currency

On the other hand, inflationary pressure is present through the following trends:

  • An explosion of the monetary base M0. See first chart below.
  • US households show signs of stopped deleveraging. See second chart below.
  • The currency in circulation keeps on expanding.
  • Commercial banks have piled up an enormous amount of excess reserves which, in case of a rate hike by central planners, could flood the market through lending in the fractional banking system. See thrid chart below.

US monetary base since 1918 money currency

 

US households stop deleveraging 1971 2013 money currency

 

excess reserves 2000 2013 money currency

How is gold impacted in this inflation vs deflation war? The key conclusion of the research is that, due to the fractional reserve banking system and the dynamics of the ‘monetary tectonics’, inflationary and deflationary phases will alternate in the foreseeable future. Gold, being a monetary asset in the view of Austrian economics, tends to rise in inflationary periods and decline during times of disinflation.

The key take-away for investors is to position themselves accordingly and consider price declines as buying opportunities for the coming inflationary period. How comes one can be so sure that inflation is coming? Consider that the government must avoid deflation; it is a horror scenario for the following reasons:

  • Price deflation results in a real increase in the value of debt and a nominal decline in asset values. Debt can no longer be serviced.
  • Price deflation would lead to massive tax revenue declines for the government due to a declining taxable base.
  • Deflation would have fatal consequences for large parts of the banking system.
  • Central banks also have the mandate to ensure ‘financial market stability‘

inflation deflation US Fed 200 years money currency

Interesting to know, Stoeferle and Valk developed the “Incrementum Inflation Signal,” an indicator of how much monetary inflation reaches the real economy based on market and monetary indicators. According to the signal, investors should take positions according to the the rising, neutral or falling inflation trends.

monetary seismograph incrementum inflation signal 2013 money currency

 

 

 

Monetary Tectonics Inflation vs Deflation Chartbook by Incrementum

 

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Thu, 01/09/2014 - 10:57 | 4315149 Event Horizon
Event Horizon's picture

In 1913, a paradigm was worth $0.20,

with inflation now $0.02

Thu, 01/09/2014 - 12:06 | 4315463 Boris Alatovkrap
Boris Alatovkrap's picture

Definition of inflation and deflation is depend on who is define. Bankster fear deflation of asset, collateral backing, does not care of deflation of commodity or food or stuff is use by citizenry. This is not "deflation" of bankster. Bankster fear inflation is wages because citizenry is cut into wealth skimming activity of bankster. Now when fancy pant paid celebrity economist is refer to inflation and deflation, you are understand nature of discussion.

... just Boris' 2¢

Thu, 01/09/2014 - 16:06 | 4316548 SafelyGraze
SafelyGraze's picture

nice. the cents sign is recognized.

btw, which of the monetary measures captures derivatives / swaps

not M0 M1 M2 .. 

http://nowandfutures.com/images/bis_derivatives_nominal1.png

 

Fri, 01/10/2014 - 01:43 | 4318449 bustdrs
bustdrs's picture

Big like.

We love it when people promote the deriv spreadsheet of the BIS.

It gives a chance to ask what we did to "manage risk' before deregulation was bulldozed through by fat Larry and Rubin in 1998.

Fri, 01/10/2014 - 07:07 | 4318731 tradewithdave
tradewithdave's picture

Tan Larry ... endless Summers.

Fri, 01/10/2014 - 04:54 | 4318654 Carpenter1
Carpenter1's picture

No way in Hades the banks let the debt slaves pay them back with debased currency. Deflation first, banks take possession of all assets at pennies on the dollar, then hyperinflation.

Thu, 01/09/2014 - 22:45 | 4318054 Crash N. Burn
Crash N. Burn's picture

"As the debts go higher and higher (which can only end in a deflationary crash); we see the money-printing accelerating at least as quickly, if not faster (which can only end in hyperinflation). Much like the deductions of Sherlock Holmes appear “elementary” once explained to the reader; so too do these economic dynamics appear, which Williams was the first to correctly decipher.

Prior to committing us to a hyperinflation death-spiral ....; it would have been possible to have suffered only a deflationary collapse/purge – a debt-default purge known historically as “Debt Jubilee”. But this would have required the Masters of our Ponzi Economies to allow their own, ultra-leveraged Paper Empire to also be entirely vaporized in that economic purging of bad debt and malinvestment.

It is because these Masters (previously identified as “the One Bank”) refuse to allow their empire of bad debts and ultra-leveraged bets to implode that they have committed us to the worst of economic catastrophes, hyperinflation. Like trying to inflate a punctured tire; they pump more and more of their paper currencies into these Ponzi Economies (at an exponentially increasing rate)."

When Deflation Becomes Hyperinflation

Paper assets deflate, while real assets explode. I'd say "it'll be fun to watch", but of course, it won't.

 

Fri, 01/10/2014 - 01:18 | 4318405 Tall Tom
Tall Tom's picture

Boris ...You might agree that now, today, you'd have had your paradigm. In 1973 it would be just your 2 cents...

 

LOL..

 

Good pun Event Horizon...

Fri, 01/10/2014 - 06:04 | 4318695 mt paul
mt paul's picture

with deflation

.2cts

Thu, 01/09/2014 - 10:57 | 4315179 Lucius Corneliu...
Lucius Cornelius Sulla's picture

The ability to further expand credit is predicated on wages.  IMHO, as long as they remain depressed then deflationary pressures will persist.

Thu, 01/09/2014 - 11:06 | 4315206 LawsofPhysics
LawsofPhysics's picture

Deflation of what?  Useless plastic crap you don't need, or commodities essential to survival and a high standard of living?  With 7+ billion, and growing, all competing for a better quality of life, I see plenty of demand for the latter.

Thu, 01/09/2014 - 11:34 | 4315308 Singelguy
Singelguy's picture

There is pent up demand but with stagnant / declining wages consumers have niether the cash nor the access to credit to satisfy that demand. With consumer debt at 160% of income (but declining slowly) even if the consumer had access to credit there is little ability to service more debt. Wages have to increase before demand can be satisfied.

Thu, 01/09/2014 - 12:08 | 4315472 Boris Alatovkrap
Boris Alatovkrap's picture

Solution is obvious, raise Federal Mandate Minimum Wage to, oh, say $50, no $100 per hour. This is fix USSA economy for good.

Thu, 01/09/2014 - 22:53 | 4318076 Soul Glow
Soul Glow's picture

Demand for what?  What do people actually need to survive?  Fresh water, nutrition, warmth.  And look at most people!  They aren't even getting those three things and they go to see movies twice a week.

Most people drink water with a ph below 5 due to city water and that is if they drink water at all.  Most people drink pepsi/coke products and eat fast food and neither has any nutrition.  As for warmth most people have horrible circulation from sitting all day.  See, people don't even need these things and they are staying alive like the Bee-Gee's.

So as for TVs and gadgets, well, people don't need them.  There is no pent up demand.  These things are wanted by greedy people, and when inflation and cost structures have oil around $100/b, these things fall by the way side.

Thu, 01/09/2014 - 11:40 | 4315323 BuddyEffed
BuddyEffed's picture

Deflation in things that require long term loans and a high probability of stable workforce numbers and stable workforce incomes.  If wages stagnate or unemployment increases, it would seem to follow that it could become harder to get credit and that the price on things needing 7 to 30 year loans could drop.  Deflation in discretionary items too.  But yeah, inflation in basic necessities seems very possible.

Thu, 01/09/2014 - 14:02 | 4316024 HoofHearted
HoofHearted's picture

We like to call this "manipuflation." 

Thu, 01/09/2014 - 15:36 | 4316369 Herd Redirectio...
Herd Redirection Committee's picture

So deflation in:

House prices (in most non-laundered money locations)

College tuition

Cars (esp. new?)

 

Inflation in:

Energy prices

Food prices

Health care costs?

Fri, 01/10/2014 - 00:46 | 4318356 DaveyJones
DaveyJones's picture

for those reasons and due to the uncertainty of money and its value. People are moving out of long things including long term instruments and continue to crowd money on the short end of things..where there's less risk with less time. No one wants to hold on to it for very long because it's becoming the very opposite of its purpose and function - certainty, stability, and a steady abstract of exchange. This happened in Germany in extreme ways, people would not take hold of the money until they knew exacty what they were then gonig to exchange it for, something in the real world.  

Thu, 01/09/2014 - 11:20 | 4315249 mayhem_korner
mayhem_korner's picture

 

 

Deflation will persist on things which are financed by debt so long as the credit supply is dammed up.  But things that are not financed - consumer staples, perishables, etc - can and will be subject to inflationary pressures.  Neither deflation nor inflation is universal - both can (and do) occur simultaneously as a function of the way they are financed.  And the more folks are strapped with keeping up with inflation on staples, the less they have available to service debt on durable "assets" like housing.

The only reason housing hasn't collapsed farther is that the beneficiaries of the endless liquidity are (again) speculating via cash purchases.  This will not end well, but I believe that the pressure from interest rates is going to be the catalyst to reel in the uber speculation on housing, stocks, etc.

Thu, 01/09/2014 - 13:07 | 4315752 bwh1214
bwh1214's picture

Until a loss of confidence, a physiological phenomenon, I believe it will happen and happen quickly at some point down the road.  At that point all debts will be destroyed.  It doesn't matter all that much if there are a trillion dollars or 100 trill, a loss of confidence will cause money velocity to skyrocket and however much money is in the system will be more then enough to cause the hyperinflationary spiral.

Thu, 01/09/2014 - 23:55 | 4318223 Soul Glow
Soul Glow's picture

A Treasury auction where the indirect bidder doesn't hit buy should do the trick.

Fri, 01/10/2014 - 00:52 | 4318367 DaveyJones
DaveyJones's picture

they're speculating and criminally? controlling the market by holding off foreclosures - which they can only do with the "criminal" assistance of public money

Thu, 01/09/2014 - 15:16 | 4316271 AbelCatalyst
AbelCatalyst's picture

Totally agree...  In addition, in a fiat based system debt IS money, and the destruction of debt is a decrease in the money supply, which means an increase in the value of the dollar, which is deflationary...  As long as dollars have a place to go and die (debt destruction via paying down debt or default), then deflation will be in play... As soon as the debt shrinks to a reasonable level, inflation will kick off...  Unfortunately, we have a VERY LONG deflationary road ahead and the Fed is running out of runway...   

Thu, 01/09/2014 - 10:59 | 4315184 yogibear
yogibear's picture

With over $200 trillion of US debt it'll be printing gone wild for Yellen and the rest of the fed members.

Thu, 01/09/2014 - 11:03 | 4315197 Debugas
Debugas's picture

Yellen can not print to give money away for free

She can only print to lend out in exchange for obligations to repay back

Thu, 01/09/2014 - 11:30 | 4315264 Bastiat
Bastiat's picture

The fed can also print to purchase near worthless assets at inflated prices.  The inflated prices being the "giving away" part.

Thu, 01/09/2014 - 11:33 | 4315295 Debugas
Debugas's picture

does not it need to get new treasury bills for it to happen ?

Thu, 01/09/2014 - 11:40 | 4315327 Bastiat
Bastiat's picture

No.

Fri, 01/10/2014 - 00:15 | 4318252 Soul Glow
Soul Glow's picture

They buy whatever they want.  POMO is buying bonds from the Major banks after auction, the President's Working Group on Financial Markets, a function of the SEC, the Treasury, and the Fed, buys whatever they want whenever they want.

The Treasury are on the phone with the Major banks everyday.  They let them know what to expect in the auctions too.  Everything is coordinated in this market; that's where the term "don't fight the Fed" came from.

Yet they can't keep it up forever.  The debt loads are too high compared to revenue growth, because there is no growth, and there will soon be a saturation point where the debt load proves unstable per growth.

Fri, 01/10/2014 - 05:00 | 4318647 Simplifiedfrisbee
Simplifiedfrisbee's picture

This is simply a necessary function in the currency creation process. Debt equals currency. The breaking point will certainly not begin from within the financial sectors core operation. That is why QE is so important to the FED, it holds the crumbling infrastructure intact while the replacement is built. The White House is not going to nuke itself from the Pentagon.

The shock that ripples through Yellens crusty reptilian like feet, will be external. Look to the Middle East to provide the big middle finger.

The US will continue to be profitable after the so called "collapse." Only not for any average citizen. Furthering the financial regulations in many sectors and that excludes the majority.

Thu, 01/09/2014 - 13:08 | 4315767 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

Buying piece of shit mortgage-backed securities bought at 100 cents on the dollar = money printing.

Is next, piece of shit munis.

Thu, 01/09/2014 - 11:04 | 4315194 LawsofPhysics
LawsofPhysics's picture

In the history of earth, no society/currency has ever collapsed/died because their purchasing power became too strong.

One has to wonder how resource  scarcity fits into all these eCONomic models?

hedge accordingly.

Thu, 01/09/2014 - 11:09 | 4315213 El Vaquero
El Vaquero's picture

I tend to think that resource scarcity doesn't fit into the models. 

Thu, 01/09/2014 - 11:17 | 4315240 LawsofPhysics
LawsofPhysics's picture

Somewhat of a rhetorical question, but perhaps we should ask Krugman, he has a nobel prize...

Thu, 01/09/2014 - 11:23 | 4315265 El Vaquero
El Vaquero's picture

I would agree, but I don't think that Krugman will take too kindly to being interrupted from playing with his Vultron dolls.  He might get condecending with us, and that would be terrifying. 

Thu, 01/09/2014 - 11:44 | 4315344 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

I tapered a krugman this morning, pushed the handle, the vortex removed it from view, what a relief.  Deep fried fiat does it every time.

Thu, 01/09/2014 - 12:11 | 4315482 Boris Alatovkrap
Boris Alatovkrap's picture

Quantitative Easing is monetary equivalent of bowel movement, but smell is worser.

Thu, 01/09/2014 - 11:37 | 4315310 Debugas
Debugas's picture

it is not about resources scarcity

This model is about payable demand scarcity - people have needs but have no money to satisfy them

then if you ask producers why they can not lower the prices ? It is because they paid too much money to their workers and refuse to sell below cost of production

 

Thu, 01/09/2014 - 11:45 | 4315339 LawsofPhysics
LawsofPhysics's picture

Mighty fine circular reasoning there, good luck with that cognitive dissonance.  The point is that the model is irrelevant as that which cannot be sustained, won't be.

Time for a reset, long past the time to find out the real value of everyone's labor.

Thu, 01/09/2014 - 11:55 | 4315397 pods
pods's picture

I think most would be shocked that their labor is the private workforce equivalent of "non-essential."

OT I cannot even enter these arguments anymore as it gets me thinking about how much of human productivity was scammed over the last century with their "stable prices" bullshit.

Makes me sad because I could work for 12 hours a week and fish the rest of them if we were able to keep our productivity gains over the last century. 

But nope, back on the fucking wheel to pay off interest on these conjured up clownbux so the moneychangers can have a third estate in Bordeaux.

I never think about what it would be like to disembowel another human until I start thinking about how our "money" comes into existence.

Hallelujah! Holy shit! Where's the Tylenol?!

pods

Thu, 01/09/2014 - 12:21 | 4315529 Sean7k
Sean7k's picture

At least you understand what's happening. Can you imagine being one of the ignorant masses? 

Tyranny sucks, but it really sucks for those that embrace it in its' fullness. We can choose to be bad and disobey. 

Keep up the good work Pods.

Thu, 01/09/2014 - 12:32 | 4315571 pods
pods's picture

I sometimes get a bit irritated when it is this cold in the land of milk and honey (NC).  Gonna have to move down with the little brother in FLA.

And the new puppy is keeping me up at night.  :)

pods

Fri, 01/10/2014 - 01:47 | 4318445 Tall Tom
Tall Tom's picture

No I cannot imagine being one of the ignorant masses. "Your wise men don't know how it feels...to be Thick as a Brick"

 

But to be a little bit empathetic...Those whom belong to the ignorant masses cannot imagine that which you know.

 

https://www.youtube.com/watch?v=47io3t-575Y

 

I got it bad
You don't know how bad I got it
You got it easy
You don't know when you got it good
It's getting harder
Just keeping life and soul together
I'm sick of fighting
Even though I know I should
The cold is biting
Through each and every nerve and fibre
My broken spirit is frozen to the core
Don't wanna be here no more

Wouldn't it be good to be in your shoes
Even if it was for just one day
And wouldn't it be good if we could wish ourselves away
Wouldn't it be good to be on your side
The grass is always greener over there
Wouldn't it be good if we cold live without a care

You must be joking
You don't know a thing about it
You've got no problem
I'd stay right there if it were you
I got it harder
You couldn't dream how hard I got it
Stay out of my shoes
If you know what's good for you
The heat is stifling
Burning me up from the inside
The sweat is coming through each and every pore
Don't wanna be here no more

Wouldn't it be good to be in your shoes
Even if it was just for one day
And wouldn't it be good if we could wish ourselves away
Wouldn't it be good to be on your side
The grass is always greener over there
And wouldn't it be good if we could live without a care

 

~Nik Kershaw

Thu, 01/09/2014 - 12:33 | 4315572 Dr. Engali
Dr. Engali's picture

"I never think about what it would be like to disembowel another human until I start thinking about how our "money" comes into existence."

 

Many of us will have to examine who we are and what we are capable of doing in order to protect our loved ones in the upcoming shitstorm I am afraid. 

Thu, 01/09/2014 - 12:55 | 4315688 pods
pods's picture

I think so to Doc. Not happily, more of a fatalistic view:

"Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats."

-HL Mencken

 

Fri, 01/10/2014 - 01:38 | 4318444 Professorlocknload
Professorlocknload's picture

True. Shit Storm coming. Authority has made it's choice in Moral Hazard, and can't back pedal now. In it's attempt to save face, hell will most likely have to be paid.

This is why I figure this will morph from voluntary to mandatory economic compliance, then into military compliance in it's ultimate evolution.

"Destruction of the currency involved"  now must be the end result. Just that it is a process, not an event, so who knows how long it can be strung out? Years? Decades?

Had the Rule of Law been enforced some time ago, the worst could have been avoided. At this point, it seems the power is no longer answerable to any law.

 

Fri, 01/10/2014 - 07:15 | 4318737 tradewithdave
tradewithdave's picture

Just put the plane in reverse...

http://tradewithdave.com/?p=19817

Fri, 01/10/2014 - 05:31 | 4318674 No Euros please...
No Euros please we're British's picture

Shit storms are just another proof of global climate change and will be taxed accordingly. 10-20% from your pension fund and savings should do the trick.

Thu, 01/09/2014 - 11:49 | 4315356 BuddyEffed
BuddyEffed's picture

Are you sure it's not "people have needs but have no resources to satisfy them (or less resources to satisfy them relative to before)"?  I think the causality between money and resources and needs is that needs are really and ultimately satisfied by resources.  You can have money, but without resources, the money does you no good at all.

Thu, 01/09/2014 - 13:03 | 4315736 El Vaquero
El Vaquero's picture

That's merely a proximate cause.  What happens in ponzi schemes when the exponential growth slows down or stops?  Everything goes to the top before it comes crashing down.  All debt based currency systems are ponzi schemes when you get down to it, and ours is no different.  We're already bumping up against the resource limits, and that is causing growth to be slowed down, and I would argue that it has stopped.  The dollars gone up to the top, and we are awaiting the crash. 

 

The problem is that the system is to rigid to allow people to easily adapt and too dishonest to tell them that maybe they should adapt. 

Thu, 01/09/2014 - 11:13 | 4315207 realWhiteNight123129
realWhiteNight123129's picture

It is much easier than that.

Debt + Equity = Financial assets. (Claims on future GDP)

Present goods circulated in the economy= good and services, commodities

 

Treasuries are part of the too abundant bunch in relation to the little portion (present goods). (those are components of the GDP)

Buy the ultimate present goods which does not depend on interest rates and sell the ultimate financial assets which is totally dependent and uniquely dependent on interest rates and which is too abundant (TSYs)

Come back in 10 years, retire on the beach.

2 WAYS TO RESTORE THE RATIO DOWNWARDS:

# 1

Massive bankruptcies stock and bonds shrink massively, Gold in your hand has had no haircut. Maybe your bank deposit has had. 

All prices are massively lower, your purchasing power has increased.

 

#2 Massive inflation and massive rise in interest rates (where we are going).

Equities have risen in nominal terms further (say 50% in the next 10 years).

While Gold has say quadrupled, commodities have gone to the moon, prices have gone up.

The GDP in nominal GDP has risne much faster than the financial assets, like the 70s but even faster.

 

Either way Gold and present goods rise in relation to Financial Assets (debt). In other words Financial asset ratio shrinks  in connection to GDP.

So either Financials assets plunge nominally and all prices plunge faster than Gold and Gold plunges a bit, or Financial asset rise a bit and present goods rise much faster.

In both case we have a solution to the problem but it does not involve financial assets. Financial assets can not rise faster than GDP (present goods).

The only way financial assets can keep their real value is if we have massive productivity gains, in that case the nominal GDP increases but not because of inflation. Unlikely to happen when interest rates are repressed and capex at all time lows..

 

 

Thu, 01/09/2014 - 12:15 | 4315501 PrecipiceWatching
PrecipiceWatching's picture

"Present Goods" = Requisite household commodities such as beans, rice, toilet paper, cooking oil and whiskey?

 

Or is it more esoteric than that?

Thu, 01/09/2014 - 13:41 | 4315833 realWhiteNight123129
realWhiteNight123129's picture

Yup, that is . Not more esoteric than that. All of the above you mentioned. So the general public sensing trouble stacking supplies is no fool in fact. But in Gold is also a commodity and Silver as well, those are the commodities to buy the other commodities (consumable commodities). While Silver is a consumable commodity for industry Gold is mainly for Jewelry but is the commodity proxy for the other commodities no much consumable. THat it is the commodity to barter other commodities. So when the financialized base money (fiat USD) which have been oversupplied and created against crappy financial assets (TSYs and CMBs) end up in trouble, the commodity which always attract a bid from the consumable commodities are Silver and Gold. Silver and Gold are are present goods too. When inflation kicks in, interest rates rise and TSY plunge, Gold has an immediate value with no discounting mechanism because it does not have future cash flows,  as such it is not hurt by rising rates unlike future cash flow streams. Gold and Silver keep their parity against other commodities and even increase it because their monetary value surge in those periods. 

BTW the plunge in gold is not so surprising, when Copper is lower than in 2011, Iron ore is lower than 2011, and CRB Food Index is lower than in 2011.

What happened is the following: You had in 2009 a liquidation of commodities to get cash, and at the same time no financing for farmers and commodity producers which creates future shortages even as the liquidation goes on. But then China open the spiggots like nuts because its economy is the most open in the world to trade (trade, i.e. imports and exports share is huge in China).

So double whammy impact: First the liquidatio of commodities ends and the lack of funding for commodities ends but this lack of funding had created some undersupply. So the commodities post 2009 act like base jumping, oil goes down very low (artificially low) all commodities plunge, and then when you get to the bottom the pulling force of the rubber band from China (huge stimulus) while the plunging force of liquidation ends, sending the commodities on the other side to a peak in 2011.

Now commodities are stabilizing, China is forcing tight conditions (reasonable central bank, starving bad borrowers), but long term supply and demand is imbalanced, specially in agriculture and the USD yardstick is totally corrupted (Fed Balance sheet is corrupted) is bound to fall. So good demand/supply for soft commodities with plunging yardstick (dollar) = higher prices.

 

Thu, 01/09/2014 - 11:08 | 4315210 Mike Cowan
Mike Cowan's picture

Some excellent comments here.

Thu, 01/09/2014 - 11:13 | 4315225 ak_khanna
ak_khanna's picture

Deflation is spreading around the world despite the efforts of the central bankers by trying to avoid it by printing currency.

Inflation is caused when the sum of credit outstanding and currency in circulation increases in comparison to the goods and services available and deflation is vice versa.

The credit outstanding worldwide is shrinking at a much faster rate than the rate at which the central bankers are printing money. The money being printed is just being used to roll over previous debts and is not contributing to job or small business creation which can actually cause inflation by giving a large portion of the population an increased purchasing power.

Moreover deflation is a natural process and is a result of increased productivity which ultimately benefits the majority of population by bringing down their cost of living.

 http://www.marketoracle.co.uk/Article40231.html

Fri, 01/10/2014 - 02:23 | 4318496 disabledvet
disabledvet's picture

deflation SHOULD be an impossibility...right up there "Purple Rain" and "Iraq." I mean "don't mind us...we're gonna bankrupt your war effort! And then your gonna pay us for the privelege!!!!" Seriously though...the only way to get an actual collapse in asset prices is through "failure to pay at the institutional level." In short "New York City goes belly up." The "credit contraction" would be beyond breathtaking as demand itself would be impacted on a truly profound scale. The ONLY bank capable of lending to the City would be HSBC USA. PERIOD. Given all the "regulatory blowback" they're fully within their rights to say "no." The consequences would be truly unimaginable...the loss of demand simply beyond belief. We've tested "theory one" (QE) and found it truly amazing. Theory two is the opposite of theory one...and is a theory..."with a lot of feary." If we are in fact overlaying this "feary" with something really scary being done "to the folks" you brink in something far worse than a mere "loss of confidence" but a NO confidence which could have dire consequences indeed as that is a conditional reality that could result in the call up of national guard and reserve troops. My first instinct in all this mess has always been "buy Morgan Stanley on the news of real repression" not just the financial kind. Obviously they have done a stupendous job here...as well as MetLife and what's left of an obliterated AIG. If he USA wants to avert what could a real tragedy in the making in our country we should immediate put our financial system "on at least some type of footing." To me that is gold and gold alone...and it needs to be done NOW.

Thu, 01/09/2014 - 11:14 | 4315228 wisehiney
wisehiney's picture

I am very eager to see what the guys who have been the rightest, the mostest, the longest have to say this quarter about this.

http://www.hoisingtonmgt.com/

Thu, 01/09/2014 - 11:17 | 4315239 Rainman
Rainman's picture

Outstanding chart porn this is.

The Fed will never utter the term ' deflation ' ( Japan's curse for two decades ) . Only ' disinflation ' talk permitted ( a temporary phenomenon )

Thu, 01/09/2014 - 11:58 | 4315414 PrecipiceWatching
PrecipiceWatching's picture

It most certainly is.

I'm impressed with anyone who has the TIME to read and digest all of this, and even more so with the gentlemen who generated such an outstanding presentation of data and research.

Now for us time-challenged working stiffs:  What the hell do I do with my assets?

Thu, 01/09/2014 - 12:28 | 4315549 Sean7k
Sean7k's picture

The only real assets we have are those that are not taxed or regulated. It is not a very large class.

Thu, 01/09/2014 - 11:20 | 4315251 firstdivision
firstdivision's picture

I'm sure many here were forced to sit through economics courses in college, especially if you majored in it. I could never comprehend how you're taught to treat economics as a physical product with the same laws of nature of the physical world, yet you're taught to treat deflation as a thing that is bad and shouldn't exist.  That's like teaching physics and saying that gravity is bad and to always remove it from your equations.

Thu, 01/09/2014 - 11:34 | 4315297 realWhiteNight123129
realWhiteNight123129's picture

Effectively some were taught economics but had to unlearn what they were taught.  Between 1866 and 1898, was a period of deflation (from the monetary base not from credit - the McCulloch contraction) which was very prosperous for the US overall. Miners and farmers had an horrible time, while British bondholder who had lent to the US in US dollar debt were making like bandits in real term. Equity markets were totally flat between 1871 and 1898, but were increasing in real terms because prices were falling. In that environment hedge funds could not make money (2% + 20% of "performance") but equity holders were richer in real terms. Wages were falling in nominal terms but increasing in real terms. 

Deflation is enemy of the bankers because it is a threat to go bust. It is also the enemy of the Government because they might have to do austerity, they can not inflate their debts away. Of course today hedge funds would hate such a period of prosperity because while stock would go up in real terms (flat stock market in 1871 ti 1898 but falling prices) they would stay flat in nominal terms (Harder dollars prevent stocks to rise) so no performance fee.

Buffet in that environment could not leverage with below market rates to buy companies which reprice inflation beacuse 1. Cost of borrowing was high in real terms unlike today, 2. There is no inflation to reprice.

That is all.

 

Thu, 01/09/2014 - 12:05 | 4315460 Dr. Engali
Dr. Engali's picture

Hmmmm....you look familiar...

Thu, 01/09/2014 - 12:39 | 4315601 AmericasCicero
AmericasCicero's picture

The idea that farmers did poorly under that monetary regime is a myth.  Rothbard showed the data where even their real wages increased dramatically.  They did not increase as much as those in industry, but still improved nonetheless.  The anti-gold populism movement came from silver mining interests because of the increased discovery and production of silver abroad which hurt their profits.

Thu, 01/09/2014 - 13:35 | 4315902 realWhiteNight123129
realWhiteNight123129's picture

Well the American farmer chronicals books of XIX century talks about the overindebted farmers during the greenback period suffering with the McCulloch contraction and the demonetization of Silver in 1873. I concede that if you were a farmer with no debt from the 1860s in soft greenbacks, you were probably doing fine, but if you had borrowed in Greenbacks expecting more debasement and then the dollars hardens like mad all the way to 1898, good luck with your debt repayments because the prices were nominal going down that is a fact. Again if you have no debt as a farmer, you are probably fine.

I think the miners were pissed because of the demonetization of Silver. So the ratio Gold-Silver ratio increases but your debt is pegged to Gold, so you have to suffer as a Silver miner from the widening of the ratio, it is inevitable. I am a bimettalist at heart (the French were working with bimettalic standard and I was born in that country). 

Thu, 01/09/2014 - 13:52 | 4315977 AmericasCicero
AmericasCicero's picture

true, indebtedness would put you in a precarious situation.  takeaway lesson, don't take on massive debt under an unstable fiat regime?

Bimettalism is untenable, greshams law will force one out unless the arbitrary exhange rate is constantly changed to perfectly match the market ratio.  You end up with a gold or silver standard when one of them flees circulation - which one depends on the ratio's increase or decrease.  And damn right they we're pissed, but silver like I said lost a lot of purchasing power due to increased supply.  Can't win every investment.

Thu, 01/09/2014 - 16:12 | 4316577 Herd Redirectio...
Herd Redirection Committee's picture

Derived:  If you take on massive debt in a stable fiat regime, seek to destabilize/debauch/debase it, in order to profit (while everyone else suffers)

Fri, 01/10/2014 - 04:38 | 4318644 Catullus
Catullus's picture

I went to a lot of college baseball games instead. I figured you learned more economics that way.

There are no phyiscal laws of nature taught in economics. Here's what you get: this thing called "microeconomics" which is a great class. Everyone should take the first half of the course and then drink the second half of the semester. The first half consists of opportunity costs, creating a supply and demand curve, building the framework for isolating phenomena into shifts in supply or demand, analyzing the effects of price controls, and the only "law" you get in economics which is the Law of Diminishing Marginal Returns. Great stuff. Mostly Austrian economics, but don't mention that or someone shits down your throat. The second half should actually be called "industrial organization" and basically is setting up a strawman model and the "solving" it by declaring there needs to be govt intervention. This includes concepts like "pure competition/monopolistic competition", "negative and positive externalities", and of course everyone's favorite "market failures". If you weren't already drinking, the second half of most micro courses will drive you to drink.

Then there's macro. Which is all Keynesianism. It's complete bullshit. It effectively steals the supply and demand model in micro, replaces the price axis with a "price level" axis along with "aggregate supply" in place of "quantity" and expects you to believe that the same micro analysis methods apply. Intelligent people argue with the professor at this point but it's too late to pick up another course, so you stop going, drink, and make shit up on the tests. You're in a much better position than the poli sci major who gets the same grade as you and thinks they're a genius because they get it. Get what, I don't know, since it was all bullshit anyway.

From there, you may get a handful of good courses. But they never match micro. You're basically getting specific topics as a course: international trade, gender economics, labor economics, environomental economics. Blah blah blah. There's also a lot of prob/stat, econometrics, game theory (painful courses, dumb, not at all applicable if you realize what a demand curve really is).

If you want economic theory and actually reading what economists actually wrote in their works, you have to take political economy. Not for the faint of heart or those who don't have excellent reading comprehension skills. It took me awhile to realize that I wasn't reading English, it was an English translation.

Thu, 01/09/2014 - 11:20 | 4315252 Rising Sun
Rising Sun's picture

spin all you want - no one is spending and wealth is concentrated

 

say hello to deflation

 

 

Thu, 01/09/2014 - 11:30 | 4315292 LawsofPhysics
LawsofPhysics's picture

"no one is spending and wealth is concentrated" - yes, the French found themselves in a similar situation in the late 1700's...

just saying...

Fri, 01/10/2014 - 02:49 | 4318532 disabledvet
disabledvet's picture

But the French were in a constant state of war. This is a "constant stat e of fear." Economic growth suddenly ceases and desists and to my knowledge Governments have never said they "fear deflation." Usually they just say "fear us" and leave it at that. If this "ethos" takes hold among the general population you will have an economic collapse....incredibly at a time when wealth creation has probably never been greater in American history. "That's valuing the dollar as a double here"...something that has already occurred against many major nations in the world. The banks would not just fail but "never even have a chance." The implications defy belief.

Thu, 01/09/2014 - 11:21 | 4315259 Seasmoke
Seasmoke's picture

All I keep seeing. Is inflation on things you need. Deflation on things you want. 

Thu, 01/09/2014 - 11:52 | 4315377 BuddyEffed
BuddyEffed's picture

on things you want but can't afford without long term credit?

Thu, 01/09/2014 - 11:29 | 4315268 alangreedspank
alangreedspank's picture

The M2 in the US already excludes M0 and AFAIK, has been rising steadily, but its velocity is low (low if you compare the the 1995-2000 peak, otherwise, it's just somewhat lower) so I don't know where they get "shrinking M2 supply" from.

Household debt deleveraging has been going on since early 2008, but the downward trend has kind of flattened in 2012.

http://research.stlouisfed.org/fred2/graph/?g=qKQ

Outstanding credit is steadily rising since early 2011

http://research.stlouisfed.org/fred2/graph/?g=qKS

If the argument is that GDP is growing faster than credit, I doubt this is a problem and I doubt this is even possible.

So I don't get the "deflationary pressure from deleveraging" meme. Assets and commodity prices have been pumped up due to cheap money, but their price going down is not "deflation". It's just the whole financial community losing at the casino.

 

 

 

Thu, 01/09/2014 - 12:50 | 4315647 socalbeach
socalbeach's picture

M2 is one measurement of money held by the public which includes currency and coins held outside of bank vaults. The monetary base, usually referred to as MB, and M2, include these currency and coins.

But like you say M2 has been rising steadily as some of the MB increase has obviously been leaking out into M2. I'm not sure the author's "net M2" figure (M2 minus MB or what he refers to as M2 minus M0) is meaningful.

Thu, 01/09/2014 - 18:27 | 4317197 USGrant
USGrant's picture

Exactly. Why not take an ever increasing M2 and subtract the growth of the Antarctic ice sheet? What deflation? Inflation is running at 10% per year in the US and more elsewhere. No measure of money supply is exact but no where is it declining.

Fri, 01/10/2014 - 02:56 | 4318538 disabledvet
disabledvet's picture

Sears Holding got crushed today. Are they going to go bankrupt? If the banks aren't lending why won't they demand anything other than "total liquidation"? The Fed just told them to piss off, now Clinton's have launched an absolutely shocking attack on JP Morgan. WE'RE NOT LOSING HERE! You're putting the bankruptcy of the State on the table. Can you even provide security for our Olympiads?

Thu, 01/09/2014 - 18:00 | 4317089 el Gallinazo
el Gallinazo's picture

"So I don't get the "deflationary pressure from deleveraging" meme. Assets and commodity prices have been pumped up due to cheap money, but their price going down is not "deflation". It's just the whole financial community losing at the casino."

When the house of cards collapses, it will cause a massive amount of defaults, as one domino trips another.  These defaults are by definition deflationary.  Pseudomoney, i.e. credit fleeing to an alternative universe.  Exactly how the chairsatans at the central banks including the BIS and IMF will choose to respond remains to be seen.  I have continuously underestimated the levels of criminality and genocide they invent.

Thu, 01/09/2014 - 18:16 | 4317156 alangreedspank
alangreedspank's picture

"When" is the keyword. Until it happens, there is no deflation in sight. So on one side of their mouths, central bankers tell us there is no collapse possible because, well, there is no "house of card" to begin with, everything is genuine and strong but they keep telling us how we're in danger of deflation due to credit writedowns. But why would massive credit writedowns happen if everything is A OK ?

 

Fri, 01/10/2014 - 02:59 | 4318543 disabledvet
disabledvet's picture

The dominos collapsed in 2008. This is outright default "and put it all on the Judges who we haven't paid in years." This looks like a Civil War trade to me.

Thu, 01/09/2014 - 11:42 | 4315281 Johnny Cocknballs
Johnny Cocknballs's picture

"inflationary and deflationary phases will alternate in the foreseeable future." 

- no, no, no. That is not how this is going to work.

 

Its fucking asset transfer, not some business or credit cycle.

 

Sigh.

 

 

 

Thu, 01/09/2014 - 11:44 | 4315348 over45
over45's picture

Are you saying there will be deflation/collapse before hyperinflation, or hyperinflation and then a collapse to pick up assets cheap?  That seems to be the 500 Trillion dollar question...

Thu, 01/09/2014 - 11:29 | 4315285 Bastiat
Bastiat's picture

The article ignores the effect of a loss of confidence driven currency collapse on gold prices manifested in supply and demand dynamics-e.g. China buying gold rather than US treasuries.

Thu, 01/09/2014 - 11:33 | 4315304 alangreedspank
alangreedspank's picture

I think of a return to a Breton-Woods system. Currencies will be somewhat backed by gold, and not because governments want to - because they'll be forced to.

China is loading up on all dips, the US is the biggest gold holder and also stores the gold reserves of many other countries. This is not so far fetched.

Thu, 01/09/2014 - 11:41 | 4315322 MickV
MickV's picture

Wicked deflation will set in for the long run when the credit default avalanche begins in the easy auto loan and student loan sectors, which are now 95% of new credit given by banks, or when the 10Y yield reaches 3.5-4%

Fri, 01/10/2014 - 00:49 | 4318361 El Vaquero
El Vaquero's picture

I think it'll be a whipsaw.  First, we'll have a deflationary event, followed up by Yellen almost imediatly calling out a fleet of B52s to do money drops.  I think that in the event of a meltdown, she's going to make Bernanke look like a piker. 

Fri, 01/10/2014 - 03:04 | 4318550 disabledvet
disabledvet's picture

I say real asset values decline forty percent in the next six months as "the battle lines get drawn." States start throwing barricades on their borders and no longer recognize Federal authority. Those that can pay will prosper beyond belief and those that fail will be "abandoned."

Thu, 01/09/2014 - 11:50 | 4315328 Quinvarius
Quinvarius's picture

Here is the thing.  Credit default is inflationary.  Declining credit offered is s symptom of non-performing credit.  You can say "look at the less credit being offered" and say that is less money creation.  But when that snaps into full on default, a whole lot of money that used to go to paying bills is going to come out of the woodwork.  And if you doubt that, look at what has happened to almost every country, with its own currency, after a major sovereign default.  Their currency goes into the toilet.  The fact that the Fed is replacing non-performing credit with cash so it does not wreck balance sheets, just adds fuel to the fire.  I remain in the massively inflationary camp.  It is just an event or thought away from a complete conflagaration.  The deflation narrative appears to be muddled minds confusing a horrible economy with a quantity of cash problem. 

And another thing.  You have to remember all of those M series numbers only measure what is in the US banking system.  Your dollars are competeing with countless trillions that are overseas.  If you get stuck on US numbers, which are bad enough to cause hyper inflation, you will never see the real wave coming.

Thu, 01/09/2014 - 12:37 | 4315533 Dr. Engali
Dr. Engali's picture

You are failing to differentiate private debt versus sovereign debt. In a system where all money is borrowed into existence through fractional reserved lending private debt default is deflationary. For every dollar of debt that is destroyed another dollar is taken out of the system. Sure the entity that defaulted has freed up money to purchase other items, however that new found buying power is more than offset by the loss of purchasing and leveraging power of the entity who owned the debt. Don't forget the banks capability to lever up and rehypothecate those "assets" up 10 times over.

A sovereign debt default is a whole other story because whether they default by money printing, devaluation, or outright default their currency still goes to shit.

Thu, 01/09/2014 - 12:37 | 4315587 Sean7k
Sean7k's picture

I assume you are referring to recorded default versus that held on balance sheets indefinitely or purchased. You must also remember a lot of defaulted debt is being changed into tax debt through public/ private transfers, thus disguising the nature of the beast. Nice distinction Doc.

Thu, 01/09/2014 - 12:45 | 4315638 Dr. Engali
Dr. Engali's picture

Right. I am only speaking to outright defaults. The privatizing of gains and the socializing of losses is a whole other beast.

Fri, 01/10/2014 - 03:09 | 4318555 disabledvet
disabledvet's picture

Ummm...State Governments have bills to pay . If they can they will raise gold and price their own currencies backed by it. The Stae of California alone is one of the largest economies in the world. I think they'll come right out and tell the deal...either back your money with gold or we will.

Thu, 01/09/2014 - 14:03 | 4316025 Quinvarius
Quinvarius's picture

They both free up cash in a default that would have been tied down.  But, yes, I lumped them together when I could have made material distinctions.

Thu, 01/09/2014 - 11:42 | 4315337 wisehiney
wisehiney's picture

They will not destroy their precious dollar.

Thu, 01/09/2014 - 11:52 | 4315379 mayhem_korner
mayhem_korner's picture

 

 

They are destroying the Precious, gollum.

Thu, 01/09/2014 - 11:52 | 4315380 yogibear
yogibear's picture

"The fact that the Fed is replacing non-performing credit with cash so it does not wreck balance sheets, just adds fuel to the fire. I remain in the massively inflationary camp."

It's just a matter of time before the inflation shows. With the Fed purchases of US treasuries it will eventually show up. Also with over $200 trillion in debt once realized there should be plenty of dollar dumpers.

Wouldn't be surprised to see an instant revaluation of the US dollar at some point to create instant inflation. It's an obvious target of this group of Federal Reserve PhDs.

Thu, 01/09/2014 - 11:57 | 4315407 markar
markar's picture

Plenty of inflation out there. Look at items in the grocery store you only buy once every few months--like olive oil. Store brand 1 qt. $9.00 yesterday at Ralphs.

Sticker shock

Thu, 01/09/2014 - 11:57 | 4315408 Musashi Miyamoto
Musashi Miyamoto's picture

All collapsing systems are eventually forced spend their internal fluids to preserve vital functions. The problem here is the banking parasites who suck all the resources from the host.

Compare the Dollar to the "Blood" of the US Economy

We will see the Untaper as the FED "tries" to pour more liquidity to preserve the system.

We will see more war as we desperately reinforce our currency as the reserve currency.

The problem is that the money the fed is pumping has been routed to the Squid from the very beginning.

They want the economy to struggle so they can drink more blood.

https://pathofmusashi.wordpress.com/2014/01/09/the-ten-commandments/

Thu, 01/09/2014 - 12:01 | 4315439 wisehiney
wisehiney's picture

Now that the cat is out of the bag, I guess I won't be getting that huge spike in rates tomorrow after the bogus jobs report. I wanted to buy some of their crappy old treasuries for a trade.

Thu, 01/09/2014 - 12:08 | 4315469 AmericasCicero
AmericasCicero's picture

chart porn sploosh

Thu, 01/09/2014 - 12:31 | 4315565 rosiescenario
rosiescenario's picture

To me the real question is, how many $ need to be printed before 1 foreign country announces that they no longer will take them in payment? We just need 1 person in the crowd to yell out "the emperor has no clothes"

Thu, 01/09/2014 - 12:46 | 4315640 oak
oak's picture

perhaps, 100b/mo?


Thu, 01/09/2014 - 12:41 | 4315620 AmericasCicero
AmericasCicero's picture

This same tug of war existed during the great depression.  Banks who refused to expand lending were called unpatriotic.

Thu, 01/09/2014 - 12:51 | 4315663 disabledvet
disabledvet's picture

"the bank will fail while sitting on a trillion dollars in cash." end of story. oldest story on Wall Street: "my company had a billion in cash and that guy just bought it for 100 million." oh, well! Where are you sales relative to your stock price Jamie Dimon? "hahahahaha. sitting at the Fed doing nothing, hahahahaha!" REALLY? then why the hell would i buy your company stock? i should be SHORTING that thing, yes? yes? "in the meantime Suntrust is going all in North Dakota shale and Solar Cities." good luck competing with that. they're probably sitting on a hundred billion in liquidity ready to lend right now with "going concerns" throwing off free cash like money itself had just been invented. "and Rockefeller looks forward to your trillion penny round up" this time around.

Thu, 01/09/2014 - 13:53 | 4315981 Spankrupt
Spankrupt's picture

Jesse Livermore was a true Wall Street bear back in the 20's and 30's he shot himself in the head in a Hotel Room with 5m in his bank account. - from "Lords of Fianance". Dimon isn't so brave.

Fri, 01/10/2014 - 03:19 | 4318565 disabledvet
disabledvet's picture

I just cannot fathom the amount of liquidity this amazing profit machine called America is creating right now "and the answer is to sit on cash blow America sky high." CALPERS is throwing off BILLIONS to its "shareholders." And "we find nothing of value in America at large and prefer to default it"? I mean..."hey, dude...the other Morgan is rockin and Rollin here!" This thing looks like a kamikaze mission "for reasons unknown."

Thu, 01/09/2014 - 12:57 | 4315703 bwh1214
bwh1214's picture

Great job on this presentation.  THe conclustion must be that politicians, and the central bankers, can chose deflation and have the blame directly pointed at them or inflation and act like no one could have expected it.  They will chose invlation, the path of least existance.

Thu, 01/09/2014 - 13:41 | 4315940 Spankrupt
Spankrupt's picture

When interest rates rise based on the false notion of GDP gains and employment gains. Banks will increase credit lending chasing yield to suspect debtors and foreign capital investment/lending will increase to the lowest credit rated. You will be able to hear the swooshing of a raging river of currency from the mound of your gold coins.

Fri, 01/10/2014 - 03:27 | 4318577 disabledvet
disabledvet's picture

Bus this is factually untrue. The banks are just sitting on the money refusing to lend. Amazingly "the economy has in fact recovered." So that means it's "project smite thee"? Uuuuhhhh...dude...Morgan Stanley is about the clear the greatest trades in history "sending their market cap to 500 billion." You think the securities guys want "banker pay" with banks that refuse to even lend? You'll get a mass defection to "the last pure play left standing."

Thu, 01/09/2014 - 14:36 | 4316123 moneybots
moneybots's picture

"Consider that the government must avoid deflation"

 

What they must and what will, may be two different things.

 

Fri, 01/10/2014 - 02:12 | 4318479 Tall Tom
Tall Tom's picture

Well in a HyperDEFLATION or a HyperINFLATION the end result is that the Currency is no longer viable in the aftermath.

 

Pick your poison...Does it matter if it is Death by Beheading or Death by Crucifxtion?

 

Yes. One is more painful than the other during the process but the end result is the same.

Thu, 01/09/2014 - 14:36 | 4316125 trebuchet
trebuchet's picture

IMHO, Probably the most important charts and trends to watch for the current "recovery"

Thu, 01/09/2014 - 14:39 | 4316129 moneybots
moneybots's picture

"Price deflation would lead to massive tax revenue declines for the government due to a declining taxable base."

 

91 million are not working.

Thu, 01/09/2014 - 14:43 | 4316145 moneybots
moneybots's picture

"Central banks also have the mandate to ensure ‘financial market stability‘"

 

A mandate that means absolutely nothing.  ZIRP and QE demonstrates an unstable financial market.

Thu, 01/09/2014 - 22:15 | 4317984 eddiebe
eddiebe's picture

All these charts are meaningless when the equalization and stabilization boyz are allowed to manage the 'free market'. DUH!

Thu, 01/09/2014 - 22:45 | 4318056 Soul Glow
Soul Glow's picture

History is going to laugh at dem boyz for being such foolish fucks.

Thu, 01/09/2014 - 23:31 | 4318053 Soul Glow
Soul Glow's picture

Gold, being a monetary asset in the view of Austrian economics, tends to rise in inflationary periods and decline during times of disinflation.

It is a monetary asset in the view of all economics, hence why it sits on the Asset side of the Fed's balance sheet.

Thu, 01/09/2014 - 23:26 | 4318150 swanpoint
swanpoint's picture

US Oil Boom == Deflationary Pressure

Thu, 01/09/2014 - 23:33 | 4318160 Soul Glow
Soul Glow's picture

It's costing a shit tonne to get that oil out of the ground.

Fri, 01/10/2014 - 03:31 | 4318586 disabledvet
disabledvet's picture

And this money is pouring into State and local coffers. North Dakota is so rich right now it can invite Elon Musk in and simply say "name your demands and we'll pay for it."

Thu, 01/09/2014 - 23:48 | 4318203 Drifter
Drifter's picture

ZH seems to be adopting the "baffle 'em with bullshit" business model.

Those 23 charts are bullshit since they're using data supplied by the govt & Fed, which is all bullshit.

Deflation with expanding money supply?   Impossible.   Deflation is shrinking money supply, by definition.

I don't need 23 bullshit charts to understand looting spree via currency printing.   I understand the concept without any charts.

In '08 they started large scale looting the nation and giving it to bankers (and the govt).  The vehicle is currency printing, the simplest easiest way to do it.

And most covert.  Hardly anyone outside the 1% realizes what's happening, including most so-called "experts" whose bullshit is constantly paraded across ZH, like these bullshit charts.

Curency printing at the unprecedented rate Fed is doing it last 5 years while the economy is in depression leads to hyperinflation then currency collapse.  Not if, but when.  We're Weimar waiting to happen.  We're Zimbabwe wating to happen.  It's that simple.

The 1% know it. 

They hope you don't know it.

Fri, 01/10/2014 - 00:37 | 4318333 jomama
jomama's picture

perhaps you've got a better offering of data/charts for us?

Fri, 01/10/2014 - 00:56 | 4318372 IridiumRebel
IridiumRebel's picture

I think he's mad cuz he doesn't get it. Yes, you can have deflation with expanded money supply. It is very bad.

Fri, 01/10/2014 - 02:36 | 4318507 Tall Tom
Tall Tom's picture

There is no understanding of Differential Calculus. There is no appreciation that Inflation and Deflation are just different expressions of THE SAME PHENOMENA.

 

One can measure a Deflation in a couplet when both asset classes are in Inflation in that one is not inflating as rapidly as the other. Then it appears as Inflation or Deflation depending what you are measuring it against.  It is RELATIVE. There is no preferred Frame of Reference. There are Differential Rates of inflation and deflation.

 

I have attempted to model this concept before in the Comments Section using Two Concentric Bubbles, holding one in stasis and inflating, or deflating, the other as an outside experimenter.

 

Then I described what the Inside Observer would see depending upon their position on one or the other Bubble Surface. Of course this is assuming that they had no knowledge of what was happening on the outside by the experimenter's actions. (This is somewhat like what the Federal Reserve is doing to us, after all...)

 

It is just too difficult to write for the mathematically challenged audience. While we have more than our fair share of brains in this community there is still a large proportion whom are mathematically challenged. They need to GO TO SCHOOL, learn Calculus and learn l'Hopital's Rule.

Fri, 01/10/2014 - 05:51 | 4318689 dark pools of soros
dark pools of soros's picture

well they also have to understand money.  credit money is usually the hot money that fuels velocity since people don't normally take a loan to throw it into savings... they spend it...  and it dies after it is paid back.   While the increase in money supply from the FED is the cheap money that goes into assets that can then be used to lend out and create more hot money...   so the ones that can, take as much of the cheap money now, hold it and wait till interest rate increase some so it is worth lending it out..until then, it is best to throw it towards risk assets to bring returns.

when will interest rates rise again?  can they?   what has to happen first? globalization killed wages, unions aren't strong enough in this climate of lowest slave labor wins so we are in the painted corner economy now.  You'll have really rich hotbeds that the poor just stare and watch and non-participate. People don't go on vacation anymore.. they use that money to go to restaurants throughout the year instead. Once they start closing down everywhere you know it is over for the middle class

 

Fri, 01/10/2014 - 07:15 | 4318739 LaurentDeLyon
LaurentDeLyon's picture

this doc, super !

Fri, 01/10/2014 - 07:33 | 4318744 fijisailor
fijisailor's picture

The FED is committed to a balancing act between inflation and deflation, otherwise know as a Japanese zombie economy which the Japanese have given up on in favor of raging inflation.

Fri, 01/10/2014 - 10:43 | 4319265 tradewithdave
tradewithdave's picture

Tan Larry called it "condemned to oscillation." Is it condemnation if it's their only option for survival?... assuming it's not a planned demolition.

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