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The Risk Of 'Hot' Inflation

Tyler Durden's picture





 

Submitted by Chris Martenson contributor Gregor Macdonald

Get Ready for 'Hot' Inflation

Ideological deflationists and inflationists alike find themselves both facing the same problem. The former still carry the torch for a vicious deflationary juggernaut sure to overpower the actions of the mightiest central banks on the planet. The latter keep expecting not merely a strong inflation but a breakout of hyperinflation.

Neither has occurred, and the question is, why not?

The answer is a 'cold' inflation, marked by a steady loss of purchasing power that has progressed through Western economies, not merely over the past few years but over the past decade. Moreover, perhaps it’s also the case that complacency in the face of empirical data (heavily-manipulated, many would argue), support has grown up around ongoing “benign” inflation.

If so, Western economies face an unpriced risk now, not from spiraling deflation, nor hyperinflation, but rather from the breakout of a (merely) strong inflation.

Surely, this is an outcome that sovereign bond markets and stock markets are completely unprepared for. Indeed, by continually framing the inflation vs. deflation debate in extreme terms, market participants have created a blind spot: the risk of a conventional, but 'hot,' inflation.

The Fears of 2008

In the spring of 2008, on the back of the Fed’s easing program that began the previous summer, many global commodities were running to all-time highs. Agricultural commodities were in the headlines, and the high price of corn had caused riots in Mexico the year before. In many respects, the 2007-2008 period prefigured some of the food price pressures that would help drive the Arab Spring three years later, in 2011. Of course, the bulk of the headlines went to the master commodity, oil, which flirted with $90 twice before breaking above the $100 barrier.

Market sentiment understandably turned to inflation. Indeed, during a few Fed meetings, Jeffrey Lacker of the Richmond Fed actually called for rate hikes. And the yield on the 10-year Treasury, which declined into a low of 3.88% towards the end of March 2008, actually rose again to 4.32% over three months into the end of Q2, 2008. The Economist magazine, always ready to provide the cover story, produced a rather memorable offering to the inflation angst that spring.

From its May 2008 story, Inflation’s Back:

“Ronald Reagan once described inflation as being “as violent as a mugger, as frightening as an armed robber and as deadly as a hit-man.” Until recently, central bankers thought that this thug had been locked up for life. Thanks to sound monetary policies, inflation worldwide had stayed low in recent years. But the mugger is back on the prowl.”

Here is the cover graphic:

Of course, we know how this particular story ended in 2008: badly. But not in the cloud of inflationary dust that the Economist magazine and hawkish members of the Fed envisioned. No, it ended “badly” with the most severe unleashing of asset deflation the United States had seen since the Great Depression, along with trillions of fresh credit dollars provided by the Federal Reserve needed just to stabilize the system during the long aftershock.

And the Deflationists Still Hold Some Cards

Four years later, the deflationists are still holding a few cards. True, actual recorded deflation was very brief and lasted only 6-9 months immediately after the crisis. And the deflationary spiral many predicted never did occur. Meanwhile, since 2008/2009, poor wage growth in the OECD and the continued supply of cheap labor from the developing world have ensured that one of the classic starter formulas for 'traditional' inflation -- tight labor markets and rising wages -- has failed to ignite.

Probably no market better expresses the ongoing, structural headwind to developed market inflation than the busted housing market. US households have indeed been working off their debt levels the past few years, but have only reduced those levels by a little more than 3%, from the 2007 highs. With so many Americans still unemployed or underemployed, and with debt levels that constrain purchasing power and also constrain mobility (i.e., the ability to move across country for a new job), it’s no surprise the US housing market remains trapped at levels far below its highs.

Of course, we know how this part goes.

The above chart comes from the February 2012 Economic Report of the President. The above chart (from Chapter 4 of the report) shows that the current bust, in real terms, has seen the worst price decline of all, compared to other historic declines over the past century. Indeed, that there is now little prospect that US residential real estate will ever recapture the old highs says a lot about structural shifts in everything from energy prices to our workforce, that the US faces at least until the end of the decade.

Stealthier Versions of Inflation

But wait a moment. Even if US residential real estate is fated never to be a recipient of inflation, owing to its dependence on oil prices and the automobile-highway complex, is it not the case that Americans have had to endure already a great loss of purchasing power for some time already? The US story of poor wage growth is now marked by some as far back as the 1970s. That is the longer timeline that is often used to explain the transformation from single-earning to double-wage-earning households. Moreover, health care, food, energy, and education costs have seen outsized gains the past 10-15 years.

Considering that most US pension funds, whether by plan or through individual retirement accounts, rely on the stock market, it seems fitting to mark the performance of the SP500 against a basket of commodities. After all, every retiree (and many an institution) eventually converts their financial capital into resources for living. One chart that I like shows the 15-year performance of the SP500 against the most preferred liquid energy in America: gasoline. (chart courtesy of FRED)

While tediously repetitive, the term Middle Class Squeeze still carries weight, as all of the previous components of the problem have only been exacerbated more recently by high energy prices. The purchasing power of the SP500 has literally crashed against oil. What’s particularly handy about the above chart is that when the SP500 was roughly at 1400 near the turn of the millennium, gasoline was indeed (briefly) around $1.00 per gallon. Now, over 12 years later, the SP500 once again trades near 1400, only this time, gasoline sells for 4 times as much, around $4.00 per gallon. But is this inflation?

The loss of purchasing power is certainly a form of inflation. However, what we’ve seen in the past decade is that many of the price changes affecting Western economies have not been driven by tight labor markets, wage inflation, or even reflationary policy -- which the US has engaged for much of the past ten years. Instead, price level changes have emanated most strongly from the universe of natural resources, including everything from copper to oil, and, of course, agriculture. There is no question that cheap money policies from both the US and Japan have been driving speculative bubbles for some time. But housing and stock market inflation, as we have seen, have been transitory.

Structural Changes in Global Price Levels

Inflation has been running fairly hot in developing markets for some time. In regions like Asia, pressured to source food as growing populations bump up against limits to available arable land, the amount of capital devoted to food, shelter, and transportation remains high. However, if we think of lower-earning populations across the globe as a single class, there has been no protection from higher prices offered by developed economies to their poorer populations. The bottom two quintiles of US wage earners struggle with food and energy costs just as much as their counterparts across the globe.

These structural changes in price levels, along with the increasing inability of every population to endure them, have fallen into a statistical gray area. Headline measures of inflation in OECD countries churn out benign readings, while at the same time, poverty grows. But this is a particular kind of poverty, a food and energy poverty, which saps the power of consumers to spend disposable income on an array of other items.

This emerging resource poverty is going to drive further changes in price levels, and in particular it will restrain many forms of consumption, including real estate prices. Cities will find, for example, that with the price level of food rising and real estate prices stagnant with rising transportation costs, urban farming is going to advance very strongly. Note, for example, the resurgence in urban farming in places like Brooklyn, NY, where large tracts of industrial land have lain fallow for decades. Indeed, a classic pattern of 'hot' inflation is that it quickly begins to drive out spending for discretionary goods in favor of true basics, like food.

The Risk We Face

The United States currently enjoys reserve currency status, which enables it to borrow cheaply, and which keeps capital circulating through our government bond markets, which are the largest in the world. Given the backdrop to our post-credit-bubble environment, it is now the consensus view that we will cut a path similar to Japan’s as we oscillate from weak growth back to the stimulative rescue policies of the Federal Reserve.

There is therefore a sense of complacency about an escalation in prices.

In Part II: The Triggers That Will Spark 'Hot' Inflation, we explain how many of the factors which have restrained prices globally at colder levels will start to run hotter soon.

First, there are structural changes taking place in the developing world with regards to urbanization and the trajectory of labor markets. Can the supply of cheap labor in the non-OECD continue indefinitely?

Second, populations in the OECD are increasingly trapped in “safe” investments, such as government bonds, which currently restrain interest rates from moving higher. But this also creates a latent vulnerability for if perceptions of safety and loss of purchasing power were to shift hard. This shift in perceptions is ultimately more critical in any step-change to higher inflation than the supposed quantity of “money-printing” that’s been undertaken by global central banks.

Finally, we look at the assets that will benefit, as well as those that will suffer most, should a stronger inflation develop.

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

 


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Thu, 04/19/2012 - 12:49 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Aaannnnnddd, it's gone.

Thu, 04/19/2012 - 12:54 | Link to Comment spiral_eyes
spiral_eyes's picture

The reality is was and foreseeably will be biflationary.

Thu, 04/19/2012 - 12:59 | Link to Comment economics9698
economics9698's picture

The trick for keeping ZIRP from creating inflation is to lay off millions from their jobs.  Massive money creation without the inflation. 

Why is everyone on this planet so economically illiterate?

Our fucking schools suck that’s why.

Thu, 04/19/2012 - 13:17 | Link to Comment spiral_eyes
spiral_eyes's picture

The main trick I think is to keep the primary dealers from lending out the money that the Fed has created to monetise debt and thus lower net interest rates for the Treasury.

Thu, 04/19/2012 - 13:19 | Link to Comment johnu1978
johnu1978's picture

Michael Ruppert spoke about this in one of his recent broadcasts. I think we're going to be seeing a lot more Obamavilles in the near future.

 

-John
Bowmaking Classes - Edible Plant Tours
http://www.heartrootnatureconnection.com

Thu, 04/19/2012 - 13:24 | Link to Comment economics9698
economics9698's picture

Keeping the banks from loaning out the money into a dead economy is important.  When the excess reserves fly away hyperinflation will follow.  But back to the original point the economy has to suck and people cannot be buying stuff.  Lay them off by the millions and the goal is accomplished. 

These bankers are evil, they know exactly what they are doing.  Its so fricking simple its a wonder how they can keep the public blind so long to their tricks.

Thu, 04/19/2012 - 13:47 | Link to Comment SilverRhino
SilverRhino's picture

Neofeudalism is the new name in the game of people farming.   Bankers are attempting to address imbalances created by the Rennaissance and bring back a very old social construct (without any of the previous safety nets). 

 

 

Thu, 04/19/2012 - 19:33 | Link to Comment machineh
machineh's picture

Twelve years of government indoctrination keeps the human livestock from straying off the farm.

Oops, the lockdown drill sirens are going off!

Thu, 04/19/2012 - 15:06 | Link to Comment narnia
narnia's picture

The government has trillions of $ of worthless promises it cannot honor.  These continued involuntary transactions form the capitalized value of total US debt.  What is underlying this market is a deflation mega beast looking to extinguish this crap & mode of business and move on with something sound.      

Hot inflation is not going to happen with upticks in domestic velocity in our zombie economy.  It will happen because the Fed sinks the $ past an acceptible confidence level & foreigners dump it.  The Fed's actions to sink may very well be a monetary reaction to an attack by the deflation mega beast.

Thu, 04/19/2012 - 15:23 | Link to Comment BigJim
BigJim's picture

If you lay people off 'by the millions', the government's expenses go up while their tax take goes down. The shortfall can only be met by EVEN MORE money printing - how will that not be inflationary?

Fri, 04/20/2012 - 21:41 | Link to Comment Kayman
Kayman's picture

"The main trick" was/is to save the self-described TBTF.  None of the FED's liquidity is in the real economy.  It mainly supports bullshit balance sheets and keeps Timmy's paper moving.

Thu, 04/19/2012 - 13:24 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Yep, now how has ZIRP worked out for Japan again?

Thu, 04/19/2012 - 14:28 | Link to Comment Popo
Popo's picture

Also, it's important to remember the fundamental nature of all markets:   Collapses are both rare and rapid events.

True (exponential) hyperinflations are often desperate responses to relatively-uncommon collapses.   Garden-variety inflation will crawl upwards until something breaks -- and then the exponential phase will begin.   But that phase (like a stock market collapse) is relatively rare compared to the daily grind of markets.

This is the same reason that market 'shorts' need to have tremendous patience:  Because the nature of markets is to exhibit slow and plodding momentum over the long-term -- punctuated by rare retracements,  even-rarer collapses,  and multi-generational hyperinflationary/deflationary collapses.   To be short the entire market is to be either very patient, or very good at timing.

Asking "Why haven't we seen hyperinflation or deflationary-collapse yet" is a bit like asking where the great California earthquake is.   Don't worry:  It's coming.   But when?  Ah... that's a whole other ball of wax.

Thu, 04/19/2012 - 23:55 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

Why is everyone on this planet so economically illiterate?

You especially, dumbass.

Massive money creation without the inflation.

Money creation IS inflation by definition, you moron.

The trick for keeping ZIRP from creating inflation is to lay off millions from their jobs. 

ZIRP doesn't create money, dumbass.  Printing creates money.  ZIRP allows people to borrow printed money at zero interest.

ZIRP is only indirectly related to inflation.  ZIRP allows an overspending government to keep borrowing and overspending.  All that borrowed (and spent) money goes right into circulation, causing prices to rise as the currency loses value.  When there's a flood of dollars out there from out-of-control government borrowing & spending, people can borrow them at lower interest, which is how ZIRP brings all interest rates down.  Basic supply & demand.

But it all starts with a central bank willing to run the presses incessantly.  That's whats inflation is, expanding the money supply beyond GDP growth, and the money supply is expanding way beyond GDP, which is actually shrinking, and yes it's gonna get worse because the government is borrowing and spending MORE printed money every year.

If you laid off enough people to counteract all the government spending, the private sector would collapse and nobody would be working.  Then you'd have a nation of homeless vagrants and a massive government living totally on printed money.  That's when it would all come crashing down.

Thu, 04/19/2012 - 13:04 | Link to Comment Mad Marv
Mad Marv's picture

None of this matters until it affects the population to the degree that a critical percentage gets off their ass and does something about it. Like stop participating in the ponzi.

Thu, 04/19/2012 - 13:23 | Link to Comment fonestar
fonestar's picture

I still challenge any deflationist out there to cite one single example in history where a currency went to zero, then magically not only bounced back but then allowed you to buy up everything in sight?  The end result of hyper-monetary inflation is chaos, destruction and death, not deflation!

Thu, 04/19/2012 - 14:54 | Link to Comment akak
akak's picture

But fonestar, haven't you learned by now that history means NOTHING to the deflationary flat-earthers?  Why should anyone need to examine history for monetary and financial precedents to the current situation, when they have their ivory-tower Keynesian theories?!

Thu, 04/19/2012 - 17:40 | Link to Comment jimmyjames
jimmyjames's picture

Why should anyone need to examine history for monetary and financial precedents to the current situation, when they have their ivory-tower Keynesian theories?!

**********

Keynes was adamant that printing money in recessions would cause inflationary outcomes-which would re inflate the economies-

Seems you buy Keynes's view on that one?

The Austrians certainly don't-

Thu, 04/19/2012 - 18:09 | Link to Comment akak
akak's picture

Chronic governmental overspending and exponentially rising governmental indebtedness ALWAYS leads to monetary debasement and/or collapse --- there is not one historical exception to that rule.  Yet you still think that "this time is different"? 

Sorry, I will place my bet on the hundreds (if not thousands) of clear historical parallels to the current situation ---- all of which saw the savings of the average citizen severely eroded if not destroyed by currency depreciation, and NONE of which were witness to an APPRECIATING fiat currency!

Thu, 04/19/2012 - 18:12 | Link to Comment jimmyjames
jimmyjames's picture

You and your historical comparisons (:

I challenge you to bring up {{one}} instance in all of history that the world had a floating/competing/linked fiat currency system-

I'll save you looking-there never was one-before now-

Thu, 04/19/2012 - 18:23 | Link to Comment akak
akak's picture

Your argument is both specious and irrelevant.

Unpayable debts are UNPAYABLE, period, no matter WHAT particular monetary regime happens to prevail.  Default WILL happen to every major national government, one way or another, and such defaults are ALWAYS and inevitably accompanied by currency debasement and/or collapse.

I am shocked that you are willing to so openly declare your complete contempt for several thousand years of monetary history.  But if it makes you feel good retreating into your egghead, ivory-tower theories that are divorced from all reality, then have fun doing so (while you can still afford to).

Thu, 04/19/2012 - 18:30 | Link to Comment jimmyjames
jimmyjames's picture

Of course this debt can't be paid and "default" is deflationary ie: someones balance sheet "lost money" a whole country or hundreds of banks and most all of society-

There is no period in history to compare to our present currency supply or bond market-

Show me an example if you're so positive about it-

 

Thu, 04/19/2012 - 18:59 | Link to Comment akak
akak's picture

There are literally HUNDREDS of examples of historical parallels to our current fiscal situation --- merely no worldwide ones.  But to claim that somehow that one fact makes the present situation qualitatively, instead of just quantitatively, different from all prior such episodes of governmental profligacy is to take not just a giant leap of faith, but an unfounded leap at that.

EVERY prior fiscal and monetary collapse probably had at least one or two elements within it that made it at least slightly different from every other such event --- so what?  The essential nature of the situation, and the inevitable political responses to it, are beyond dispute, at least to anyone with even a glimmer of historical knowledge --- you know, that very same history that, like the Marxists as well as like most ignorant Americans, you are willing to casually toss aside and dismiss.

You know, in your ivory-tower hubris, your reliance on theory over fact, your willful ignorance of history, and your implicitly pro-Establishment monetary arguments, you sound remarkably like Ben Bernanke, who similarly likes to darkly warn us about "deflation" even as he continues to debase the US dollar.  The fact that you continue to make the EXACT same specious monetary arguments, and errors, that he does only solidifies the comparison.

Thu, 04/19/2012 - 19:28 | Link to Comment jimmyjames
jimmyjames's picture

The difference?

i supply data--you supply BS

Thu, 04/19/2012 - 19:38 | Link to Comment akak
akak's picture

If you are willing to consider thousands of years of monetary history, and the consistent message it teaches about the inevitable results of governmental overspending and exponentially-rising debt, as 'BS", then our conversation is over --- you are completely closed to rational discussion, as well as in stubborn denial of reality itself.

Your arrogant and willful ignorance, and your PRIDE in that ignorance, utterly astounds me.

Thu, 04/19/2012 - 15:42 | Link to Comment jimmyjames
jimmyjames's picture

I still challenge any deflationist out there to cite one single example in history where a currency went to zero, then magically not only bounced back but then allowed you to buy up everything in sight?

***************

What major currency has gone to zero?

There has never been in history-a time of "world" floating "competing" paper currencies-it's only been since 1975 (chf allowed to float) that we've had this scenario and up until now-we have had inflation-

Can you buy a home cheaper today or not?

How did that happen?

Could it also happen with other assets?

Could both gold and the USD rise at the same time?

I can prove to you that it can/has and does-

Thu, 04/19/2012 - 18:12 | Link to Comment akak
akak's picture

The US dollar has NEVER risen in value, aside from the brief gold-standard deflation of 1929-1933.

Fri, 04/20/2012 - 02:48 | Link to Comment Kimo
Kimo's picture

The dollar will die, but like so many others, you are likely to die first.  Look at the burning dollar on this article's page.  Its deflation.

Thu, 04/19/2012 - 19:19 | Link to Comment Buck Johnson
Buck Johnson's picture

When inflation hits hard, it will be major.

Thu, 04/19/2012 - 12:51 | Link to Comment 5880
5880's picture

gold looks sick

Thu, 04/19/2012 - 12:53 | Link to Comment LawsofPhysics
LawsofPhysics's picture

interesting, paper is up two bucks, and my physical looks just fine.  My suggestion is to be more careful about where you stick your gold next time.

Thu, 04/19/2012 - 13:10 | Link to Comment 5880
5880's picture

look up Niihau

Owning Gold is owning puts, timing is everything

Thu, 04/19/2012 - 13:17 | Link to Comment Sudden Debt
Sudden Debt's picture

Owning gold for the long haul isn't chasing the markets.

Thu, 04/19/2012 - 13:32 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Bought below $300.  Beside, gold is not an investment, it is a safe store of value.  Know the difference.

Thu, 04/19/2012 - 13:58 | Link to Comment 5880
5880's picture

I'm not saying it's not a store of value

Timing of the store of value choice has consequences, especially when it's in a form that produces yield only from upward price movement

Farmland is a store of value that has price change AND distribution yield

Gold looks sick

Thu, 04/19/2012 - 15:36 | Link to Comment BigJim
BigJim's picture

Not to be a downer here, but any kind of land is a ticket to land-tax slavery and/or confiscation.

Thu, 04/19/2012 - 15:57 | Link to Comment LawsofPhysics
LawsofPhysics's picture

There is someone who knows their history.  My land is alread occupied by people with a vested interest in making sure the land remains productive.  This provides some buffering as the politico never likes to have to admit that they are destroying jobs.

Thu, 04/19/2012 - 16:18 | Link to Comment WhiteNight123129
WhiteNight123129's picture

"It produces yielkd from upward price movement".  First there is no yield whatsoever in Gold except if you lease it.

But there is a appreciation when the Gold reserve as a percentage of monetary base moves up. WHen the Gold reserves just track inflation no gain, when it moves faster than inflation your purcahsing power increases. So a nominal return in Gold is zip nadda, 0. If the nominal return is lower than inflation in basic necessities, you are losing money while in dollar you "gained". This is monetary illusion 101.

You need to be able to measure things without reference to the dollar, so for exmaple is Wheat cheap in corn terms? Is Wheat cheap in Gold terms? Is Silver Cheap in Gold terms? Is Gold cheaper in Yen or USD terms. Is Natural GAs extremely cheap in Yen terms, but not soooo much in Silver terms? The dollar is a fiction at this point.

 

Thu, 04/19/2012 - 12:58 | Link to Comment EL INDIO
EL INDIO's picture

I’m afraid Gold is in a very bearish stance. We just got a death cross, the 50 DMA has moved below the 200 DMA, while the 100 DMA did so 3 weeks ago.

It seems we are entering a deflationary period if Gold does not stabilise here. If it keeps drifting lower, I recon we could have a serious Gold bulls panic.

Thu, 04/19/2012 - 13:01 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

The CBs and the Morgue want it to look sick.  The narrative of the barbarous relic is supported by the incessant manipulation as needed to keep the unwashed out of the gold market.  Physical holders are not panicked...and that is what scares the hell out of the TBTFs.

Thu, 04/19/2012 - 13:17 | Link to Comment Peter Pan
Peter Pan's picture

Charts and DMA's have their limitations. If we move into a truly deflationary period you just have to ask yourself what that will do to house prices and therefore bank loan portfolios. If they crash what do you think the value of your cash at bank will be worth in a fractional reserve system.

Whilst gold price may suffer just ask yourself by how much more other assets will suffer and whether cash is king if you cannot get it out of the bank.

Thu, 04/19/2012 - 13:28 | Link to Comment WAMO556
WAMO556's picture

+1 for that commonsense approach.

Thu, 04/19/2012 - 13:55 | Link to Comment EL INDIO
EL INDIO's picture

There is another scenario: Paper assets keep levitating or even go higher while commodities go down ! This is what seems to be happening now.

Thu, 04/19/2012 - 14:19 | Link to Comment Peter Pan
Peter Pan's picture

These are short term phenomena that cannot continue for too long. In any case if paper assets have underlying real assets, or claims to real assets, how can the paper asset increase while underlying real assets take a tumble?

Thu, 04/19/2012 - 14:19 | Link to Comment Peter Pan
Peter Pan's picture

These are short term phenomena that cannot continue for too long. In any case if paper assets have underlying real assets, or claims to real assets, how can the paper asset increase while underlying real assets take a tumble?

Thu, 04/19/2012 - 14:35 | Link to Comment EL INDIO
EL INDIO's picture

I agree, but what you call short term could be a long time for others.

Fri, 04/20/2012 - 02:51 | Link to Comment Kimo
Kimo's picture

So true.  Many may grow old and die, before inflation is rampant again.

Thu, 04/19/2012 - 13:26 | Link to Comment WAMO556
WAMO556's picture

Thanks for telling us about the DMA. WTFC! Did you get that info from YAHOO??? (sarc off). So that we got this straight, the charts are only usefull if the market is NOT manipulated. See this for just alittle bit of light reading:

http://www.zerohedge.com/contributed/2012-16-19/weekly-dose-gold-silver-market-manipulation

Thanks for understanding and trying to keep us un-enlighted trogs informed, would have been better to kill a cow and poked at the entrails to get a "reading" of where gold and silver is going!

Just saying!

Thu, 04/19/2012 - 13:57 | Link to Comment EL INDIO
EL INDIO's picture

Manipulation or not, who cares.

What matters is the facts like you can buy PMs cheaper every month or you PM stash is worth less every month.

Thu, 04/19/2012 - 14:47 | Link to Comment jimmyjames
jimmyjames's picture

Manipulation or not, who cares. What matters is the facts like you can buy PMs cheaper every month or you PM stash is worth less every month.

****************

You really do have it assbackwards huh-

http://static.incrediblecharts.com/images/png_images/gold-oil_ratio_30yr...

http://home.earthlink.net/~intelligentbear/dj-au-ratio-mt.gif

http://www.marketoracle.co.uk/images/2011/Nov/gold-Ratio1.jpg

I could give you lots more but-why bother-

Thu, 04/19/2012 - 13:32 | Link to Comment dow2000
dow2000's picture

I fucking hope so, I want more GOLD for my FRN's.

Thu, 04/19/2012 - 13:51 | Link to Comment SilverRhino
SilverRhino's picture

I will sell my gold when the following occurs.

  • There exists a currency that becomes more stable that metals.
  • Deficit spending is brought under control
  • The rule of law and more important CONTRACT law becomes sacrosanct again.
  • The National Debt issue gets solved.
  • Lawbreakers get punished for fraud, embezzlement and corporate malfeseance.

I wont be selling for a good long while, so these little 'bearish' comments remain what they are, a scare attempt to flush wealth back into the ponzi games.

Thu, 04/19/2012 - 14:17 | Link to Comment Fake Jim Quinn
Fake Jim Quinn's picture

Deflation is good for gold. Remember that investing looks ahead, and that gold price is driven by currency dilution and interest rates (and some fear psychology). In deflation, central banks print money and lower interest rates. Printing money increases the value of gold relative to the diluted currency.

Inflation is bad for gold. Eventually, central banks react to the inflation by reducing money supply and raising interest rates. In anticipation of these moves, gold investors sell off their gold

This is all counter intuitive until you realize the forward looking nature of investment. While we're in a deflationary environment, holding gold is good. The day you hear the Fed is worried about inflation, sell as fast as you can

Thu, 04/19/2012 - 14:38 | Link to Comment jimmyjames
jimmyjames's picture

Deflation is good for gold.

Inflation is bad for gold.

**************

Woo-Hoo somebody gets it-

Good post-

Thu, 04/19/2012 - 15:47 | Link to Comment BigJim
BigJim's picture

Deflation is good for gold

Inflation is bad for gold
_______________________

Sorry, but no. In a debt-based monetary system, deflation - which, let's face it, is not going to be allowed to really happen - causes prices of assets bought on credit to drop. Given that we have a 100:1 paper:physical price 'discovery', where most of that paper is bought on margin, then gold can drop along with everything else bought on margin - houses, for instance. Those graphs showing how well gold or gold miners did in the 1930's fail to take into account FDR's gold theft and dollar devaluation, and the fact that gold was money. Obviously, in a period of money scarcity, the price of money goes up. Duh!

Yes, you're right, if there's deflation, then the CB's will print, and this is good for gold, but that's only because the printing is inflationary.

As for your point about inflation leading CB's to raise interest rates, that's true to a point, but what you need to be looking at here is real interest rates. There is no way that Western CBs can raise interest rates to become positive - the entire ponzi would collapse in hours.

Thu, 04/19/2012 - 16:23 | Link to Comment jimmyjames
jimmyjames's picture

Yes, you're right, if there's deflation, then the CB's will print, and this is good for gold, but that's only because the printing is inflationary.

**********

Wrong--printing is inflation-it is not necessarily inflationary-

It depends on where the newly printed/issued FRN's and credit go-

Obviously it never went very far or carried any velocity with it-

Here's your printing machine-

http://research.stlouisfed.org/fred2/series/BASE

Here is where the vast majority of the printing ended up-

http://research.stlouisfed.org/fred2/series/EXCRESNS

And here's how fast any extra is sloshing around amongst the peasants-

http://research.stlouisfed.org/fred2/series/MULT

Thu, 04/19/2012 - 22:29 | Link to Comment BigJim
BigJim's picture

But what we're talking about here is whether deflation is good for gold prices because the CB's 'print' more money. But such 'printing' will only be good for gold if they are actually successful in staving off deflation ie - we have inflation.

Thu, 04/19/2012 - 14:35 | Link to Comment jimmyjames
jimmyjames's picture

It seems we are entering a deflationary period if Gold does not stabilise here. If it keeps drifting lower, I recon we could have a serious Gold bulls panic.

************

lol--what gold bulls are you speaking of?

http://www.acting-man.com/blog/media/2012/04/HGNSI.gif

The HUI 200 dma weekly has held for a week now-

The gold/xeu 200 dma as well-

http://www.acting-man.com/blog/media/2012/04/Gold-euro-ann..jpg

The lemmings are not bullish-beware shorts-

 

Thu, 04/19/2012 - 16:21 | Link to Comment WhiteNight123129
WhiteNight123129's picture

Let the Gold bull panic please, so I can buy more if it retranches to 1300 hundred, since teh monetary base keeps expanding fast, we are fine. If there is a monetary contraction like the ones which were allowed to happened between 1825 and 1840 than the quantity of paper being reduced to the quantity of bullion, than sell your Gold to convert to paper like people did in that period. Bernanke will keep expanding the monetary base and it will find its way in real assets, period. Historically the script is just always and always and always the same, it never changes. Gold not cheap anymore, Gold moving slower than monetary base makes it cheaper.

Thu, 04/19/2012 - 17:49 | Link to Comment Freegolder
Freegolder's picture

Serious gold bulls will not panic, they will fill their boots at sale prices, with physical of course.

I hope and pray for c$1200- $1400 in the next 6 months.

 

Thu, 04/19/2012 - 12:54 | Link to Comment Soda Popinski
Soda Popinski's picture

Despite rampant inflation, JPM still plans to keep shorting the metals at their current levels.  Watch the crimex  continue to report a fake price of gold and silver in the months ahead.  The manipulation must go on......

Thu, 04/19/2012 - 12:55 | Link to Comment xela2200
xela2200's picture

JPM vs. the market. It will be interesting to watch.

Thu, 04/19/2012 - 13:02 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

What 'market'?

Thu, 04/19/2012 - 13:35 | Link to Comment BooMushroom
BooMushroom's picture

Went in to my local coin shop with some fiat yesterday, and asked if she had any silver Eagles. She only had one. Now she has zero.

And now I have to go out fishing.

Thu, 04/19/2012 - 12:54 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Can't find (inflation) what ya ain't looking for.

Just ask the BLS how they do it......or don't do it as the case may be.

Thu, 04/19/2012 - 12:58 | Link to Comment perelmanfan
perelmanfan's picture

The game is, actual inflation 10-15 percent, official inflation 2 percent. Only problem is pesky gas prices, which people tend to notice - hence the trope, "evil oil speculators." People are dumber than you might imagine, and this scenario can go on longer than you think.

Thu, 04/19/2012 - 13:02 | Link to Comment SoCalBusted
SoCalBusted's picture

People that do grocery shopping are noticing too.

Thu, 04/19/2012 - 13:10 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Stagnant rents swamp all that out.  Rent is the largest monthly expense for renting Americans, which is most.

If it doesn't rise, inflation doesn't.

Thu, 04/19/2012 - 13:42 | Link to Comment BooMushroom
BooMushroom's picture

What is the rate of rent inflation when you go from squatting in a house to renting an apartment? My calculations always return !DIV/0!! And the calculator gets stuck.

Thu, 04/19/2012 - 13:27 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Yep, make margins 100% on fucking every single commodity.  Go ahead I dare you, then who will the politico blam when the prices keep going up?  Math and the laws of physics don't give a shit.

Thu, 04/19/2012 - 17:17 | Link to Comment Diet Coke and F...
Diet Coke and Floozies's picture

Wouldn't help, just take a loan from a bank instead of the broker. The people can always lever up, one way or the other.

Thu, 04/19/2012 - 13:33 | Link to Comment dow2000
dow2000's picture

Yeah just wait, before you know we'll be quoting gas by the Liter. Worked for the supermarkets...

Thu, 04/19/2012 - 14:34 | Link to Comment BeerBrewer09
BeerBrewer09's picture

Pepsi came out with NEW 1.5 liter soda bottles recently.

Fri, 04/20/2012 - 08:11 | Link to Comment Chicken_Little
Chicken_Little's picture

I returned here to Florida from Thailand this week for the 1st time in 13 months. Food inflation in Thailand is reported by the government around 3.5%. My Thai GF buys stuff at the Thai markets and I came up with about 16% even after the floods. Here in Florida food prices are up about 15% since I was last here but the government is reporting about 3.4%? Gasoline prices are higher in Thailand but not as high as in Europe. The minimum wage was just raised to 300 Baht a day (approx $10 for an 8 hour shift) in several Thai provinces with the rest to follow in 2014. Many smaller companies that got hit by the floods moved to Cambodia, Laos, and other SE Asian locations. The quality of the foods I'm buying here is poor which is another stealth inflation, and there's less in the packages. Inflation is 12 to 20%.

I need to vent about something about my return to the USA. Leaving Thailand was easy, but getting through immigration at LAX wasn't easy. I read here on ZH about a list of Persons of Interest (POI) list. Most of the people in the line ahead of me were green passport holders and others from Mexico. They went through very quick. But when it was my turn with a USA passport and it was scanned the woman looked at her screen and started asking me questions that she didn't ask the others in front of me. Then at the customs line, I got tagged for a full luggage and "interview". A government customs official came out of an office and set up a desk and made me go to his desk. "Why have you been in Thailand for this long, what have you been doing over there". I told him I was retired and had a Thai girlfriend that was trying to get all my money. He didn't ask me any other questions and let me go through luggage inspection. He raised his hand to the guy letting us into the airport out of customs. Can anyone here write about similar experiences?

 

 

 

 

Thu, 04/19/2012 - 12:58 | Link to Comment Temporalist
Temporalist's picture

I was just reading this from Blmbrg when you posted:

CPI Conspiracy Theories Persist Even With Broad Checks

"Maggie Humphrey, a price collector for the Bureau of Labor Statistics" need I say more...

http://www.bloomberg.com/news/2012-04-19/cpi-conspiracy-theories-persist...

 

Thu, 04/19/2012 - 13:47 | Link to Comment BooMushroom
BooMushroom's picture

Tl;dr: "bananas are on sale, so there is no inflation."

Thu, 04/19/2012 - 15:08 | Link to Comment SeanJKerrigan
SeanJKerrigan's picture

I posted this on the article, but its worth reposting here:

 

First, inflation is often hidden through things like labor, packaging*, technology and materials.

- Lets say 10 years ago you bought a T-shirt for $10.  Today, I can still find T-shirts for $10 in the same stores, but the quality is far lower. The CBO only sees a T-Shirt and the consumer sees the same price, but that does not mean there is no devaluation going on in the money.

- Labor cost reductions (by moving factories to China) and technological advances have the same effect of hiding inflation. Things are being made cheaper all the time through globalization and technological advancements.  To quote Jim Grant, "Deflation is not is a drop in prices caused by a technology-enhanced decline in the costs of production. That’s called progress.”  

Of course, the Fed's official policy is to keep prices steady or slowly increasing. Additional easing becomes justifiable because on the surface it doesn't look like bubble blowing.

By constantly finding new ways to cut costs in cheap electronics, people have a hard time measuring the drop in the value of their currency. Of course, once you reach maximum efficiency by using automation and slave labor, it makes inflation harder to hide.

Meanwhile, areas where corners are not so easily cut (such as education, natural resources, cost of domestic labor, etc) continue to rise in price.

The only way to measure the value of a currency is too look at something that is static. For example, imagine the cost of a shirt made in America with high quality materials and a union worker. It would cost a fortune today because the real value of the currency has collapsed over a long period of time.

This is the incredibly destructive nature of inflation. You see, inflation doesn't destroy wealth, it redistributes it, and under these circumstances, its being distributed upwards to multi-national corporations.

Inflation eats away at everything. Infrastructure, small business competitiveness, government services, the quality products, etc. are all more difficult to pay for when wages are stagnant and the gains move upward. 

* The amount of food provided in the same packaging is actually smaller while providing the same price. Bloomberg and others documented this was happening back in 2010 and I still see it occurring today. Does the CPI account for this? It's certainly possible, but it doesn't say. I'm not sure about this one.

 

Thu, 04/19/2012 - 15:56 | Link to Comment jimmyjames
jimmyjames's picture

First, inflation is often hidden through things like labor, packaging*, technology and materials.

***********

Inflation is not hidden-you just don't look in the right places-

Here's inflation-

http://research.stlouisfed.org/fred2/series/BASE

http://research.stlouisfed.org/fred2/series/TCMDO

***********

If "special accounting" ie: FNM/Level 3 assets/bad banks etc. had not thrown a curtain around the TCMDO and had allowed it to be marked to market-you would see the deflation-but just because you cant see it-doesn't mean it isn't happening or went away-

Thu, 04/19/2012 - 13:03 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Inflation and deflation are not either/or mutually exclusive.  What we've been seeing is both - inflation in staple items coupled with deflation in housing and other durable assets (I consider no one buying new cars as a sign of deflation).  And it makes perfect sense when real incomes are dropping - more of folks' disposable income must be dedicated to day-to-day items, leaving less to service debt or finance new houses.  This has gotten progressively worse and will continue to do so.  If money velocity ever picks up (which the banks are terrified of), then the trillions in liquification that the CBs have laundered to the banks will really make an impact on prices.

There is no avoiding further collapse in asset prices.  The only question is how steep the inflation in staples will get on the way.

My two oz.

Thu, 04/19/2012 - 13:01 | Link to Comment Racer
Racer's picture

Reality of now:

Soaring inflation in necessities

Deflation in things you don't need.

 

QED:  inflation tamed

Thu, 04/19/2012 - 13:08 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

No.

No. 

And no.

If you are going to analyze, you cannot ignore data.

It is NOT merely deflation in things one does not need.  

RENT represents the largest monthly expense of renting Americans, which is most.  That is simply the way it is.  

RENT is not going up.  Check your local craigslist.  It's not going up.

Because it is not, and because it is the largest overall expense, overall inflation is held down.

This is not ideology.  It is math.  As long as rents don't rise (and how can they with people moving into their parents' houses) then inflation is not going to surge.  

Even with scarce oil driving everything else up, inflation can't rise if rents do not, and they are not rising.  

Now this is not necessarily so for other countries.  Rents are not the large % of their monthly expenses that rents are in the US, so they will see inflation, but not here.  

Thu, 04/19/2012 - 13:20 | Link to Comment icanhasbailout
icanhasbailout's picture

Rent may not be going up, but everything else is shooting the moon, including the #1 expense of a great many households you seem to have forgotten about - taxes.

 

And for the folks you noted are living at home... their rent can't go down, so those folks feel exclusively inflationary forces.

 

Things are rapidly coming to the point where a low-wage worker will not be able to afford gas and food, even living under someone else's roof. That's not deflation!

Thu, 04/19/2012 - 13:31 | Link to Comment riphowardkatz
riphowardkatz's picture

Manhattan report
Specifically, they're up 
9.1 percent from the first quarter of 2011, for a new median net effective rent of $3,064/month, according to the Elliman report.

Portland-area apartment vacancy grows, but rents continue to climb

In Philadelphia, rents have increased nearly 15 percent over the past year through February, while home values have dropped 5.4 percent, according to real estate website Zillow. 

 pushing renters toward the East Bay, where rents also are rising and vacancies dropping, according to a new housing report. 

Rents on the Rise Across Southern California A new USC study shows rental rates on the uptick

  

PHOENIX - Rental rates are going up in the Valley, but there is some advice to prepare for it and ways to save some money.

Read more: http://www.abc15.com/dpp/news/region_phoenix_metro/central_phoenix/why-rental-rates-increasing-in-the-valley#ixzz1sVa9r8GJ

DALLAS – Dallas-based consultant Axiometrics Inc. said local apartment rents have increased by about 6 percent in the last year.

Thu, 04/19/2012 - 13:29 | Link to Comment LawsofPhysics
LawsofPhysics's picture

I just raised the rent on several tenants.  Real estate and rents, just like eCONomies and politics are in fact local and vary from location to location.  Wake the fuck up.

Thu, 04/19/2012 - 13:32 | Link to Comment riphowardkatz
riphowardkatz's picture

you obviously didnt check your local craigslist

Thu, 04/19/2012 - 14:35 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

I suspect your sample sizes are small.  If rents were rising, it would be captured in the data.  

Las Vegas rents are not rising.  Florida rents are not rising.  St. Louis.  Detroit.  Chicago.  Denver.  They are all profiled and are simply not rising.

Thu, 04/19/2012 - 14:48 | Link to Comment riphowardkatz
riphowardkatz's picture

I realize I won't convince you but for anyone wondering

http://money.cnn.com/2012/04/05/real_estate/buy-rent-home-prices/ 
Miami and Sarasota listed at the 10+% increases

In Chicago, median rents in the past 12 months have risen 8.6 percent, or more than $100 a month. In the same period, the median home price has fallen 11 percent, to just $154,600.  

For instance, average advertised one bedroom rents in Chicago are $1,451 in 2012, up 11% from $1,302 in 2011, according to the site. In Denver, rents are $1,067 this year, up 12% from $950 last year and in Charlotte, rents are $876 this year, up 13% from $774 last year.  

Thu, 04/19/2012 - 15:09 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Thanks for taking the time to find that.  I can be persuaded.

I should spend similar time trying to rebut.

I am not one of those who think CPI gov't ppl get up each morning and look in the mirror shaving very calmly sure they are going to work that day to lie to the citizenry.  I have read their methodology for computing inflation and it suggests to me that they are self doubters and re-examine what they are doing frequently.

They survey people and ask what % each category is of total expenses per month.  Then they profile the price of each of those categories.

I will say that their primary rent check is "imputed rent", where they ask property owners what they would charge to rent the property.  That's their measure, and I am under the impression that they call all sorts of property owners, including apartment complex owners.

Maybe I have that wrong.  My overall point is that they do a very broad survey and rent is the #1 most important item.  Hard to see how they get that wrong.

But again, good data.  I'll spend some time looking around.

Not meaning to dodge the issue, but my overall measure of inflation is the 10 year bond.  It's more or less impossible to see big inflation numbers concealed or otherwise while it is south of 2%.  I do think people could drive that to negative yields out of fear, but still, can you imagine big inflation with 2% yields?

 

Thu, 04/19/2012 - 16:31 | Link to Comment riphowardkatz
riphowardkatz's picture

I have not read their methodologies but when you say

"They survey people and ask what % each category is of total expenses per month.  Then they profile the price of each of those categories."

Not totall sure I understand the above but if they survey more people that are living with other people then there would be a reduction of  at least 50% in that persons expenditure on rent. This is not a reduction in the cost to rent a unit.

Regardless from the recent CPI report

Most of the major components increased in March, with the indexes for shelter and used cars and trucks accounting for about half the total increase for all items less food and energy
Thu, 04/19/2012 - 16:58 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Yeah I was typing quickly.

The site is a good read.  They have periodic reviews of their methodology and welcome challenges.

They call around and survey households and ask what % each category of expenditure represents of entire monthly expenditures.  They are very detailed in categories and subcategories.  All sorts of different foods.  All sorts of different transportation measures.  This is not a casual effort.

Then they have a seperate team that is always monitoring costs of each subcategory.

The primary challenge to their measures seems to be health care and they do take it seriously.

Their measure of shelter can be up and still drag everything else down.  If it's 0.1% and gasoline is 10%, but shelter weighs much heavier etc . . .

As to the scenario you lay out, of the roommate situation or kids living at home, these guys are way too detailed to miss that.  They have a procedure for handling it.

They measure what they measure.  I saw a statistic a year or so ago saying that a 2000 base model Toyota Camry was priced 99% of today's price, and today's base model has airbags, anti lock brakes and all sorts of things not standard in 2000.  Yet the price was up 1%.  In 10 years.

 

Thu, 04/19/2012 - 17:15 | Link to Comment riphowardkatz
riphowardkatz's picture

again, even by their measures

Most of the major components increased in March, with the indexes for shelter and used cars and trucks accounting for about half the total increase for all items less food and energy  

Thu, 04/19/2012 - 18:44 | Link to Comment riphowardkatz
riphowardkatz's picture

Not meaning to dodge the issue, but my overall measure of inflation is the 10 year bond.  It's more or less impossible to see big inflation numbers concealed or otherwise while it is south of 2%.  I do think people could drive that to negative yields out of fear, but still, can you imagine big inflation with 2% yields?

Yes, when the buyers of the bonds are 1. protecting the market so the value of their previously purchased bonds dont tank (china) or 2. are the central banks (bernanke) 3. buying the bonds because they are front running the fed (pimco) then using the 10 year is meaningless. In fact a lower 10 year is a bigger sign of inflation.  

We are seeing big inflation. Gold is up a ton, I just pointed out rents, food is up significantly, the stock market is up, apple is up over 3 times, silver is up, oil is up,. Read any manufacturers year end report. They are experiencing 10% higher input costs. It is all around and everywhere. Medical costs are up, tuition is up.  The places prices haven't risen yet will soon rise as well including labor and homes and consumer goods will soon follow.

Thu, 04/19/2012 - 19:08 | Link to Comment Errol
Errol's picture

FWIW, I have an anecdotal data point for Miami.  I sold the house in 2006 and have been renting since; my rent has not increased at all for the last two years.

Now that the banks have received their wrist-slap and can resume foreclosing, I foresee another surge of rentals coming on the market while their former "owners" move in with friends.

Thu, 04/19/2012 - 14:48 | Link to Comment tmosley
tmosley's picture

lol, I guess Wiemar didn't have hyperinflation either, because housing prices weren't going up.  All you had to do to keep inflation down was buy more houses and apartment blocks each paycheck.

Housing prices are the largest expense, until they aren't.  When it happens, it'll be so fast it might just break your neck.  That's if you aren't paying attention, and aren't prepared.

Thu, 04/19/2012 - 15:06 | Link to Comment akak
akak's picture

Excellent points!

I have to laugh at the specious arguments constantly trotted out by the clueless deflationary flat-earthers in their attempts to claim that high inflation, even hyperinflation, "can't happen here", such as "The PTB will never allow it, because it will undercut their own power", "Falling asset prices will balance the rising cost of living", "debt destruction will counterbalance the rising cost of living", blah blah blah.  By these absurd rationales, inflation and hyperinflation have obviously NEVER occurred ---- I mean, why would Robert Mugabe ever allow hyperinflation to take root in Zimbabwe, wouldn't that hurt his own power and his own financial standing, as well as those of his cronies?  Nope, according to the deflationists, I guess it never happened at all, and must have been just a figment of my imagination.

Thu, 04/19/2012 - 18:08 | Link to Comment Jendrzejczyk
Jendrzejczyk's picture

Where is our resident deflationista, Kito, these days? 

 

Thu, 04/19/2012 - 18:24 | Link to Comment akak
akak's picture

Whoa, I forgot about that character!

Maybe he was Tibetan, and was blobbed-up by AnAnonymouse?

Fri, 04/20/2012 - 14:25 | Link to Comment jimmyjames
jimmyjames's picture

AK--

You wouldn't know what an excellent point was if you had one poking you in the eye-lol

Fri, 04/20/2012 - 14:37 | Link to Comment akak
akak's picture

Go on, keep looking for the edge of your deflationary flat earth --- maybe some day you will fall off of it, lol.

Oh, and while you're at it, why don't you tell us all again just how meaningless and "irrelevant" history actually is --- what an ASTOUNDING admission of arrogant ignorance that was from you!  I am still dumbfounded by your pure, unadulterated cluelessness, and by your stubborn and blinkered denial of the reality staring you right in the face.

Fri, 04/20/2012 - 13:08 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

If deflation was actually happening, a dollar would buy more of a product in a stable supply / demand range.

Milk is a good example of a product in a stable supply / demand range.  Price isn't affected by supply / demand variations.

But the price of milk keeps going up. It's because the dollar is losing value.

See, I explained it without using "inflation" nor "deflation".

Bottom line, the dollar is losing value, lots of value, 40% in the last 4 years.  That's a big drop.

Home prices (and rents) are dropping due to demand collapse.  That's not deflation.  It's lower prices. 

Lower prices from demand collapse is not deflation.

Lower prices from the dollar gaining value would be deflation.

Home prices (and rents) are dropping during inflation, while the dollar is losing value.  

The confusion arises because you're using "inflation" and "deflation" to describe prices.   They're not price-related terms.   They're money supply and currency value  terms.  

Inflation is when the money supply is expanding faster than GDP, causing the currency to lose value.

Deflation is the opposite.  Money supply shrinking faster than GDP, causing the currency to gain value.

This is not just my view, it's Ben Bernanke's view too, as he stated back in 2002.

Of course he doesn't say that these days while running the presses and expanding the money supply rapidly, causing the dollar to lose value rapidly.

So you can take your little bullshit theory that lower rents means deflation and shove it up your ass moron.  Bernanke himself says it's bullshit.

What we have now is lots of inflation, with the dollar losing value rapidly.

Home prices and rents are falling nonetheless, because demand for buying and renting homes is dropping faster than the dollar is losing value ...which means the housing market is just fucking collapsing.

Fri, 04/20/2012 - 14:23 | Link to Comment jimmyjames
jimmyjames's picture

But the price of milk keeps going up. It's because the dollar is losing value

**************

You should look beyond your grocery receipts when you measure inflation or deflation "money supply" which is all either one is-

The dollar is about the same place it was 7 years ago?

http://3.bp.blogspot.com/-ZeDGrR-KHsI/T0VCZeQSuiI/AAAAAAAAOVo/bqMDD_Ir2U...

Fri, 04/20/2012 - 14:46 | Link to Comment akak
akak's picture

.

The dollar is about the same place it was 7 years ago

GOD, could your lies and misinformation be any MORE insulting and outrageous!

Everyone with a eighteenth of a brain knows the the spurious US Dollar Index does NOT measure the value of the US dollar in any absolute manner, nor its purchasing power --- it is merely a reflection of the RELATIVE value of the dollar compared to other, more or less equally depreciating fiat currencies.  The fact that you even try to suggest that the value of the US dollar is at exactly the SAME place that it was in 2005, and that prices have NOT risen at all in those seven years despite the overwhelming, impossible-to-deny evidence to the contrary, only goes to demonstrate once again what a lying, disinformation-spreading troll you really are.

Admit it already: you work for the Fed and/or Cass Sunstein, don't you?

Fri, 04/20/2012 - 15:21 | Link to Comment jimmyjames
jimmyjames's picture

Everyone with a eighteenth of a brain knows the the spurious US Dollar Index does NOT measure the value of the US dollar in any absolute manner, nor its purchasing power -

***********

What a complete fucken idiot you are-

Oil is about $100/bbl today--same price it ws in 2007

5 years ago!!

Explain that one when you speak about measuring purchasing power-

Fri, 04/20/2012 - 18:03 | Link to Comment akak
akak's picture

.

Oil is about $100/bbl today--same price it ws in 2007

Well, given that crude oil is around $117 per barrel today (Brent, not WTI, the price of the latter being irrelevant to the world market, although it is $104 today), and the average price in 2007 was $71.13 (http://www.indexmundi.com/commodities/?commodity=crude-oil&months=120), that gives a price increase in five years of 64% --- so thank you for totally talking out of your ass once again, and trying to LIE to further your absurd, pro-Establishment agenda.

Funny how you also fail to mention the significantly increased prices of gasoline, or food, or tuition, or basic commodities such as copper or sugar or zinc or rubber, or just about ANYTHING  else.

Furthermore, nice bit of misdirection and obfuscation there, as you completely failed to address the fact that the US Dollar Index (which is a currency daytrader's tool and NOTHING else) is NOT a measure of the purchasing power of the US dollar in any way.  Or are you going to try to claim that the US dollar has not lost ANY value since the DXY was at roughly the same value as today back in the early 1980s?

With your every idiotic statement and disingenuous assertion, you just put your foot in your mouth that much further, and dig the hole of your non-credibility that much deeper.

Fri, 04/20/2012 - 18:09 | Link to Comment Bay of Pigs
Bay of Pigs's picture

I've always had trouble explaining inflation to the flat earth deflation crowd.

I am amazed they are still stuck within their own self imposed prison cell paradigm...

Fri, 04/20/2012 - 19:19 | Link to Comment akak
akak's picture

Their insane self-delusion will only cost them their investments and savings in the end --- and it couldn't happen to better fools, as most of them are semingly intelligent enough to know better, but would rather put their trust in the tortured, ivory-tower theories of statists and pro-status-quo central bankers rather than in historical precedents and common sense.  When their beloved fiat buttwipes go up in smoke in the hellfire of inflation or hyperinflation, I will weep for them not one bit --- in fact, I will laugh in their (formerly) smug faces.

Fri, 04/20/2012 - 20:39 | Link to Comment jimmyjames
jimmyjames's picture

Funny how you also fail to mention the significantly increased prices of gasoline, or food, or tuition, or basic commodities such as copper or sugar or zinc or rubber, or just about ANYTHING  else.

***************

You disingenuous piece of shit-when WTI was 140-that worked for you and now you move to Brent to try and salvage your garbage comments-

WHAT ABOUT THE PRICE OF HOUSE??

50% CHEAPER THAN 2007-YOU MISSED THE BIGGEST TICKET ITEM THERE IS-LOL

Wheat 6.15 same as 07

Soy bean 1440 same as 07

Corn 612 same as 07

Copper 3.69 same as 06

Have look http://www.barchart.com/futures/

What a dumb clueless fuck you are-

 

Fri, 04/20/2012 - 21:31 | Link to Comment akak
akak's picture

.

You disingenuous piece of shit-when WTI was 140-that worked for you and now you move to Brent to try and salvage your garbage comments-

Oh my GOD!  You are truly the most OUTRAGEOUSLY disingenuous, dishonest, malicious, dissembling troll I have EVER encountered in this forum!  I thought the former rabid anti-gold trolls were bad, but you far and away take the cake!

I NEVER mentioned WTI initially, but my comparison in any case above was apples-to-apples, not apples-to-oranges as you are trying to make it here.  The facts are simple, you LYING ASSWIPE TROLL: Brent Oil averaged $71 in 2007, and is $117 today, a 64% increase.  Do you deny it?  No, of course not, you can't --- so you will lie, obfuscate, and evade, as you usually do.

You want to talk about WTI?  OK, here it is: in 2007, WTI averaged $72.29 per barrel, and today it is at $103.05, an increase of 42.6% --- still nowhere near being "the same today" as you dishonestly claimed above.

You further add to your LIES by bringing up other commodities, and outrageously claiming that they have held steady in price over the past five years.  So shall we look at the ones you mentioned?

Wheat: + 46%

Soybeans: + 79%

Corn: + 63%

Sugar: + 129%

Copper: + 31%

And just for good measure, the all-commodities index: + 64.4%

(All price comparisons made between March 2007 and March 2012.  Source: http://www.indexmundi.com)/commodities/)

So, do you still want to claim that prices have held steady for the last five years?

Really, your desperate and hysterical lying has gone past the absurd and is now into the pathological.  Each time I demolish your laughable and utterly incorrect assertions, you come back and make even MORE ridiculous ones!  You are truly mentally disturbed if you think that such transparent lies and evasive bullying is going to impress or sway anyone's mind even one iota.  In all of your gross dishonesty, your refusal to directly address ANY of the challenges to your specious claims, and your innumerable attempts to evade and misdirect the conversation or topic at hand, you reveal yourself for the malicious, propaganda-spreading troll that you are.

What is your purpose here, and just who do you think you are fooling?

Pathological liars like you deserve to be shot.

 

Fri, 04/20/2012 - 21:39 | Link to Comment jimmyjames
jimmyjames's picture

Pathological liars like you deserve to be shot.

*************

Classic case of Little dick syndrome -

We're taking about "todays" dollar buying power-

Not what happened during or 20 years before-today the dollar will buy the same amount of all those commodities i listed any many more-

Come up the Casey post and Ill kick your ass on a new thread-

Fri, 04/20/2012 - 21:48 | Link to Comment akak
akak's picture

-today the dollar will buy the same amount of all those commodities i listed any many more-

You are simply insane --- AND a liar.

I just PROVED that your lies are flat-out incorrect (not to mention insulting), and you just keep piling it on thicker.  Really, get some fucking help already, you psychopath.

Thu, 04/19/2012 - 13:01 | Link to Comment 5880
5880's picture

The Fed doesn't care about your inflation

They care about business' inflation

Thu, 04/19/2012 - 13:12 | Link to Comment Sudden Debt
Sudden Debt's picture

Never happened before in history....

Thu, 04/19/2012 - 13:10 | Link to Comment flight77
flight77's picture

May be there is no inflation here at all, in Germany. Only the prices are going up.
Let´s say food around 10% last year alone.
Benzin from 1.49 to 1.70 in one year.
Rents up, public transportation is up.
Besides that, everything is cheap, but  I can´t buy it, because no more money  left.
A bit tragic. But I still can do some refreshing window shopping.
The Bankers in my family are doing very well, but they don´t want to talk about the Crisis, that would disturb the family life.

Thu, 04/19/2012 - 14:07 | Link to Comment walküre
walküre's picture

Währungsreform kommt. Bereite dich vor. Kauf Silber und Gold wenn du kannst. Gespartes Geld auf'm Konto wird vernichtet. Genau wie bei vorherigen Reformen.

Thu, 04/19/2012 - 13:15 | Link to Comment Alcoholic Nativ...
Alcoholic Native American's picture

They just announced tuition hikes here in Georgia.  5%  Lowest in years!

Soylent Green shoots

Thu, 04/19/2012 - 13:29 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Someone's got to pay, and it certainly can not be people with all the money.

Thu, 04/19/2012 - 13:46 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

That quote's a tee-shirt.  Or maybe a Barry '12 bumper sticker?

Thu, 04/19/2012 - 14:10 | Link to Comment riphowardkatz
riphowardkatz's picture

the economy is a massive system of many different layers. it takes time for the effect of gobs of more money to work through the system. Read almost any company that produces a tangible good and you will see signs of huge inflation (Coke, General Mills, Alcoa) these companies have some price reducing power (fire employees, reduce margins) These eventually is no more room to cut operating expenses or margins and they are forced to pass on their rising input costs to the end user. This has already started to happen. It will continue happening to a greater degree as the ability to cut will now directly impact the ability to grow revenue something these companies cannot allow.

It is only when people improperly use definitions that they can see deflation. If you define deflation merely as falling prices and inflation as rising prices you will be forever confused.  Inflation and deflation are rising and falling prices caused by increased money supply. The money supply is not going to decrease and the  credit supply is not going to decrease not with spending by Gov and printing by the Fed.

Thu, 04/19/2012 - 14:15 | Link to Comment twh99
twh99's picture

Don't forget the games most of the food manufacturers are playing... namely container size.

I challenge you to try and buy a 1/2 gallon container of ice cream.  About 2 years ago most if not all of the ice cream manufactuers switched to smaller size containers, but kept the same price!

And this is only one example, there are numerous others.

Thu, 04/19/2012 - 21:32 | Link to Comment Dingleberry
Dingleberry's picture

EXACTLY. We stopped eating at all but a select few restaurants due to portion size decrease combined with price increase. Not only that, the food got shittier as well as smaller. I don't mind paying more. I am an inflationist, and therefore sane and realistic. I know the deal.  I just don't want to be paying more for less.

Thu, 04/19/2012 - 13:21 | Link to Comment ebworthen
ebworthen's picture

I read recently that cash transactions are only ~10%.

With FED "Ctrl-P$" occuring digitally, currency debasement is that much swifter and less "visible" or tangible.

Stagnant wages or even 2% increase per year is nothing when inflation for necessities is 4% (recognized), real inflation is closer to 8% or more, and the currency is debased by 20% - that is inflation.

A 30% loss in purchasing power means that the things you need are 30% more expensive, eh?

Thu, 04/19/2012 - 13:28 | Link to Comment Peter Pan
Peter Pan's picture

Inflation/deflation is a very personal measure which depends on:

1. Your basket of goods
2. When you bought your house
3. The movement in your salary/household income
4. Your changing needs, e.g. Higher medical costs as you age or less food as you age.
5. The price movement in your assets.

Generally speaking, unless you are part of the top one percent which swallows up the lion's share of national income increases, the rest are doing it tougher than they were say six years ago.

Thu, 04/19/2012 - 13:32 | Link to Comment dow2000
dow2000's picture

I fucking hope so, I want more Gold for my FRN.

Thu, 04/19/2012 - 13:34 | Link to Comment bahaar
bahaar's picture

There's going ot be wage as well as asset deflation but food/consumer goods inflation in the US and Euro zone.   And all round inflation in Asia... until wages increase so much that it's no more profitable for companies to manufacture in Asia.  They may then move to smaller countries in Asia or Africa.  But that may not be possible because no single country has such a large educated and poverty stricken population as India and China.   Some jobs may come back to the developed wrold.  Or may not. Because everything may be out-sourced to robots.  so we'll have a very small, very very rich population served by robots and rest of humanity living in hand to mouth.

Thu, 04/19/2012 - 13:36 | Link to Comment Quinvarius
Quinvarius's picture

There was never a risk of deflation in 2008 and there isn't one now. We had 30 years of price controls that started going off their wheels in the mid-2000's.  The price controls have destroyed the economy and that took the old school of banking down with it.  The more the government attempts to keep prices in check, the faster the economy will die and the more scarce things will become. 

Our currency has become a political tool of control and no longer serves the economy's needs.

Thu, 04/19/2012 - 13:39 | Link to Comment Seize Mars
Seize Mars's picture

I think that the only reason that we have "cold" inflation rather  than "hot" inflation is because there are a huge number of economies in the world whose currencies are pegged to the USD. This peg is either explicit, such as the CNY or simply the implicit peg that comes from the USD serving as a reserve currency. In other words, all USD inflation is imediately shipped overseas first.

So we saw a profusion of XYZ revolutions (Tunisia, Libya, etc). Then there are murmurs of coup attempts in China. The last domino to fall will be the US. They know this, and that's why they are ramping up the domestic spying.

So after all the others blow up, then and only then will we see the US consumed by hyperinlfation. As it stands now, there is plenty of room left in the rest of the world for our favorite export: money.

Thu, 04/19/2012 - 13:56 | Link to Comment rosiescenario
rosiescenario's picture

And if one yardstick to measure inflation is pm prices, then periodically use the thin markets to crater them...look there can not be any serious inflation bcause the pm's are fluctuating.....

Thu, 04/19/2012 - 13:59 | Link to Comment Plymster
Plymster's picture

The best description of what is occurring is what has been coined by Asimov on TickerForum as "Chaos-Flation".  Essentially, whatever assets the moneylenders choose will inflate.  This creates a series of targetted bubbles, it may be Gold/Silver/Metals one year, then sovereign debt bonds the next, then food the next, then oil, etc. 

Realistically, all of these mini-bubbles generally drive up inflation, but they can all be cut at a moments notice by various actions by the centralized institutions (ie: by cutting margins on gold and silver, or food commodities, or QEn for a quick adrenalin shot to everything).  This creates massive volatility that the MegaBanks can skim from on the way up or the way down(because they know in advance that Bernanke is about to print, or margin requirements are about to change).

This completely rigged system has an impact on ACTUAL businesses and the middle class, as they become unable to plan, and consequently cease to invest, or get blown out by a random bubble (ie: fuel prices spike and take down half the airlines, food prices spike and kill off restaurants and processed food companies).  Then they plummet and kill off the oil producers/farmers who can no longer produce at the newly lowered price

These actions result in long-term deflation in terms of REAL goods and living standards.  Monetary inflation masks this since money-printing is kicked into high gear.

How do you profit from it?  You can't consistently, unless you're privy to insider information, lucky, or develop a knack for timing the moves from those in control.  The only way to effectively defend against it is to try to firewall yourself from it (ie: crazy survivalist or off-the-grid living).  Nations could firewall themselves (like Iceland) by effectively becoming protectionist and limiting their exposure to the rest of the banking world that has been dragging global standard of living down.

Thu, 04/19/2012 - 14:28 | Link to Comment Seize Mars
Seize Mars's picture

Plymster:

Yeah well said. Kind of like the bubble in crude in 2008.

Thu, 04/19/2012 - 15:12 | Link to Comment devo
devo's picture

Haven't read the comments so this may have already been noted, but we're going to get both: first deflationary, then inflationary. Deflationary will be right after Obama gets reelected and provide a catalyst for radical change/pure Socialism/Communism.

Thu, 04/19/2012 - 14:45 | Link to Comment steve from virginia
steve from virginia's picture

 

Increases in some prices are not inflation any more than decreases in some prices are not deflation.

Inflation is the expansion of money supply/unsecured credit. (Secured credit cannot be inflationary sure enough). Finance creates unsecured credit, blame Wall Street/banking industry for any inflation.

Hyperinflation is a currency arbitrage: trading the currency you have for one you want (at a steep and increasing premium). For many (obvious) reasons hyperinflation in a debt-money system is impossible (as currency-driven debt expands as fast as the nominal 'worth' of currency).

Central banks do not create new money, they are collateral-constrained. Governments create new money but choose not to do so (as it would extinguish debt and destablilize the debt industry).

Central banks can recycle impaired credit and meet redemption demands (collateral again) ... that's it. The best case scenario is slow unraveling of credit at the margins as in Japan.

Because of resource constraints there are effectively no new creditors. Those we have now are what we have to work with.

...

Thu, 04/19/2012 - 15:39 | Link to Comment Seize Mars
Seize Mars's picture

steve from virginia

Well what you said sure sounds convincing. I like especially the part about how collateralized lending isn't inflationary. Let's all just keep saying that to ourselves. Maybe it can be true if we all just believe...pretty soon you turn into Krugman.

Thu, 04/19/2012 - 17:26 | Link to Comment Dingleberry
Dingleberry's picture

hey steve, the next time you fill up your car, just tell the clerk the money supply has decreased and due to deflation your gas should only cost 2 bucks a gallon instead of 4. Let me know what he says.....also try it the grocery store, hospital, university, etc.....who knows....it may work.

Thu, 04/19/2012 - 14:43 | Link to Comment Happy Swede
Happy Swede's picture

First hyperinflation and now "Hot inflation". When will you give up? I guess next you will be screaming for "above average" inflation.

 

 

Thu, 04/19/2012 - 23:08 | Link to Comment fearsomepirate
fearsomepirate's picture

What you don't seem to understand is that if everyone believed high inflation was coming, high inflation would already be here.  Prices reflect future expectations.

Thu, 04/19/2012 - 15:16 | Link to Comment Nobody For President
Nobody For President's picture

Good article, good point, good analysis - one of the reasons I really like ZH - real news and analysis, not MSM pap.

Thu, 04/19/2012 - 16:38 | Link to Comment XXL66
XXL66's picture

I'm from europe, i'm fucked... too

Thu, 04/19/2012 - 17:36 | Link to Comment Dingleberry
Dingleberry's picture

All you deflationists need to SHUT THE FUCK UP. You were WRONG. You thought you could look like a genius by defying common sense.  You stupid fuckers actually believed that you were the next economic Nastrodamus with your wild-ass long shot predictions. You actually believed that you could take on a central banker-in-chief, who incidentally has declared was ON HIS OWN CURRENCY, and beat him at his own game. You dumb shits! It was cute while it lasted. Now go back to your sandbox and play nice with the other deflationary retards.  Just be grateful that some of us kept an once of common sense while you lost yours.

BTW the only thing not inflating is wages. As long as that is the case, you will never hear about inflation from Heli-Ben. That is the only inflation that he (or any CB) cares about. 

Thu, 04/19/2012 - 18:06 | Link to Comment jimmyjames
jimmyjames's picture

You actually believed that you could take on a central banker-in-chief, who incidentally has declared was ON HIS OWN CURRENCY, and beat him at his own game. You dumb shits!

BTW the only thing not inflating is wages.

**************

Typical clueless blather-

Seems your hero Ben can't ignite his main engine-

http://research.stlouisfed.org/fred2/series/RREABSNNB

http://research.stlouisfed.org/fred2/series/REALLN

Of course you sound like enough of a fool to believe he will get it cooking-

Thu, 04/19/2012 - 18:28 | Link to Comment akak
akak's picture

And yet the dollar continues to lose value, and prices and the cost of living continue to rise, even as we write.

So who, indeed, is the "clueless" one here?

Thu, 04/19/2012 - 19:26 | Link to Comment jimmyjames
jimmyjames's picture

So who, indeed, is the "clueless" one here?

*********

Of course as always-that would be you AK-

The 6 trillion of losses in real estate could buy a lot of eggs and bread if it hadn't been lost huh

 

Thu, 04/19/2012 - 20:02 | Link to Comment akak
akak's picture

What in the FUCK are you blathering about now?

NOTHING --- certainly not money in ANY form whatsoever, nor wealth in any real sense --- was lost in the real estate market collapse.  In your complete and utter cluelessness (just like that of Art Laffer in another article here today), you fail to grasp the simple fact that paper valuations are NOT wealth!  They are just numbers, without any physical reality, and can fall as easily as they rise, with NO fundamental relationship to anything real or physical.  Nor are they, despite all the wild assertions of Karl Douchinger, money in any sense as well.  But such fundamental facts apparently continue to elude your weak and/or dishonest mind.

Really, I am more and more coming to the conclusion that you are some insidious Fed plant and troll here, as your EVERY argument, and gross errors in logic and monetary understanding, mirror those of Bernanke.  Or are you in fact Ben Shalom himself?

Thu, 04/19/2012 - 22:21 | Link to Comment jimmyjames
jimmyjames's picture

you fail to grasp the simple fact that paper valuations are NOT wealth!  They are just numbers, without any physical reality,

************

You always divert to cover your wrong ass--

"No one" has spoken of "wealth" only you-so have i nice argument with yourself-

The topic is "monetary" you try to confuse it with groceries and gasoline and wealth and Empires that existed when the world as was understood-was flat--lmao

Thu, 04/19/2012 - 23:22 | Link to Comment akak
akak's picture

The topic is "monetary" you try to confuse it with groceries and gasoline and wealth and Empires that existed when the world as was understood-was flat--lmao

Um, it was YOU three posts above who brought up the irrelevant factoid of the $6 trillion supposedly "lost" in the real estate market crash, not I.  Asswipe.

And why did you jump to that non-sequitur topic, if not to divert the conversation and obfuscate matters as you are so fond of doing?  I can smell a Fed troll a mile away, and you sure do stink.

Thu, 04/19/2012 - 23:32 | Link to Comment jimmyjames
jimmyjames's picture

$6 trillion supposedly "lost"

duh...."Monetary" dumb fuck

Fri, 04/20/2012 - 01:22 | Link to Comment akak
akak's picture

The cogent logic of your seamless argument overwhelms me.

Fri, 04/20/2012 - 02:20 | Link to Comment akak
akak's picture

OK, flat-earther, let me put a grossly simplified scenario to you --- I am curious how you will respond.

A person buys a house for $100,000 in 2000.  The house rises in market value to $200,000 by 2006, then falls in value to $160,000 by 2012.  The rate of "inflation" (dollar depreciation) between 2000 and 2012 is 60%, i.e, the overall price level within the economy rises 60% between 2000 and 2012.

Has this person lost anything by buying and/or owning this house?  If so, how much?

Fri, 04/20/2012 - 02:52 | Link to Comment jimmyjames
jimmyjames's picture

If so, how much

*************

All of it--they HELOC'd the equity away-

The collateral is toxic-

Wake up!!

Fri, 04/20/2012 - 02:59 | Link to Comment akak
akak's picture

Nice (and cowardly) way to skirt the question --- I suspected you would not even try to answer it honestly, as honesty is in very short supply in virtually all of your comments here.

Disingenuous, to the last.

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