US Hyperinflation Is A Myth
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Gotta say, Alan is quibbling with the definition for no good reason, in my mind. The end result of TAE’s forecast is the same: prices collapse. The road we travel to get there is what is at issue, and as I have also argued in the TAE comments (because I find TAE’s forecast the most persuasive on the gawd-forsaken Interweb), this road does not follow a straight line and has many distracting curves that blind us to the final destination. One of these curves is the absurd notion of “biflation”, or as another economics blogger has called it “quasi-deflation”. Neither term is helpful. They don’t tell us where we are within Kondratieff’s theory of major cycles, which lead inexorably from inflation to deflation, without being bi or quasi anything.
Kondratieff’s six phases of a business cycle can be summarized as follows:
Phase 1: Credit Expansion and Liquidity
Phase 2: Commodity Prices Rise
Phase 3: Economic Activity Grows
Phase 4: Early Inflation
Phase 5: Wages and Spend Slowing Down with Inflation
Phase 6: Recession / Depression / Asset DeflationNote that after Phase 4 you are now headed into deflation, even while some prices “inflate” in value. The value in TAE’s view of deflation is that by only looking at prices, we completely miss the fact that we are on the deflationary, declining side of the mountain, which leads to one very unavoidable bottom way, way, way down.
There has ALWAYS been debates over how to define inflation and deflation, Alan. Economists can’t agree, and never will. Clearly, however, the dominant economic group-think about the forces of money and credit have failed us. Many smart, progressive economists are demanding that mainstream economics change their definitions too, such as Steve Keen. Please feel free to argue with Professor Keen as well about the definition of inflation or deflation and maybe he’ll choose to call it something else entirely to satisfy your inflexibility, like, maybe call it Pluto, I don’t know. I don’t see the point of that at all, though.
We are in deflation because the FORCES are pressuring prices DOWN, even while there can be periods of rising prices in SOME goods or services. That is deflation, and and all that is left is convincing people that is the case and waiting to see how and when the worst of it comes to pass. Coming up with new terms for such an age-old phenomenon will serve no one well and distracts us from the challenge at hand.
Let’s please keep in mind that NEVER, in any inflationary or deflationary cycle, will you find that all prices for all things rise or fall in lockstep with the overarching trend at the same time. If you were to adopt such a rigid outlook in YOUR definition of inflation or deflation, we would never, ever be in either one. That isn’t useful at all either. So maybe you’re the one who needs to come up with a new word for what you’re trying to describe. How about “life”? Fact: we are either heading to one or the other macro-direction, even while there is fractal noise on the journey, making the call murky UNTIL AFTER THE FACT. I have no interest in sitting passively until after the fact when so much is at stake, leaving myself ill-prepared for the worst of either trend.
So even while some prices may be falling, we can still be in an inflationary cycle, and should take certain precautions. On the other hand, we can see prices rising and still be at the edge of a deflationary collapse. Just because TAE has had the good sense to go deep into the failure of modern economics and find the real roots that presage infaltion/deflation doesn’t mean they are now required to call it something different for the sake of simplistic mainstream journalism, or to cater to Bernanke’s hopes that people will read an inflationary trend and start shopping, or to appease a cadre of failed Post-Keynesian economists.
Deflation means the forces in play are pressuring prices DOWN, even while the prices might be momentarily buoyed up. If you think that the pressures are the opposite, and will send prices sky high, well then, you are actually calling for inflation. A whole other kettle fish. And entirely different argument. Go ahead and write about that on your blog. I’d be curious to read your reasoning.
Something I’ve learned from the blogs.
If you spend money that you don’t have, because you borrowed it or printed it, it will appear as if you are rich and prices will go up to take your money. ( Inflation)
We have been spending money that we don’t have for 30 years.
(inflation)I recall $1,000/month gave a life style that today $100,000/month does not.
I think that we are in a RESET mode.
The super committees, (rich people), spent Billions of dollars on the election so that they would be sitting at the table to make sure that any future legislation would not be harmful to their interest.
If the gov. lowers spending and gives less to the spenders, (poor), then there will be less profits from that source of income.
The rich will have to raise prices to maintain profit margin for their “New yatch fund”.
If the gov. tries to reduce loopholes in the tax code then there will be less profits from that source of income.
The rich will have to raise prices to maintain their “New yatch fund”.
If the gov. increases taxes on the rich then they will raise prices to maintain their “New yatch fund”.
See… its nice to be rich … you get to write the new legislation and can keep your “New yatch fund” growing.
The blunt definition of inflation as meaning only rising prices is not “conventional”. It’s a recent development. Prior to more modern times, devaluation and depreciation were used for what inflation is now used for. And for good reason.
The way inflation is presently defined serves simply to make and keep people stupid. That may not have been the intention behind the change in definition, but it certainly fits a purpose.
Using the term inflation without a direct connection to the size of the money supply makes zero sense. We can all understand that rising prices in a rising money supply will both originate in, and lead to, a completely different situation than rising prices in a falling money supply. Yet, the “stupid definition” makes it impossible to see this. Which is exactly what makes it stupid.
Likewise, talking about inflation without establishing an immediate link to the velocity of money makes no sense. It doesn’t mean anything, and therefore keeps you ignorant. Again, we can all get that price rises in a slowing velocity of money are not identical to those in an accelerating one.
That is why both the money supply and the velocity of money must necessarily be part of any serious definition of inflation and deflation. Without them, no such definition serves any purpose. Other than keeping people stupid, that is.
Of course it would be much easier for Nicole and I to go along with what too many others say. The fact that what they say is so nonsensical, however, makes that impossible for us. Because we’re not here to keep our readers stupid; we’re here to add to their understanding, not to subtract from it.
I’ve written about this topic a hundred times if I wrote about it once, and there’s simply not enough time to keep on regurgitating it. That’s why we have Archives and Primers sections. But I’ll give you one example that I noticed this week (I’ve addressed it before) and that stands out:
The press here in Holland, where I’m staying for a few months, reported that inflation was up, and that was largely because VAT had been raised, I think from 19% to 21%. That is blatant nonsense for a simple reason: It would mean that any government that is worried about inflation can solve the problem with one simple action: lowering taxes. Even if it would double the money supply at the same time. And spend it at breakneck speed into the real economy. If that is not clear enough as an explanation for the folly of the definition of inflation as rising prices only, I don’t know what is.
That is why both the money supply and the velocity of money must necessarily be part of any serious definition of inflation and deflation. Without them, no such definition serves any purpose. Other than keeping people stupid, that is.
ilargi, I do understand what you have been saying. Its not just price.
I was trying to point out, that this time there are some rich people who have a strong influence on the prices we pay for goods. This was not present or was not obvious in an inflationary economy.
Lets be clear on who is getting the most and benefiting the most with the 46% overspending.As Karl been constantly repeating, the free shit army won again.
(bankers, insurance, ponzi players)
We can all understand that rising prices in a rising money supply will both originate in, and lead to, a completely different situation than rising prices in a falling money supply.
Some people are enjoying a rising money supply and can modify their action to keep the money flowing to their coffers.
The majority of the people are helpless and are facing a falling money supply and rising prices.
The number of people on food stamps are the obvious witnesses.https://www.zerohedge.com/news/2012-11-10/foodstamps-surge-most-one-year-new-all-time-record-delayed-release
Foodstamps Surge By Most In One Year To New All Time Record, In Delayed ReleaseOne glance at the number reveals why: at 47.1 million, this was not only a new all time record, but the monthly increase of 420,947 from July was the biggest monthly increase in one year.
Being on foodstamp does not make you a winner when you are in a deflation or an inflation environment.
“Some people are enjoying a rising money supply and can modify their action to keep the money flowing to their coffers.
The majority of the people are helpless and are facing a falling money supply and rising prices. “
Money supply is not a term used for individuals and/or groups of people. It applies only to entire nations/societies. Hence, yours is not a valid picture.
Inflation is a tax on ONLY those who cannot increase their income to be equal or greater the rate of inflation.
Those would include people on foodstamp, people getting no raises or less raises than inflation and those with income/savings earning an interest that is less than inflation.
If you want to keep your standard of living then you have two option.
1. Cut your wasteful spending
2. Increase your income.
If you cannot do either then …Deflation devalues ONLY assets of the people who are disposing/selling their assets.
If you are on foodstamps, you got no assets and no money to obtain cheap assets that are for sale.
I’m not going to quibble with the definitions.
The effects of inflation or deflations will impact individuals differently depending on their position on the economic scale.
Our economic system has not been structured for the greatest good for the greatest number of people.
There are very few sister Theresa and none of them are in position to get rid of our system and to start a new better system.
I’m trying to get an understanding of what is happening and what could be happening to the USA economy.
The following links seem to give an accurate picture.
Budgets are proposed income and expenses.
“The Cliff” is a proposed budget.
I think that it would be better if we thought of a daddy telling 10 children that they are spending more money than daddy is making.
Nobody will volunteer to reduce their spending.
Since making more income will not happen,
Who or what will force the spending cuts?
Should we ask the Greeks?https://market-ticker.org/akcs-www?post=213787
The “New Normal” In Pictures
Deflation. Oh my goodness. In terms of what? In terms of gold (and as what the dollar used to be in 1929–gold), we certainly do have deflation over the past 12-years. If food were money…yes, there’s deflation. But in terms of fiat paper money or promises to pay nothing? Look..once I see my food prices coming down, then I can chart a trend that’s worth considering. Since the 1940s, I think we’ve only had two years of non-inflation. So…deflation? Do you think that the FED and its IMF master will allow it? If they do..then what do they do when the black market or OTC barter on a grand scale replaces these institutions that the Rothschild dynasty has worked so hard to put in place over the past 100+ years? Not too hard these days with computers. Do they care if a quasi gold-money or bit coin-like system on steroids replace their unreliable system?? Already, OPEC members are privately dealing in gold and palletized cash to bypass the oil quotas. If deflation is to occur (in terms of paper promises to pay nothing), it is because the IMF/BIS masters of the universe intend it. Hey look…keystrokes..it’s that easy. Pretend I work at the Fed as a typist of numbers.. $1,000,000,000,000,000,000,000,000,000,000,000,000. How much is that? Hell if I know, but I just “un-deleveraged” the entire solar system. Heck, might as well be the entire galaxy, with mere keystrokes, an easy method to MIMIC wealth creation.
Just learned that his majesty is coming to town:
http://www.fordschool.umich.edu/events/calendar/1447/
Don’t know whether I’ll bother to get a ticket, watch the webstream, or chop kindling.
Hello everyone – 1st post. (and sorry for bumping an oldish article but it seemed most relevant one)
I have read and reread this fascinating article to try and make sure I am understanding it fully. It really is a critical issue for me as most of my savings are in gold and I am trying to decide whether to get into cash or not.
My understanding from it is that all the trillions the FED is printing will do nothing to spur inflation because a) banks are just using the money to increase their reserves as they do not have the appetite for risky loans and b) consumers are wary themselves of taking out new loans and are currently trying to pay off debt.
This means that all this money has the same effect as if they printed it and then just buried it. ie. close to nothing
However the thing I don’t understand is that this has been going on for 5 years and yet we are still seeing inflation. This article on zerohedge shows how money supply expansion does indeed have a matching cpi correlation.
https://www.zerohedge.com/contributed/2012-08-10/inflation-m2-and-velocity-money
So is this trend just temporary or is there another way to explain rising cpi index?
Rapala post=6626 wrote: So is this trend just temporary or is there another way to explain rising cpi index?
Hi Rapala,
If inflation is happening at all, it’s temporary. Deflation has been underway for more than a decade. Look at a graph of any financial asset in terms of gold, i.e., “real money”, relative to dollar-denominated prices in order to see this. CPI rising does not equal inflation, technically speaking. It might help to read Nicole’s articles on deflation/inflation.
The Dow topped, S&P is topping today, and the NASDAQ is only a week or so behind. European markets are already headed downward. PM are headed generally downward as well, but they aren’t likely to lose as much value as financial assets, as I understand it (won’t reach 0, in any case).
Everything’s relative when it comes to prices, so your gold will look good from one angle but not another as events unfold. For the next few years or so, cash will be king (as Nicole has repeatedly informed us).
Rapala,
Prices rise as a lagging indicator of changes in the money supply. The price rises we are seeing were baked in the cake thanks to earlier inflation. IMO (on balance of probabilities as always) we are about to see a major shift from ‘heroic’ attempts at reflation to accelerating monetary contraction. Insiders are selling at a time when we have seen an unnatural lack of volatility in the markets for some time. Sentiment is at an optimistic extreme. These are all powerful sell signals. Once the markets turn, liquidity contracts on loss of confidence. Prices will follow to the downside, albeit not immediately. Affordability will keep getting worse however, as purchasing power will be falling faster than price (not because money will be losing value – quite the opposite in fact – but because almost no one will have any). Cash is king in a deflation. Preserving capital as liquidity allows you to preserve your freedom of action. It amounts to holding on to a handful of choices to make later, at a time when you have a lot more opportunities and a lot more information as to what would be the appropriate choices to make.
SteveB post=6628 wrote: [quote=Rapala post=6626]So is this trend just temporary or is there another way to explain rising cpi index?
Hi Rapala,
If inflation is happening at all, it’s temporary. Deflation has been underway for more than a decade. Look at a graph of any financial asset in terms of gold, i.e., “real money”, relative to dollar-denominated prices in order to see this.
Defined THAT way, then yes, deflation certainly does prevail! Prices are collapsing in terms of gold and silver. Have been for the past 12 years — and will probably continue to do so for at least another 5 years. In terms of dollars, it is a different story. The only thing that dollars buy more of is real estate.
The Dow topped
We shall see. Not to over-hype Nadeem Walayat (marketoracle.co.uk), who I’ve mentioned here a few times recently, but he is a smart cookie* and quite accurate, generally; he says that the Dow will take a hit this summer, perhaps back to 12,000, then up up and away to new highs in 2014, possibly as high as 20,000 by 2017: https://www.marketoracle.co.uk/Article38931.html
Yes, I know, not the usual fare here at TAE! But who knows? This is a crazy world, for sure. It will be interesting to watch it all unfold. I will bump this thread on a yearly basis and we’ll see whose predictions are most accurate.
PM are headed generally downward as well, but they aren’t likely to lose as much value as financial assets, as I understand it (won’t reach 0, in any case).
Won’t reach zero? Are you sure? 😉
…………………………..
* smart enough to publish Ilargi’s stuff, so that has to count for something, right?
Rapala post=6626 wrote: most of my savings are in gold
Smart person.
You are rich, but the world has not quite recognized it yet. It will, soon.
Be sure it is physical metal.
alan2102 post=6652 wrote: Not to over-hype Nadeem Walayat (marketoracle.co.uk), who I’ve mentioned here a few times recently, but he is a smart cookie* and quite accurate, generally; he says that the Dow will take a hit this summer, perhaps back to 12,000, then up up and away to new highs in 2014, possibly as high as 20,000 by 2017: https://www.marketoracle.co.uk/Article38931.html
In case anyone is interested, Walayat just released a greatly expanded version of this writeup in pdf form, available here:
https://www.marketoracle.co.uk/Article39189.html
direct link to the pdf, which may or may not work (without signing up for the newsletter):
https://www.marketoracle.co.uk/pdf-d/Stocks-Stealth-Bull-Market-2013-by-Nadeem-Walayat.pdfAgain, it will be more than a little interesting to see just what transpires over the next 5 years. Inflation? Deflation? Stagflation? Collapse? Business as usual? Who knows? I’ll bump this thread yearly at least for an update.
SteveB post=6628 wrote: [quote=Rapala post=6626]So is this trend just temporary or is there another way to explain rising cpi index?
The Dow topped, S&P is topping today, and the NASDAQ is only a week or so behind. European markets are already headed downward. PM are headed generally downward as well, but they aren’t likely to lose as much value as financial assets, as I understand it (won’t reach 0, in any case).
That was obviously a premature call. However, the market is now heading downward. Tomorrow should begin a third wave, which is likely to be steep.SteveB post=7074 wrote: [quote=SteveB post=6628][quote=Rapala post=6626]So is this trend just temporary or is there another way to explain rising cpi index?
The Dow topped, S&P is topping today, and the NASDAQ is only a week or so behind. European markets are already headed downward. PM are headed generally downward as well, but they aren’t likely to lose as much value as financial assets, as I understand it (won’t reach 0, in any case).
That was obviously a premature call. However, the market is now heading downward. Tomorrow should begin a third wave, which is likely to be steep.
And now yet another curveball: looks like this has been an undershoot of a fourth wave, now heading up in wave one of five (since a new high was reached in the S&P 500, negating the second wave possibility).Watching the stock market in this context has been very interesting and a lesson in patience, among other things. It seems that the knowledge of what’s to come (eventually—soon enough, but not necessarily immediately) leads to a bias toward the scenario that would play out earliest.
I’m also wondering if the additional time to prepare for the reversal will make a difference for anyone who hasn’t initiated changes yet.
How d’ya like that DJIA, hitting record high after record high, week in, week out, for months? That 85 billion per month that Benny and the Ink Jets been puttin out ain’t fer nuthin’, ya know! 😉
https://investing.money.msn.com/investments/stock-charts/?symbol=%24US%3aDJIA&pt=4
How d’ya like that DJIA, hitting record high after record high, week in, week out, for months? That 85 billion per month that Benny and the Ink Jets been puttin out ain’t fer nuthin’, ya know!
It’s called zombie money, and there’s no better way to put it then caveat emptor.
ilargi post=7096 wrote:
How d’ya like that DJIA, hitting record high after record high, week in, week out, for months? That 85 billion per month that Benny and the Ink Jets been puttin out ain’t fer nuthin’, ya know!
It’s called zombie money, and there’s no better way to put it then caveat emptor.
For which one? The owner of the zombie money, or the buyer of the stocks fleeing the zombies?
Wow!
Everybody is being proved wrong.
Nadeem Walayat:
https://www.marketoracle.co.uk/Article40358.html
“No one saw Dow 15,000+ coming in this time frame, not the bears, nor the bulls (me included)….
I did not see Dow 15,105 coming in this time frame. Instead I had engineered my portfolio by mid March down to about 18% net Long in anticipation for a probable correction of a good 12% or so from Mid March to Mid August to accumulate into, Instead the market as of writing has since risen by a good 5%.
The key to successful investing is not to lose money when one is wrong, and that can only be achieved through understanding the underlying forces at work which have remained constant for the duration of the stocks stealth bull market of the past 5 years, and that constant is one of stocks being leveraged to money and debt printing inflation consequences.
Whilst the mainstream media will be pointing to an improving U.S. economy as an explanation, I will instead reiterate the real reason that I have repeatedly stated for at least the past 4 years is that asset prices tend to be leveraged to inflation with sentiment driven prices oscillating around the inflation mega-trend (which is exponential) between extremes of over bought and over sold states.
And there is nothing, NOTHING to suggest that this fundamental structure of our economic and financial universe is about to change any time soon. Instead everything points to far more inflation during the next 5 years then we have witnessed during the past 5 years as illustrated by the following graphs….” [images at link]and, interestingly:
“Whilst I am getting a number of requests for detailed analysis of the stock market, I have to remind readers that the stocks bull market is a 5 year old trend. Instead my focus for a near year has been on the NEXT trend – The HOUSING Markets, which is where I have been shifting most of my wealth into.”Hmmmm.
Hi Folks,
Interesting “Aftershock” ‘book’ promotion video – but their take on the inflationary pressure from all the QE does make some sense – they predict inflation (but not hyper) in the range of 10-100% in terms of interest rates due to dollar devaluation :huh: that will then cause massive asset price deflation in housing, stocks and bonds. At least I think that is what they are saying. They also predicted the 2008 crash and a lot of what they say sounds similar to Stoneleigh.
L,
Sid.Now THIS is an interesting thing that could have a profound impact on stock indexes going forward:
https://www.marketoracle.co.uk/Article40365.html
How to Profit from the Latest Desperate Moves By the World’s Central Banks
Stock-Markets / Stock Markets 2013 May 09, 2013
By: Money_Morning
Ben Gersten writes: You already know central banks have been boosting markets through loose monetary policies the past few years.
Now it looks like they’ll move markets in another way – by pouring record amounts of money into buying equities.
The stunning revelation comes in a survey by Royal Bank of Scotland Group Plc (NYSE ADR: RBS) and CentralBanking.com. The survey reveals that 23% of the 60 central bank respondents are buying stocks or plan to do so in the next five years.
In fact, this marked the first time in the survey’s nine-year history central bankers were asked whether they bought or planned to buy stocks.
While it’s not the first time central banks have ever bought equities, it is the most aggressive purchasing they’ve done.
“This time around, they’re not just throwing in the kitchen sink; they’re throwing in the garage, a couch, the guitar, the dog, anything they can get their hands on,” said Money Morning Chief Investment Strategist Keith Fitz-Gerald.
[continues at the link]HI Folks,
There is a dangerous infection called QE that is going around, causing painful swellings in all sorts of asset prices; for a recent in depth analysis go here:
QEuriouser and QEuriouser… is this how the QE story ends?
Interesting piece from the [url=https://www.testosteronepit.com/home/2013/2/21/the-fed-is-blowing-a-dangerous-bank-deposit-bubble.html]Testosteron Pit
on how the QE experiment might end. It highlights the huge deposit bubble that has arisen as cash has failed to make it to the broader ‘economy’ and how this is being used to blow all sorts of bubbles apart from the deposit bubble itself…[/url]
Check out this from Zero Hedge too regarding a complete loss of trust in the system:
Sorry
What I can say with absolute certainty is that I have lost a lot of faith and trust in the system. And I am not the only one. This sentiment is running at all-time highs amongst business leaders (their collective in-actions prove it) and guys on the street. It is both sides of the barbell and middle that are upset. Often it’s one or the other, but not all three. This time it’s not at an external state, it’s directed inwards. That is a tough problem to solve. Jingoism is not the answer either as we already tried that.
If there is no faith in the system, it has a really hard time working. And I mean real underlying faith and trust in the system, as opposed to the confidence born from economic steroid injections or entitlements. These are valid notions, but as a point of clarity I am talking about a something different. There also is a subtle but important distinction between faith and trust versus confidence. Faith and trust are longer term and more powerful concepts.
…
Mr Greenspan we have seen where valuing assets solely on the basis of current rates got us. If we should do that, baseball cards and chewing gum would also be great investments today. My suspicion is from here baseball cards and chewing gum will hold their value over time better than the typical company trading at 15x earnings derived from profit margins that are twice its average levels.
…
The important similarity to both profit cycles is that they were driven by credit growth that supported corporate revenues above what consumer income alone would have.(bold in orig)
L,
Sid.The survey reveals that 23% of the 60 central bank respondents are buying stocks or plan to do so in the next five years.
In fact, this marked the first time in the survey’s nine-year history central bankers were asked whether they bought or planned to buy stocks.
While it’s not the first time central banks have ever bought equities, it is the most aggressive purchasing they’ve done.
Hmm. Less than a quarter of respondents say they might buy stocks by 2018. Unless perhaps the world is not the exact same anymore by then, in which case they might decide otherwise. Or their successors. Whichever comes first.
But fear not, Money Morning Chief Investment Strategist Keith Fitz-Gerald will nudge you towards fields of glory and riches. Well, he first, then you.
Just goes to show that in the world of empty statements, too, there are one-eyed kings.
Regarding the ‘QEuriouser’ Article above, it states that loans are are increasing at 4% since 2011(before this, it was negative).
I’m confused how this ties in with decreasing money velocity which as I understood is key to the whole deflation argument. If loans are increasing, surely this means money is increasingly being used to ‘buy stuff’ which would increase money velocity?
Hi Rapala,
Regarding the ‘QEuriouser’ Article above, it states that loans are are increasing at 4% since 2011(before this, it was negative).
I’m confused how this ties in with decreasing money velocity which as I understood is key to the whole deflation argument. If loans are increasing, surely this means money is increasingly being used to ‘buy stuff’ which would increase money velocity?
The way I read it was the article was stating that loan growth was matching what ever economic growth (GDP) there was of the order of a few percent. But given that most of these new loans are still going into big ticket items such as homes and autos, which means that most of the ‘loan’ just moves from one bank balance to another. Real wages are falling, and so is credit. The real money that goes around between the butcher the baker and the candlestick maker is dwindling at an increasing rate, where as zombie money given to bail out banks via QE is just floating in their ballooning deposits, so they’re ‘investing’ it in all sorts of things including stocks and all manner of dubious items to make a bit on the side instead of just loaning it out, though to be fair when the economy is just not growing like it used to, coupled with people paying down debt and becoming risk averse, where is the demand as stated above. Again check out Zero Hedge – they have some up to the minute detail on what’s happening as it all unfolds.
L,
Sid.Regarding the ‘QEuriouser’ Article above, it states that loans are are increasing at 4% since 2011(before this, it was negative).
First off, the ‘QEuriouser’ was not a TAE article, but something posted by one of our readers.
I’m confused how this ties in with decreasing money velocity which as I understood is key to the whole deflation argument. If loans are increasing, surely this means money is increasingly being used to ‘buy stuff’ which would increase money velocity?
Skimming thru Lee Adler’s piece, I see he says loans increase, but doesn’t specify which loans he’s referring to. That makes it hard to draw any conclusions at all.
I’m sure you also noticed his repeated remarks on pensioners and consumers cutting back on spending, so how all in all you see money velocity increasing I don’t really know.
yeh sorry didn’t mean to imply it was a TAE article. I was trying to understand how increased loans still mean lower money velocity which gurusid has answered. (thank you gurusid. )
ilargi post=7284 wrote:
Hmm. Less than a quarter of respondents say they might buy stocks by 2018. Unless perhaps the world is not the exact same anymore by then, in which case they might decide otherwise. Or their successors. Whichever comes first.I would be skeptical too, except for two things:
1. Central bank money is BIG money, so 23% is a lot.
2. More importantly is what the 23% represents elsewhere. The point is that very conservative big money, LIKE central bank money but not limited to central banks, is going into equities to escape the extremely low returns elsewhere. This cannot help but be an influence on things. Below is an example of what I’m talking about — big university endowments getting out of treasuries, looking for yield, sometimes in equities. Surely big pension funds, insurance companies, etc., are moving in the same direction. Big, conservative money is looking for a return that bonds are not providing. That’s the point.
https://srsroccoreport.com/universities-cutting-their-u-s-treasury-exposure-in-a-big-way/universities-cutting-their-u-s-treasury-exposure-in-a-big-way/
University Endowments Cutting Their U.S. Treasury Exposure In a Big Way
[snip]
Princeton’s endowment converted its entire U.S. Treasury holdings to cash while Duke’s $5.5 billion endowment shifted out of its U.S. Treasuries and into high yielding stocks and emerging market securities. Futhermore, Cornell’s endowment reduced its treasury securities to only 3%.Yp!
Endowment funds.They are going to lose big.
Expectations … promises made … unreal expectations
That’s what happens when someone is managing someone else’s money.
There is no accountability.
Alan, you’re not paying attention, the survey is an empty air chamber devoid of any meaning or substance.
First, there’s no use in gathering info on what anyone MIGHT do by 2018. I might buy a bridge in Brooklyn by then. Or I can at least say I might.
But the essence is of course in this sentence:
In fact, this marked the first time in the survey’s nine-year history central bankers were asked whether they bought or planned to buy stocks.
They may have been buying stocks all along, they may have been buying far more than they’re now “planning” to do. Nobody knows, because nobody ever bothered to ask.
And all this is assuming answers are truthful, which in this world is to put it kindly not guaranteed.
While it’s not the first time central banks have ever bought equities, it is the most aggressive purchasing they’ve done.
This line tops it all off: where does the author, Mr. Fitz-Gerald, get that knowledge from? He doesn’t say. It can’t be from the survey, because central banks were never before asked whether they either bought stocks in the past or planned to do so in the future.
Ergo: Mr. Fitz-Gerald simply makes it up as he goes along, confident his readers won’t scrutinize his words too closely, because they’re too focused on what he suggests, central banks buying stocks, but doesn’t actually say.
You and I don’t know if central banks will buy stocks, and neither does Mr. Fitz-Gerald. He talks his book.
My guess is, the current US equity market buoyancy is about significant money flows from overseas. I say this because at least lately, while the SPX goes up, the US dollar is also going up too. If you imagine that world money is a zero sum game (long term it isn’t, but in the short term it is) for the US market to rise, that money has to “come from” somewhere else to bid the prices higher.
Could be cash, bonds, or international flows.
My claim is, money is coming from Japan and Europe. (I’d think China too, but that’s not supported by currency movements).
This tallies with Armstrong’s claims that money will flow from periphery to core as things get worse. Its not evidence of hyperinflation, its evidence of capital flight.
In the modern age, inflation is caused by private borrowing (i.e. an increase in bank credit) which largely isn’t happening right now. Government printing such as it is blows an asset bubble in the place where it ends up going – namely bonds – and then ends up parking in Excess Reserves which have zero velocity, hence the declining M2V.
Excess Reserves (Base Money) aren’t any more powerful than regular money because the Reserve theory of central banking isn’t correct.
Its risky right now to attempt to “front-run” central banks (assuming they are buying) and buy equities at their all-time highs. Same thing with bonds at the tag end of a 30 year bull market. Just my opinion.
The notion that inflation is not going to happen is slowly sinking in, but the reason why is not at all understood yet. Joe Weisenthal quotes the reasons inflation hasn’t come, offered by the incomparably clueless Hale Stewart of Daily Kos fame:
The Most Incorrect Prediction Of The Past 5 Years
• Slack demand from China.
• The US oil boom (abundance produces the opposite of inflation).
• Slow growth (especially in Europe).
• The end of the commodity boom.
• Ongoing reduction of high household debt.Bottom line. The big, ongoing story is the death of inflation all around the world.
It’s all simple nonsense, of course. These fine analysts now tell themselves they were right all along in predicting (hyper)inflation, but something unexpected, unforeseeable got in the way. In reality, the behemoth of debt we built up made deflation inevitable from the get go. It hasn’t hit us full on yet because of the empty credit measures (QE et al) central bankers try on, but it has zero chance of reversing the debt deleveraging. It will just make it worse. I wrote this particular article 7 months a go, buy Nicole and I have been writing about this for 6-7 years now.
Hi Illarghi,
It hasn’t hit us full on yet because of the empty credit measures (QE et al) central bankers try on, but it has zero chance of reversing the debt deleveraging. It will just make it worse. I wrote this particular article 7 months a go, buy Nicole and I have been writing about this for 6-7 years now.
I hear ya:
Now, which web site has been banging on about this for years already…
Aka TAE. :cheer:
L,
Sid.Hi Folks,
Here is a definitive description of how inflation/deflation is linked directly to credit expansion and contraction:
From:
Inflation: an Expansion of Counterfeit Credit
© Jan 3, 2012 Keith Weiner“…Now let’s look at counterfeit credit. By the criteria I offered above, it is counterfeit because there is no one who has produced more than he has consumed, or he does not knowingly or willing forego the use of his savings to extend credit.
First, is the example where no one has produced a surplus. A good example of this is when the Federal Reserve creates currency to buy a Treasury bond. On their books, they create a liability for the currency issued and an asset for the corresponding bond purchase. Fed monetization of bonds is counterfeit credit, by its very nature. Every time the Fed expands its balance sheet, it is inflation.
It is no exaggeration to say that the very purpose of the Fed is to create inflation. When real capital becomes more scarce, and thus its owners become more reluctant to lend it (especially at low interest rates), the Fed’s official role is to be the “lender of last resort”. Their goal is to continue to expand credit against the ever-increasing market forces that demand credit contraction.
And of course, all counterfeit credit would go to default, unless the creditor has strong collateral or another lever to force the debtor to repay. Thus the Fed must act to continue to extend and pretend. Counterfeit credit must never end up where it’s “pay or else”. It must be “rolled”. Debtors must be able to borrow anew to repay the old debts—forever. The job of the Fed is to make this possible (for as long as possible).”
(bold added)
And:
……I repeat my definition of inflation and add my definition of deflation:
Inflation is an expansion of counterfeit credit.
Deflation is a forcible contraction of counterfeit credit.
Inflation is only possible by the initiation of the use of physical force or fraud by the government, the central bank, and the privileged banks they enfranchise. Deflation is only possible from, and is indeed the inevitable outcome of, inflation. Whenever credit is extended with no means or ability to repay, that credit is certain to eventually become a crisis that threatens to harm the creditor. That the creditor may have collateral or other means to force the debtor to take the pain and hold the creditor harmless does not change the nature of deflation.
Unless I am much mistaken this is similar (with the exception of the ‘force’) to what Illarghi and Stoneleigh have been saying since the inception of this site… a long time ago in a galaxy far far away… 😆
Default and crash is inevitable, with concomitant deflation. :woohoo:
L,
Sid.Yesterday evening, I went to a meeting of the Melbourne Mining Club. Short presentations were being made by three tiny mining companies that few have ever heard of. I was expecting 20-30 attendees. In fact, 350 people booked and almost all of them showed up. I was amazed – as were the organisers. All the attendees (10% women) were dressed in dark suits – I was wearing a light grey sports jacket. Around 20 of them were Chinese/Asians.
The shares of all these companies are currently being severely hammered. At the same time, Commonwealth Bank of Australia is doing splendidly well and is worth around $110 billion as is Macquarie Bank – the four big banks are worth around $20,000 dollars per inhabitant of Australia. Not bad.
Here are these 3 companies:
Altona Mining Limited – share price
World Titanium Resources – share price
Orion Gold NL – share priceIt is clear from the charts for these 3 companies – when compared to their deposits and prospects – that we are in severe deflation in the mineral resources business. The contrast with the world of delusion and finance cannot be greater IMHO.
The fact that 350 people took the trouble to attend this meeting suggests that not everyone is brainwashed by the mainstream media. These people want real returns on their savings.
:ohmy: 
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