I ain't buying that AT ALL. Where'd you get that PS103? or BRANDEIS?
If your substitution theory is the reason for no inflation or distorted low inflation figgers then you need to go to back to school.
Butter is butter and margarine is margarine and if you substitute soy for steak to distort the number...it's called FOOLING AROUND.
QUALITY OF LIFE .
You can lead a horse to water but cannot make them drink. Sorry, but the "figgers" can be gotten right off the Bureau of Labor and Statistics website. You need to go back to night school. On the BLS.gov site you can read about the quality effects of clothes dryers, books, and other such nonsense. In fact the quality effect of clothes dryers is over 10 pages long. Yes, our tax dollars go to stuff like that! Subsitution/hedonics/and quality effects are well known....just like substituting imputed rent for a homeowner into the equation in 1983 (ie 40% of CPI has been based on the cost of a homeowner renting out his home, not actually owing it or paying for it...but as if he were renting it out. How did rents do from 1983 to 2007 vs. home prices?). And yes, the stats have been so fooled with during the Reagan, Bush, and Clinton years that it bears little resemblance to today's CPI. It is in fact of a changing basket of goods and services, not a constant one. Sort of like the Dow. Kick something out when you don't like it and substitute something else to keep the #'s where you'd like to see them.
See the link to www.shadowstats.com below where Dartmouth trained economist John Williams charges large corporations big bucks for his time to help decipher real inflation numbers for strategic planning. Williams computes CPI based on 1980, 1990, and current terms. The 1980 and 1990 versions were chosen because major BLS changes followed shortly after each of those years. I've yet to see one trained economist or analyst be able to refute Williams' numbers. And that's because the changes that were made were very real and trackable, the BLS doesn't even hide it. If you aren't willing to spend some time following up on those links then you get the PS103 ekonomix' education you earned. Most everyone who has contributed to this thread thinks the stats are juiced as well. So how did they get that way? What changes could have been made and why? Why are govt contracts, pensions, social security payments, and govt/military employee pay linked to CPI and who benefits from a smaller CPI number? Note also that the GDP deflator is based on the same factors as the CPI only tighter. Keeping the "deflator" low means a higher GDP. Who gains from having a higher published GDP, the govt or J6P? It was precisely the deflator (among other things) that helped keep the economists from calling a recession because GDP was overstated (ie inflation effects understated). The GDP has been tweaked heavily in the "favorable" direction as well over the past 30 years. That's another topic in itself. I believe Williams discusses that as well.
It's precisely "in school" were the profs teach the bogus Keynesian economic theories that saddle students the rest of their lives. The economists and guys like Robert Rubin in the 1990's who helped institute many of these changes know which way the deck is stacked. But old J6P still believes the stats are the same as they were in 1980. The kicker is that 1980's 15% inflation is probably the same as what would be 7-10% today. The joke's on all of us.
And yes, JW stats do currently show a positive inflation number...during a major recession. Who would have thought?
As I've thought all along. All this money thats been printed has just been to replace what the banks lost. The velocity of money is nearly zero. Hopefully higher taxes will bring inflation.
Covering or absorbing paper asset losses really don't have anything to do with the available money supply. Home, stock, CDO, MBS prices falling doesn't wipe out currency but merely redirects it for a while. The money is still in existence, it was printed. While a lot of it may be sitting in FED banks earning about 1/10th percent interest for the loaning banks, it's still there. And it will come out eventually where the money multiplier gets to take effect.
Let's not also forget the recent FED/Treasury trickery on not reporting the entire money supply. As Katz showed in a previous post, base money supply is reported at $1.8 T while the "larger" and more complete liquid money supply which includes short term demand deposits is only $1.6 T. That's like taking 2/3 of a pie and then claiming you have the entire pie. But these are the headline numbers supplied to media which show only a manageable 16% yoy growth in the fully liquid money supply (from $1.37 T). Yet by FED/Treasury admission, they reclassify about 50% of short term demand deposits so that they fall out of the basic money supply definition. Tossing them back in yields a money supply of currency and demand deposits of close to $2.4T...close to 70% yoy increase, the greatest in US history by about a factor of 4X. And any time that the basic money supply has been tweaked at 5-15% has lead to bouts of strong inflation within 6-18 months. Bottom line, the basic money supply was goosed nearly 70% in one year. This is equivalent to matching the previous highest annual increase in the nation's history and then doing that for 4 consecutive years.
The CHART OF THE DAY shows that while the Fed’s balance sheet has grown, the so-called money-multiplier, the proportion of newly printed money that passes on to consumers, has dropped. M2, a gauge that includes savings and checking accounts, is 4.7 times the base cash supply, down from 9.3 times a year ago.
That's about a factor of 1/2. Which is partially explainable by the large under-reporting of the base cash supply. M0, M1, MZM, TMS rather than M2 and M3 that are the best predictors of coming price inflation.
“In order for inflation to begin to build you have to have too much money chasing too few assets,” Rennie said today in an interview. “But what the money supply is telling us is that there’s simply not enough within the system to generate inflationary pressures yet.”
It seemed like there has been a lot of money chasing gold, silver, oil, copper, aluminum, ags, and other assests over the past 3 months. Can these rise in prices be positively proven to be not inflationary rather than a byproduct of greedy hedge fund and investor plays? After a massive run up in 2007, then a blowout in 2008, then another run up in 2009, commodities are still just trying to figure out what they're really worth.
I could see lower prices in 20 years. Heck, consumer prices were lower in 1900 than they were in 1800. Net deflation for an entire century where the nation went from upstart to a world industrial power. But in order to get there, we will first have to work our way through a period of much high commodity and consumer prices by working through all the liquidity being pumped into the economy, and specifically the near 70% increase in cash over the past year.
Cute, but someone lost $100 in your story. Can you see who?
Yes, the hotel proprietor watched the €100, which was the debt owed to him by the hooker walk out the door.
But didn't the hotel proprietor (banker) pay off the butcher first? In "effect" he paid that debt with the money that he got from the hooker on the last transaction. He didn't lose or gain anything since his hooker/butcher account was even from the start. In effect one person broke even and everyone else in the town paid off a $100 debt via the kind tourist (ie FED). What's any different from a bank taking an interest free loan from the FED and then passing it around eventually returning it to the FED? Certainly no net capital investment occured or any real benefit to the economy. Just smoke. The hotel/bank canceled out its credit/debt from competing sides of a swap. Of course in real life, once that $100 is loaned out there, it rarely comes back, especially if your balance sheet is full of toxic assets that have no discernable market value.
Interesting that 1 day after the 2 yr bond auction that rates have jumped from 1.15% to 1.20% putting the buyers into an immediate hole. Let's see if the 5's and 7's follow the same path. Gold surprisingly jumped to 940 while holding steady the same gold to silver ratio that it has for the past week or so (66.6-67.3). That was unlike the action it demonstrated on the way down from 74 and the way back up 60.
All this money thats been printed has just been to replace what the banks lost.
Lost? The money was lost? I think not. This all goes back to roadrunner's famous observation, "lather, rinse, repeat".
The "money" was redistributed. A hefty amount went to pay the bank employees and officers, along with the Wall Streeters who thrived on leveraged buyouts and sales of leveraged financial instruments. And the lawyers who always get in the middle of most transactions. Also, let's not forget those slush funds that politicians love so dearly, and the perks that they extort from their favorite interest groups.
Stockholders and taxpayers paid the tab (like they always do), and inflation is used to mask the difference. Inflation always works to the looter's advantage. They get the benefit upfront, and then the govt looters skim off taxes from the "gain". (The "gain" isn't a gain if inflation caused it.)
The net result - loss of capital by anyone stupid enough to play with them very long.
When a company issues more stock in a public offering, the value of the existing stockholders' shares is diluted. That's exactly what happens with inflation or money creation.
What's happening now is that the massive money creation is indeed replacing the money that was "lost", except that it wasn't lost. It was redistributed to the favored groups and then re-created for the banks who did the redistributing in the first place.
The reason that the banks weren't forced out of business is because this crap is planned and excuted per the plan.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>Cute, but someone lost $100 in your story. Can you see who?
Yes, the hotel proprietor watched the €100, which was the debt owed to him by the hooker walk out the door.
But didn't the hotel proprietor (banker) pay off the butcher first? In "effect" he paid that debt with the money that he got from the hooker on the last transaction. >>
Wow, you are abolutely right. I stand corrected.
Mark Piersall Random Collector www.marksmedals.com
Interesting that 1 day after the 2 yr bond auction that rates have jumped from 1.15% to 1.20% putting the buyers into an immediate hole. Let's see if the 5's and 7's follow the same path
The current yield on the 2yr is 1.14%. So those who bought the auction yesterday are actually at a profit.
A very good auction for the 5yr. Commentary from Briefing.com......
Another strong auction as it would appear U.S. debt remains high on the wish list of investors. A bid cover of 2.58x marks the fourth straight increase in this auction and is well above the 4 auction average of 2.29x. Yields were below expectations, signalling investors did not need to be enticed to purchase the notes as much as some feared. This is a positive for the economy on two fronts as the cost of debt for the U.S. government remains contained and thus the borrowing rates for the U.S. consumer also remain lower. The 10-year yield, a closely followed measuring stick by equity traders dipped 5 bps to 3.59% and is now at LoD. Indirect Bidders remained a key contributor as foreign buyers purchased 62.8%. Indirect Bidders have been primary contributors for the past couple of auctions but there is some discussion in the bond markets that this number is somewhat embellished due to a change in the accounting for guaranteed bidders. This is a subject that we will keep an eye on going forward and provide updates when and if necessary. The markets will turn their attention to the FOMC announcement scheduled for 2:15 pm ET. The key issues that people will watch for are if the Fed plans on expanding its $300 bln bond purchase program and any comments offsetting a growing belief that they may need to raise rates by the end of the year to contain inflation. Treasuries fell after the last FOMC announcement when the Fed left the size of its repurchase program unchanged and said the economy is showing signs of stability. This statement pushed investors to contemplate the possibility of a rate hike. The Fed will need to offset this belief or else another sell-off in Treasuries is possible.
I guess it is the difference between being fish and being fish food. So, the Fed tells we're happy mushrooms and Buffett tells us that we're gonna be toast for a long time.
The FED has to parrot the party line for as long as it is believable to J6P. The published stats will continue to support the FED's line for a while until J6P starts to figure it out. One last acceptable jobs report due out for this month due to the BDM being front loaded by +165K jobs. But next month it's only +25K and will only accentuate bad news in later July.
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
The above from the FED statement today. Resource slack should actually be decreasing as producers slow down production faster than consumers slow down purchases. With more dollars chasing fewer goods, we will see inflationary effects after this summer's 2nd annual deleveraging/deflationary event.
In its current issue, HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days."
Someone expecting world-wide bank problems later this year? A world banking consortium holiday to work out the problems facing the system?
Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly
This could also be written as.....demand from foreign govts for greenbacks is increasing. The foreign central banks have purchased 100's of billions of greenbacks over the last year. It is not a collapse of the greenback that they fear.
"A top Communist Party research chief said Thursday that China should buy gold and U.S. real estate rather than Treasurys, according to a Reuters report. "
I linked this somewhere on this forum and then couldn't find it. But thought it would be worthwhile to put on the main thread as well. Besides, I've always been confused as to which of these is what. In fact I thought MZM (short maturity money) was between M1 and M2 when in fact it's larger than M2. If the FED could eliminate M2, MZM and M0 as they did with M3, it would be a lot easier.
The St. Louis FED's most recent reports puts the Money Supply (M1) at $1.6 TRILLION. M1 is made up of currency, demand deposits, other checkable deposits, and traveler's checks. I checked the figures that Katz quoted by going to the St. Louis FED's website under fred2 stats. They are all correct to a tee.
A problem comes in when the FED reports M0 (money base) as $1.8 TRILLION. That is, larger than M1. Money Base is made up of currency plus deposits at the FED banks with a tiny adjustment for reserve magnitude. But M0 is part of M1 and therfore should be less than M1. Typically, MO has been running about 60% of M1. Katz offers a compelling argument and also gets input from the St. Louis FED on how they do this sleight of hand by reclassifying 1/2 of the demand/checkable deposits as time deposits....which pushes those into M2.
The bottom line is that by using Katz's estimate of what real M1 should be using the guidelines the St. Louis Fed supplied, ups it to $2.34 Trillion. That's a 70% yoy increase rather than 16%. And is a factor of 4X the previous high recorded back in 1986. And since many use M0/M1 as their primary tool for measuring monetary inflation, what better way to manage it than to shift some of those dollars into M2.
Yes, but what are the chances of our bankers keeping the money flows at low levels for months or years? Once the money is out there, it always shows up and produces inflation eventually. When has our govt ever put a large increase of money into the system and it didn't cause a strong pop in inflation? The problem during the great depression is that the FED contracted the money supply by about 35%. Imagine the immense mess that would cause today? We have no such problem this time around, it's apples and oranges in that regards. It's not a matter of "if" the money increase gets to the public sector and multiplies, but merely when.
By stellar, you mean well-subscribed, lots of bidders, and strong prices for the debt instruments. And low interest rates.
Let's assume that the government is trying to establish a new baseline for commerce and savings. It's good for "business" to see low borrowing rates, and it's terrible for retirees and pension plans. Tough luck for them, eh? Just wait and see what happens after more of the same people get sucked into bond deals and inflation ignites.
The new paradigm - given the low bond rates, better "returns" will (always) be found in the "stock market". Jim Cramer can proceed to sell more stocks, at least. He can cite how stocks outperform bonds over and over, and how risk is taken into account in the asset pricing models for our enterprising capitalistic system. Right? Ask the GM bondholders about "risk" in dealing with the government's new approach to bankruptcy succession. And let's not forget that we haven't begun to see the impacts of heavy taxes on energy coming down the pike, and the cost burden of universal health care that haven't yet been priced into the financial system. Not to mention the $50 Trillion of already-unfunded liabilities that never make it onto the books. Everybody is watching to see when the first big buyers of debt refuse to buy more debt. Don't kid yourself, everybody knows the game.
Reward for risk. Sound familiar? We've seen what happens, haven't we? The same groups are still in congress, and in the financial system. Goldman Sachs is giving out record raises. Nobody who caused the meltdown is being prosecuted - heck, they always seem to get re-elected. Nothing is solved, and nothing has been corrected. Let's remember that.
It's an axiom of finance that low rates signify low risk. Thus, the lowest rates are normally found on the low side of the yield curve, in the shortest maturities.
So, everything's cool, right? Break out the cigars, boys. NOT!
In my entire life, I've never been more aware of such total manipulation in multiple markets than we are seeing now. We're involved in two (2) wars, watching the debt load climb to higher and higher percents of GDP, watching new spending initiatives bounce through congress like a superball, massive money creation..............
.............and you tell me that inflation isn't in the mix?
Yup, we shall see.
Q: Are You Printing Money? Bernanke: Not Literally
The govt's current CPI number is a -1.3% inflation (ie deflation). But using the 1980 govt CPI model, John Williams comes up with a +6.1%. Actually, quite a drop from the double digit inflation number that peaked in 2008. The pre-Clinton era method of CPI calculation is now +2%. Obviously the prices of some things have been going up while some have been going down....stagflation.
Now that the govt had its slam-dunk bond auctions, its time to get back to goosing the stock market via Goldman and the PPT and supporting the dollar a bit better. They can't do all 3 at once. The next series of auctions in early July should coincide with the next down draft in stocks.
but what are the chances of our bankers keeping the money flows at low levels for months or years
I think the odds may be quite high. Banks are not lending because potential borrowers are not really creditworthy. Most people have too much debt, as do many businesses. As people save and pare down debt, demand for business expansion decreases further reducing demand for money. '
If the economy improves to 2006 or 07 levels then I think maybe you can have inflation. But since I think the 06-07 economy was based on home equity loans and other cheap credit that wont be coming back, I dont see any chance of a strong economic recovery. What we are seeing now is simply an inventory adjustment cycle. One can only put off a new refrigerator or stove or car for so long.
jmski52
I am just stating that inflation is not an inevitable. And if I had control I would make sure it doesnt happen. Ask yourself this, what would be the best way to keep entitlement programs in check? By not having cost of living adjustments. Wouldnt it be better for the Govt to manipulate prices down so that they dont have to pay so much in the future.
China and Japan are our biggest creditors holding about $1.3 trillion in debt. They say we there is $3.9 trillion in cash sitting on the sidelines in the USA. How about issuing $1.3 trillion in debt to Americans at 7%, pay off the Chinese, and then pay ourselves the interest. The money stays within the USA which in turn will promote domestic growth and savings.
“By stellar, you mean well-subscribed, lots of bidders, and strong prices for the debt instruments. And low interest rates.”
Does it not seem just a little odd that several days before one of these big auctions, gold, silver, oil, etc. all start dropping in price, and right after the auction the prices start going back up?
Everyone keeps looking for the old ways inflation can come into the system. Too much money chasing to few goods!
In days past this was done by private industry raising wages etc., but you can have hyperinflation with the government printing the money and handing it out like candy.
As we go forward more that 50% of all Americans will be getting government checks in one form or another. These checks will be issued for producing very little in the way of products and services.
AIG is government, Citi bank will soon be, GM, Chrysler, Fanny, Freddie, all government employees at every level, all social Security, Medicare, etc.etc.
What will happen when all of the trillions in notes and bonds wants to go into hard assets?
What happens when the interest rates do go up and the interest on the debt becomes a trillion per year that has to be rolled?
How many games of hide the notes are being played now with the Fed buying 180 billion in treasuries?
This is the biggest game of musical chairs ever conceived of, and the chairs are being eliminated each and every auction.
When the panic starts it will be to late for planning.
My humble advice is stay the course we have been discussing here the last few years, and protect what you can!
"My humble advice is stay the course we have been discussing here the last few years, and protect what you can!"
Not as easy as it may sound... 1. Maybe a better cash position is called for. Not cash in the bank but cash (USD) stashed some place where you can get to it, maybe a couple of months worth or more. 2. PM is good but getting tricky if the govt. starts wanting to place some controls on the purchase and sale, maybe small denominations that you don't have in the sdb. 3. Funds and investment accounts...hummmm, this is a crap shoot, recently tried to get some money out of a fund and had to listen to 25 minutes of why I shouldn't do it including admonitions that the govt. is going to tax 20% of it as soon as I get it and then concluding with a brief discussion of them asking "What are you going to do with it?" I replied PM (not that it's any of anybodys business but mine) and he responded it is just so volitile and then I countered with "More volitile than the stock market?" and that ended the discussion. Then I accused them of just buying DOW 30 indexes and letting it ride while they charge us for management expenses...that didn't go over well and then I followed with...Why didn't you just go all in with F at 1.29 and we'd all be at 300X instead of losing $. Still trying to get my money out. Go ahead and try it for yourself, just to see what happens, you may be suprised. 4. Buy and hold investments...nah. 5. Realestate...maybe, but you should have in place a quick exit strategy. Now if buying a place in the country where you can grow some food, have a well and electricity and maybe a little fishing lake/pond...yeah. Methinks the urban centers are going to get quite dicey quite soon. Spend a little time getting it ready while you live in the city and when things get ripe...you're outta there. 6. Coins, difficult call but it's hard to let them go; maybe trim the herd a little to lessen the exposure some. 7. Debt...if it's more than 6% interest get rid of it as quickly as you can. Do not use any of the big boys, they are gonna be gaming you big time. Edited to add: think credit unions here, they manage their exposure very well. 8. Hunker down, get that way and stay that way, this is gonna get a lot worse and it will happen quickly as in cascading effect.
The above observations are simply my humble opinion but if you are going to do something, don't be thinking about it, do it as quickly as possible...be prepared, pay attention, have a plan.
Everyone keeps looking for the old ways inflation can come into the system. Too much money chasing to few goods! In days past this was done by private industry raising wages etc., but you can have hyperinflation with the government printing the money and handing it out like candy.
Agreed. There are numerous examples of strong/hyper inflation througout the 20th century. And for the most part they were not inspired by consumer demand nor increasing wages, but simply creating too much money. It didn't matter if the business climate was good or bad. But usually it's the result of the govt adding too much liquidity as a way out of a downward economic spiral.
How many games of hide the notes are being played now with the Fed buying 180 billion in treasuries?
The game has been escalated to hide the "money supply." M3 was eradicated and M1 is now understated by about 50%. The $750-$775B in commercial bank deposits now sitting at the FED only appear in M0. This was never a big problem before because for at least the past 30 years, no banks have bothered to leave money on deposit with the FED other than the minimal required reserves. Those were negligible in the big picture. But not now. Since the FED is now offering interest (rather than a storage fee), the money sits at the FED until the point when the FED decides to start charging money for storage. Prior to the money infusion in 2008, M0 trailed M1 by $550B. Add that to the current M0 number of $1.8T and you get $2.35T for an "effective" M1, far larger than the $1.6T as reported.
The yoy increase of 112% in MO is far more representative of what's going on than the 16% yoy increase in M1.
There are numerous examples of strong/hyper inflation througout the 20th century. And for the most part they were not inspired by consumer demand nor increasing wages, but simply creating too much money. It didn't matter if the business climate was good or bad. But usually it's the result of the govt adding too much liquidity as a way out of a downward economic spiral.
Can you name any that occured with a reserve currency?
Can you name any that occured with a reserve currency?
That sort of implies that a reserve currency can not be or has a small chance of being hyperinflated. From world history, Rome, England, France and others could probably attest to the contrary. In the 20th century post WW2, China, Japan, and Russia all attained hyper-I status, though none were reserve currency holders, but at the time were advanced industrialized nations. Only England and the USA have held Reserve Currency Status in the 20th century. England's inflation rate in the 1914-1918 period peaked at 25%, imo that's hyperinflation. And this was sort of the final twilight period for the British Pound as the USA started becoming a top contendor for world's strongest currency, as both nations started ignoring the gold standard.
The USA reached the 18-20% level in the 1970's, an annual rate also nearly achieved for several years in the 1916-1919 era. And while the 1970's may not have reached the definition of 20/50/100% that some define H-I to be, it bears further watching considering our currency and financial situation is today far worse.
After WWII, China, Japan, Russia, did experience inflation and they were "important" economies. I believe however that that inflation was caused by the complete disruption of the supply/demand equation. Same for England, USA and Germany durning and after WWI. There were massive supply/demand shocks then as well as in the USA in the 1970s.
So there still hasnt not been any inflation associated with the sole criteria of printing money. It all comes down to a supply/demand shock. Even the widely watched Zimbabwe situation comes down to massive supply contraints brought about by price controls and a chaotic govt.
It's only a matter of time before the $950 BILL (+112% yoy) added to MO starts finding it's way into the bank lending chain. Besides the US increases to M0 and M1, you have every major industrialized nation doing about the same thing, only most of them are not allowing it to sit at their Central Banks. The next major move in the pog may show itself against strongly inflating foreign currencies first where the bankers are not yet obsessed with controlling the pog.
The following article suggests that lending by the banks will recommence when the FED and govt are satisified with new controls placed over the system (ie that they have increased their controls to a higher level).
Even the widely watched "XXXXXX" situation comes down to massive supply contraints brought about by price controls and a chaotic govt. .....insert your favorite western govt in the XXXX's. It seems each one is trying to outdo the next guy with price controls, loose money, nationalization, induced shortages, chaos, etc. Zimbabwe may have just provided the 21st century roadmap...........
<< <i>This was offered up on Ackerman's website as one possible way to pay off debts: “It is the month of August, on the shores of the Black Sea . It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. “Suddenly, a rich tourist comes to town. “He enters the only hotel, lays a 100-euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one. “The hotel proprietor takes the 100-euro note and runs to pay his debt to the butcher.“The butcher takes the 100-euro note and runs to pay what he owes the pig farmer. The pig farmer takes the 100-euro note and runs to pay his debt to his supplier of feed and fuel. “The supplier of feed and fuel takes the 100-euro note and runs to pay his debt to the town's prostitute that, in these hard times, proffered her ‘services’ on credit. “The prostitute take the 100-euro note and runs to the hotel to pay for the rooms she rented when she brought her clients there. “The hotel proprietor then lays the 100-euro note back on the counter so that the rich tourist will not suspect anything. “At that moment, the rich tourist comes down after inspecting the rooms, takes the 100-euro note off the desk, tucks it back into his wallet, and explains that he did not like any of the rooms. He then leaves town. “No one earned a penny. However, the whole town is now without debt and looks to the future with great optimism. roadrunner >>
Cute, but someone lost $100 in your story. Can you see who? >>
Yes, the hotel proprietor watched the €100, which was the debt owed to him by the hooker walk out the door. bumanchu Edit: for some reason the post with the correct answer did not show up when I was just looking at this thread and neither did my answer after posting, until I "turned the page"'. Weird...... >>
Wait just a darn tootin minute: no one LOST money. The hotel prop lost only potential income. No one won or lost.
<< <i>Well, yes, I am kind of implying that. After WWII, China, Japan, Russia, did experience inflation and they were "important" economies. I believe however that that inflation was caused by the complete disruption of the supply/demand equation. Same for England, USA and Germany durning and after WWI. There were massive supply/demand shocks then as well as in the USA in the 1970s.
So there still hasnt not been any inflation associated with the sole criteria of printing money. It all comes down to a supply/demand shock. Even the widely watched Zimbabwe situation comes down to massive supply contraints brought about by price controls and a chaotic govt. >>
Ummm......how would you answer this question? In high school, I earned about $2500 in my part time job in 1970. Today that amount would equal $13,779. My math tells me the dollar is worth 20 cents (roughly) compared to about 40 years ago.
Is that price inflation or dollar deflation? What caused it?
Many people can argue convincingly that the Fed's ability to create money out of thin air is the main cause of inflation over the decades. I'm firmly in that camp.
Lots of good information available online about the cause and effect of adding more 'fake' money to the system. Considering greenspan added more during his tenure than the entire history of the Fed, then along comes 'non-disclosure' of the amount added each year, then comes the huge amount reported publicly in the press the past 24 months........ YIKES, yes there will be inflation. Or devaluation if inflation becomes too high.
Either way, no matter how you want to protect your assets, there really is no where to run, no where to hide, because it's all subject to govt. manipulation.
Every single asset can be depreciated to zero; wages can be frozen; PM can be illegal, and not just new PM;
Sorry for rambling...........10 years ago, I thought the above was silly for an educated person to believe...now I've reversed my belief just by observing govt. actions which have affected me.
Then I look back another 10 years to the 1986 tax law which was simply stated: pure FRAUD. I got taken to the cleaners, and so many people I know were wiped out overnight by the depreciation portion alone. Oh, and the reason the laws were on the books in the first place: to stimulate the economy due to the 1981 recession.
"Ummm......how would you answer this question? In high school, I earned about $2500 in my part time job in 1970. Today that amount would equal $13,779. My math tells me the dollar is worth 20 cents (roughly) compared to about 40 years ago.
Is that price inflation or dollar deflation? What caused it?"
Of course this inflation, but it really isnt what we are talking about. A couple % inflation every year isnt really a bad thing. If the dollar is worth 1/5 as much but you are now making 5x more, is there really a problem? It is just when prices increase faster than incomes when a problem arises. This inflation has been caused by a huge bulge in the population that has created disruptions all along the curve. There was a housing bubble in the late 80's as the boomers were in the peak of family formation. We had a bubble in stocks in the 90's as boomers finally had some disposable income and discovered online trading. Now we have inflation in health care as the boomers encounter health problems associated with aging. Predict the demands of this group 20 years from now and you will have found the next bubble.
Of course this inflation, but it really isnt what we are talking about. A couple % inflation every year isnt really a bad thing. If the dollar is worth 1/5 as much but you are now making 5x more, is there really a problem? It is just when prices increase faster than incomes when a problem arises. This inflation has been caused by a huge bulge in the population that has created disruptions all along the curve. There was a housing bubble in the late 80's as the boomers were in the peak of family formation. We had a bubble in stocks in the 90's as boomers finally had some disposable income and discovered online trading. Now we have inflation in health care as the boomers encounter health problems associated with aging. Predict the demands of this group 20 years from now and you will have found the next bubble.
A couple percent per year inflation is insidious and works to slowly transfer wealth from the poorer groups to the wealthier groups. It may take 100-150 yrs for the full effects of this transfer to be felt, but it is being felt. While one can focus on the "average" couple percent per year over the past 96 years, it is the swings of 6-20% followed by FED induced contractions that really transfer the bulk of the wealth. As Keynes noted, the process is unrecognizable to less 1 in a million people.
If you go back to the 1970's average inflation adjusted wages have declined. We discussed this a few weeks back. I believe 1973 was around the peak year for real average wages. If you go strictly buy the Govt's post-1983 CPI you will come to an erroneous conclusion as to what overall price inflation has been. Temper this with the fact that due to owning the reserve currency the US effectively exported the largest chunk of its inflation to emerging economies overseas. But, it is now working its way back to us. Also factor in that it takes 8-20 years to fully reap the "rewards" of commodity price inflation. The total effects of the money supply going into over-drive starting in 1996, won't be fully seen for years to come. In other words prices will outpace wages more than they did in 2003-2007. The monetary excess of 2008-21XX will take a long time to play out.
The inflation wasn't really "caused" by the baby boom but because of out of control spending policies, the shift to pure fiat in the 1970's, a budding military industrial complex that required feeding, and a power shift in congress to pander to lobbyists and special interests. This would have happened with or w/o the baby boomer growth. I will agree that it accelerated and even accentuated the process. But the US was merely taking the next sequential steps in a maturing society. Where the baby boomers responsible for removing silver coinage in 1965? Eliminating the gold standard in 1971? The space race? The Vietnam War? The 1960's Great Society programs? Growth in military spending or size of govt? And most importantly, did the boomer generation cause the US to come out of WW2 with the world's reserve currency, "as good as gold"? Wouldn't these same events have occured with or w/o the boomers?
A sensible policy would have been to increase the money supply at about the same rate as the population growth. But that was not done. In fact the money supply was ramped up to a 10% yoy average starting in 1996....basically to turn the economy around following the doldrums of 1990-1995. We didn't experience 10% pop growth in the last 13 years. And even with these dislocations caused by the boomers into the 1990's, the fallout would have at best been moderate if allowed to occur naturally in 1999-2002. Instead, the securitization mania which started around 1998 went into hyper-drive. Of the problems we are seeing today, probably 90% were caused as a result of things done following 2000. Even in 2002 the total number of otc derivatives was still only around $100 TRILL. A big number indeed, but fixable. That was increased by another factor of 10X over the next 6 years. That, is the source of most of our finanical woes, not the baby boomer dislocations....unless you want to blame the baby boomer bankers, insurers, and politicians for feeding into the frenzy rather than taking their medicine in 2002.
This mess would have still been created w/o a huge baby boomer generation to feed and maintain. The problem was not 401K's or even on line trading...but a greedy financial elite that was well-connected and figured they would allow the game to continue, then shift their losses on to an unsuspecting electorate. The process would have taken longer w/o a baby boomer generation to accelerate it, but it would come nonetheless. We still have 1 President and his administration, 100 senators, and 435 Congressman. The boomer generation growth didn't affect that. A little bit of restraint was the answer all along. I think it's too convenient to blame the population growth of one generation for the bulk of today's financial ills....unless we want to blame our own apathy in letting this occur by who we elected to office over the past 10-25 years and not holding them accountable for sensible choices.
Has there ever been a reserve currency in history that inflated at 2-3% average annual rates for 80-100 years that enabled the economy to continually prosper with an average higher quality of life throughout the nation or that didn't destroy the currency via inflationary effects?
I'm back from two weeks of being in another world. I visited some relatives that I have never met for one reason or another. Some lived in what was formerly known as the DDR (Berlin) and (on my wifes side) Belfast, Northern Ireland. Although Berlin and Belfast are thriving, building cranes everywhere, there is a sense of big brother watching everywhere...cameras everywhere in Belfast. I had many conversations that were very beyond belief. I've seen the future and it's handcuffed. Some of my relatives don't even know it because they are so immersed. Some tidbits: In Germany there is an 8% tax on income that goes directly to the church fund and distributed to the churches. Even though traditional churches are relatively empty the government says they do good work and therefore they need the money. Germans can opt out after some time. My uncle says that health care was great but now sees a huge degradation and worries about the next generation. In Belfast, if you are hurt and bleeding they people know to pack some change of clothes and food before they go to the hospital because of the wait. If you have a slight heart attack your wait is reduced to two hours. Also, there is a two hour wait for the police to come out if you have suffered a robbery. But if you speed you are caught immediately because of the cameras. The younger generation is concerned about work. On the outside it looks as if everyone has a few "quid" or euros in the pocket and go shopping in nice new city centers...yet many seem not to be working. They say many are living on credit...sounds familiar. My aunt in Berlin said while we were driving around town..."communism is great if it weren't for the people." Some nuances lost in translation but this was a lady who lived in free Berlin, Soviet Berlin for 28 years and back to free Berlin for the past 20 years. Her reflections were priceless. R95
<< <i>"Ummm......how would you answer this question? In high school, I earned about $2500 in my part time job in 1970. Today that amount would equal $13,779. My math tells me the dollar is worth 20 cents (roughly) compared to about 40 years ago. Is that price inflation or dollar deflation? What caused it?" Of course this inflation, but it really isnt what we are talking about. A couple % inflation every year isnt really a bad thing. If the dollar is worth 1/5 as much but you are now making 5x more, is there really a problem? It is just when prices increase faster than incomes when a problem arises. This inflation has been caused by a huge bulge in the population that has created disruptions all along the curve. There was a housing bubble in the late 80's as the boomers were in the peak of family formation. We had a bubble in stocks in the 90's as boomers finally had some disposable income and discovered online trading. Now we have inflation in health care as the boomers encounter health problems associated with aging. Predict the demands of this group 20 years from now and you will have found the next bubble. >>
Ahem......my pay was $5 an hour back then, 10 hours a week = $2500. Today a dishwasher (at $5/hr. in 1970) doesn't make $25 an hour today, which is what it would be if wages kept pace with inflation. That's the difference I'm referring to. People are not making anywhere near what they made in 1970.
Full senate report is referenced in the above link.
Last week the Senate issued a report that approx 25-30 index funds were responsible for speculating on wheat price futures that basically disrupted the price discovery mechanism. They found that the CFTC's willingness to raise the limit on the amount of long positions a fund could take was not in the best interests of fair commodity trading. The Senate suggested lowering those limits substantially to minimize the % of market share that these funds can assemble. These index funds were apparently passive speculators since they held their positions in 2008, even after wheat prices fell.
OK, so Senate "speculation" qualifies as having up to 25-30 "passive" participants that are taking longer term positions in the market at a position limit of 0.16% of annual world wheat production. So what would they call the Comex Silver market? There you have only 2 to 3 huge banks taking up to 80-96% of the total short positions who actively trade the market on daily basis with a position limit of 4.5% of annual global silver production. The CFTC limit on Comex silver positions is equivalent to 83% of US annual silver production.
Maybe we should be thankful that only 2-3 US banks play this game rather than 25-30. The real slam dunk in silver speculation is not in the Comex but rather the $190 Billion in silver derivatives held by 2-3 banks (equivalent to 50 years of annual global production). That position is held just in case of the 100 year black swan event where a method is developed to easily extract silver from seawater.
Was their anything in the report about ethanol [corn] taking land up used for wheat no i guess not being from the midwest their is no doubt in my mind why! wheat when higher jmts
groups. It may take 100-150 yrs for the full effects of this transfer to be felt, but it is being felt
I'll worry about this if I live 150 years.
The inflation wasn't really "caused" by the baby boom but because of out of control spending policies,
I wholeheartedly disagree, but that is probably a topic over over a few beers.
I do believe we are in store for a massive deflationary bout, whether that occurs next year or in 20, it will occur. Make money for today, save for tomorrow.
Ethanol is a farce. The local Miller brewery went out of businees a few years ago. They converted it to an ethanol plant at a cost of about $10 million. It went bankrupt without producing a single drop of ethanol. This "ethanol" policy has done nothing but take food from the mouths of babies. US farmers are the most productive in the world. They always meet demand.
Mr Pento,
This is the funniest comment I have ever read in print.
The dollar price of gold increased from just under $840 an ounce to $980 from the end of August 2008 thru the end of May 2009 time frame. That means gold rose over 16% while the US dollar declined just over 14% against the yellow metal.
Only this statement is more ridiculous.."The dollar price of Citigroup increased from $1 in Mar 09 to over $4 in May 09. That means Citigroup rose over 300% while the US dollar declined over 70% over a nationalized, insolvent bank."
People, follow the charts. If/when gold breaks over $1010, buy it. Dont make excuses about why it did or didnt move. Look, I want gold to break $1010 as it will be a tremendous trade, but what if after 2 years of the most tumultuous times in American history, gold doesnt move. Then what? Do we wait for another 2 years for the "promise'? For the inevitable? For the conspiracy? What is the opportunity cost?
> but what if after 2 years of the most tumultuous times in American history, gold doesnt move. Then what? Do we wait for another 2 years for the "promise'?
Good point. I can remember back in the 70's it was said this same gold thing would be happening ... soon
Gold took an almost 2 year breather from 1974-1976 during a 50% correction. But the two years preceding that, and the 3 years that followed were very strong (basically increasing 4X and 8X). One could have invested in the Dow during that gap and done quite well if one had the smarts to pull it off.
A similar comparison could have been made for getting out of stocks for good in October 1987 or at any number of points leading up to 1999. Bull markets take a long time to play out. Gold is now in its consecutive 8th year up. My only question is where do you put your money to work in the current situation if one is not willing to wait for the next inevitable gold move with an impending deflationary bust looming on the horizon? Cash? CD's? Tbills? Bank Stocks? Reits? Is the stock market ready for another 30% move while gold languishes? Sometimes sitting with minimal risk is the best play for the masses. Most of them now wish they had settled for zero return, and a loss of "opportunity" rather then being in stocks from 2007-2008. Many wished they had been out of them even years before then. Some lost opportunity!
Do we wait for another 2 years for the "promise'? For the inevitable? For the conspiracy? What is the opportunity cost?
The conspiracy has been here for 10-15 years or longer (possibly for 95 years), one doesn't have to wait for that. You won't have to wait any longer than May 2010 to see if gold puts in another record high. If we get to then without a new all time high and gold still <$1000, cash in your chips my friend as the gold bull will be dead.
But fwiw, gold has been basically on a 2 year cycle with strong moves peaking in 2004, 2006, and 2008. You don't have to wait 2 years from now since we are only 9-11 months aways from when previous peaks occured. If anything, the cycles from here will become more compressed. Do I mind waiting until May 2010 to find out? Not really.
8 straight years gold has closed higher on December 31st. Now if the stock market had done that, everyone would be proclaiming a perpetual bull and be in La La Land. But in gold, it's just another reason to have to "wait" for the promise to appear. In the meantime gold has tripled in price against a Dow that has fallen 40%. Gold protected one's assets perfectly since 2001 and increased their value 3.7X. Seems to me that the promise was kept for gold, but certainly not for the manta of long term holding of stocks, esp. those of insolvent and effectively nationalized banks. Let's see how 2nd quarter earnings for the banks look after all the accounting tricks were used up in the 1st quarter to show "profits." After remarking toxic assets back to "myth," they can always mark them to "myth+10%."
8 straight years gold has closed higher on December 31stNow if the stock market had done that, everyone would be proclaiming a perpetual bull and be in La La Land
That is exactly what concerns me. If it is higher this year, that makes 9 years. And if it gets that breakout but May 2010, that would make 10 yrs. I cant think of anything that has had that kind of run.
But lets just say that by May 2010 gold is at 800 and it is obvious that it wont breakout. Wouldnt it be better to just sit in cash rather than sitting with the "opportunity" to lose 15% from todays price.
I just dont want to see the word "gold" substituted for the words "stock market" in your above example 2 years from now. Your arguement about the stock market not making anyone money for the past 15 years is the same one that the gold bears use about no one making money in gold for the past 30 years.
As I've said numerous times, every asset class has its day in the sun, hopefully it is just cloudy for gold.
8 straight years gold has closed higher on December 31stNow if the stock market had done that, everyone would be proclaiming a perpetual bull and be in La La Land
Why should the psychology surrounding the gold market be any different than the equity market? Are you not saying gold is in a perpetual bull market and in La La Land?
When evaluating whether gold has gone anywhere, one must not forget the dollar index. At the $1033 peak last year the USDX was at .71. In the 2 attempts at $1000 so far this year, the dollar was much stronger, in effect making those lesser highs actually higher highs when dollar adjusted. And isn't that what it's all about, how assets compare to the dollar?
Gold hasn't really had a straight 8 year run when you consider the long lay offs from May 2006 to August 2007 and then from March 2008 to today. In fact the stock market had basically a 25 year run from 1982 that puts the gold bull to shame so far. Maybe it didn't close higher on Dec 31st for X number of years, but the trend was incredible when not considering dollar inflation.
But lets just say that by May 2010 gold is at 800 and it is obvious that it wont breakout. Wouldnt it be better to just sit in cash rather than sitting with the "opportunity" to lose 15% from todays price.
The value of gold right now is more than just waiting for a possible big move or trying not to lose 15%. It really comes down to a black swan type of event where people will have little to no time to react. And these so-called black swan events have now been happening with regularit. It will be just be there in your face one morning when you wake up. One doesn't buy insurance based on daily market fluctuations. You buy it to protect your family and get it when you first need it.
I use the stock market against gold because it's where most people have invested their monies over the past 15 years vs a commodity where almost no one has money invested. When the stock market starts outperforming gold yoy then I'll reconsider the value of stocks. But for now, they are in a secular bear market. Gold is about 50% behind published govt inflation stats over the past 29 years. The stock market is still many multiples above that level. There is still a lot of paring that needs to be done to restore the balance of commodities/gold to stocks and other assets. When that has been achieved then one can consider the next 20 year run in stocks. For now we must wait for that guy who has been holding gold since 1980 to start making some inflation adjusted money.
Why should the psychology surrounding the gold market be any different than the equity market? Are you not saying gold is in a perpetual bull market and in La La Land?
It may be so. But when looking at the number of negatives out there against gold, it still looks to be a baby bull. But look at what the world and esp. the USA still thinks of gold: barbarous relic, central banks only sell it, overpriced, useless, it "always" falls just when the big crisis hits, if it can't get going after 2008 there is just no hope, etc. The vast majority of Americans have no gold and could care less. Doesn't seem like a perpetual bull. And gold performs best when things are the most out of whack. We're not at that point yet. Gold could probably be in a bull market for 20 years and no one in the US would take notice or really care.
<< <i>When evaluating whether gold has gone anywhere, one must not forget the dollar index. At the $1033 peak last year the USDX was at .71. In the 2 attempts at $1000 so far this year, the dollar was much stronger, in effect making those lesser highs actually higher highs when dollar adjusted. And isn't that what it's all about, how assets compare to the dollar?
roadrunner >>
yes, it says that the make-up (values) of the USDX currencies are weaker.
it would seem that a line will be drawn between just gold and the USD at some point in the future.
I didn't make Bloomington Gold this year mainly because it is not a good time to sell and I didn't feel like getting my head sliced in order to trade. I did go to the LA Roadster Show and noticed a friend of mine making VERY LOW ball offers(1/2 price) and coming away with a lot of product that he will sell in his showroom over the next few months. And make a bucket of money on.
I just closed my parents home that I lived in while in H.S. My dad bought it in 1967 for $27,000 and it closed at $910,000. Last year I sold a rental in Los Gatos that I bought on the courthouse steps in 1982 for $107,000 and it closed at a little more than 800. Cal RE has done well IF you had a location that did not go to the dogs. Buy the school district and you seldom go wrong out here.
This is the time when cash talks and as I understand from a couple of friends who were at Pheasant Run CC...a couple of corvette dealers are in a cash flow crunch right now and the sharks are circling the waters.
Oh, and by the way....in 1971 as a freshman at Cal...during the summer I made over 9 bucks an hour as a janitor and got 7/8 of a day sickleave per month....I'm sure that some freshmen would be happy with that as a summer job in 2009.
Back to nite school to bone up on how to make a living.
When the stock market starts outperforming gold yoy then I'll reconsider the value of stocks.
Stocks aren't likely to start doing much of anything. PE's are sky-high, which implies that one of two things must occur before stocks become desirable:
1) Stock prices must fall to bring PE's within their historic ranges, or
2) Earnings must increase.
Since PE's are likely to fall for at least one of the two above reasons, it seems to me that gold could stagnate and be a much better investment for the foreseeable future.
Q: Are You Printing Money? Bernanke: Not Literally
They are also doubling the monthly payment requirement on some balances. I have a balance on one of my citi cards with a rate of 2.99% fixed til I pay it off which is a good deal I entered into about 2 years ago. They don't like that so they are doubling my monthly balance due now. I believe they are trying to get me to default so they can charge me 30% but that won't happen.
This sounds a lot like our system where the Fed just makes up billions in electronic money.
Isn’t electronic money Virtual Currency?
Perhaps this is a new world trend, you live in a crummy house and wear rags, but on line you are rich beyond belief.
In China, New Limits on Virtual Currency By DAVID BARBOZA Published: June 30, 2009
SHANGHAI — The buying and selling of the make-believe currencies used in online gaming has become so widespread that Chinese authorities fear it will affect the real economy.
To quell that threat, those authorities said on Tuesday that they had issued new regulations aimed at restricting the trade and use of virtual money.
China is one of the world’s biggest markets for huge so-called multiplayer online games like World of Warcraft, and tens of millions of young people are believed to be trading virtual goods and credits for real goods and cash.
The coin of fantasy realms have already moved markets here. So-called QQ coins — a form of currency produced by the Chinese Internet giant Tencent — have sometimes risen sharply in value against China’s official currency, the renminbi, alarming officials at the nation’s Central Bank.
Some people have even traded virtual currencies in China, and exchanged them for clothes, cosmetics and other goods. Last year, nearly $2 billion in virtual currency was traded in China, according to the China Internet Network Information Center. Some experts say they believe there is a much larger underground economy in the virtual world.
Most of China’s big Internet companies — like Sohu.com, Netease and Tencent — have some gaming component and virtual currencies have grown up alongside many of them.
Some smaller gaming companies have even set up what are called virtual sweatshops, cramped quarters where young people play online games to earn credits that the companies then sell at a profit to overseas customers in Taiwan, South Korea and even the United States. This practice is popularly known in the online gaming community as gold farming. Many online marketplaces, like eBay and China’s Taobao, even have online advertisements offering virtual goods for sale, like World of Warcraft gold coins and virtual swords for the game Legend of Swordmen.
Edward Castronova, a professor of telecommunications at Indiana University Bloomington who says he believes virtual currencies could pose a threat to world economies, applauded Beijing’s move.
“This action shows that at least one government is concerned about the way virtual worlds challenge its control of society,” Professor Castronova said in an e-mail message Tuesday. “As virtual currencies take over more and more purchasing power, control over the effective money supply shifts from the central bank to the game developers."
“As virtual currencies take over more and more purchasing power, control over the effective money supply shifts from the central bank to the game developers."
What a riot! If I had to put money on who is smarter and most likely to win this faceoff, I'd have to go with the gamers.
Q: Are You Printing Money? Bernanke: Not Literally
Comments
If your substitution theory is the reason for no inflation or distorted low inflation figgers then you need to go to back to school.
Butter is butter and margarine is margarine and if you substitute soy for steak to distort the number...it's called FOOLING AROUND.
QUALITY OF LIFE .
You can lead a horse to water but cannot make them drink. Sorry, but the "figgers" can be gotten right off the Bureau of Labor and Statistics website. You need to go back to night school. On the BLS.gov site you can read about the quality effects of clothes dryers, books, and other such nonsense. In fact the quality effect of clothes dryers is over 10 pages long. Yes, our tax dollars go to stuff like that! Subsitution/hedonics/and quality effects are well known....just like substituting imputed rent for a homeowner into the equation in 1983 (ie 40% of CPI has been based on the cost of a homeowner renting out his home, not actually owing it or paying for it...but as if he were renting it out. How did rents do from 1983 to 2007 vs. home prices?). And yes, the stats have been so fooled with during the Reagan, Bush, and Clinton years that it bears little resemblance to today's CPI. It is in fact of a changing basket of goods and services, not a constant one. Sort of like the Dow. Kick something out when you don't like it and substitute something else to keep the #'s where you'd like to see them.
See the link to www.shadowstats.com below where Dartmouth trained economist John Williams charges large corporations big bucks for his time to help decipher real inflation numbers for strategic planning. Williams computes CPI based on 1980, 1990, and current terms. The 1980 and 1990 versions were chosen because major BLS changes followed shortly after each of those years. I've yet to see one trained economist or analyst be able to refute Williams' numbers. And that's because the changes that were made were very real and trackable, the BLS doesn't even hide it. If you aren't willing to spend some time following up on those links then you get the PS103 ekonomix' education you earned. Most everyone who has contributed to this thread thinks the stats are juiced as well. So how did they get that way? What changes could have been made and why? Why are govt contracts, pensions, social security payments, and govt/military employee pay linked to CPI and who benefits from a smaller CPI number? Note also that the GDP deflator is based on the same factors as the CPI only tighter. Keeping the "deflator" low means a higher GDP. Who gains from having a higher published GDP, the govt or J6P? It was precisely the deflator (among other things) that helped keep the economists from calling a recession because GDP was overstated (ie inflation effects understated). The GDP has been tweaked heavily in the "favorable" direction as well over the past 30 years. That's another topic in itself. I believe Williams discusses that as well.
It's precisely "in school" were the profs teach the bogus Keynesian economic theories that saddle students the rest of their lives. The economists and guys like Robert Rubin in the 1990's who helped institute many of these changes know which way the deck is stacked. But old J6P still believes the stats are the same as they were in 1980. The kicker is that 1980's 15% inflation is probably the same as what would be 7-10% today. The joke's on all of us.
And yes, JW stats do currently show a positive inflation number...during a major recession. Who would have thought?
roadrunner
Knowledge is the enemy of fear
the so-called money-multiplier, the proportion of newly printed money that passes on to consumers, has dropped.
Knowledge is the enemy of fear
Let's not also forget the recent FED/Treasury trickery on not reporting the entire money supply. As Katz showed in a previous post, base money supply is reported at $1.8 T while the "larger" and more complete liquid money supply which includes short term demand deposits is only $1.6 T. That's like taking 2/3 of a pie and then claiming you have the entire pie. But these are the headline numbers supplied to media which show only a manageable 16% yoy growth in the fully liquid money supply (from $1.37 T). Yet by FED/Treasury admission, they reclassify about 50% of short term demand deposits so that they fall out of the basic money supply definition. Tossing them back in yields a money supply of currency and demand deposits of close to $2.4T...close to 70% yoy increase, the greatest in US history by about a factor of 4X. And any time that the basic money supply has been tweaked at 5-15% has lead to bouts of strong inflation within 6-18 months. Bottom line, the basic money supply was goosed nearly 70% in one year. This is equivalent to matching the previous highest annual increase in the nation's history and then doing that for 4 consecutive years.
The CHART OF THE DAY shows that while the Fed’s balance sheet has grown, the so-called money-multiplier, the proportion of newly printed money that passes on to consumers, has dropped. M2, a gauge that includes savings and checking accounts, is 4.7 times the base cash supply, down from 9.3 times a year ago.
That's about a factor of 1/2. Which is partially explainable by the large under-reporting of the base cash supply. M0, M1, MZM, TMS rather than M2 and M3 that are the best predictors of coming price inflation.
“In order for inflation to begin to build you have to have too much money chasing too few assets,” Rennie said today in an interview. “But what the money supply is telling us is that there’s simply not enough within the system to generate inflationary pressures yet.”
It seemed like there has been a lot of money chasing gold, silver, oil, copper, aluminum, ags, and other assests over the past 3 months. Can these rise in prices be positively proven to be not inflationary rather than a byproduct of greedy hedge fund and investor plays? After a massive run up in 2007, then a blowout in 2008, then another run up in 2009, commodities are still just trying to figure out what they're really worth.
I could see lower prices in 20 years. Heck, consumer prices were lower in 1900 than they were in 1800. Net deflation for an entire century where the nation went from upstart to a world industrial power. But in order to get there, we will first have to work our way through a period of much high commodity and consumer prices by working through all the liquidity being pumped into the economy, and specifically the near 70% increase in cash over the past year.
roadrunner
Yes, the hotel proprietor watched the €100, which was the debt owed to him by the hooker walk out the door.
But didn't the hotel proprietor (banker) pay off the butcher first? In "effect" he paid that debt with the money that he got from the hooker on the last transaction. He didn't lose or gain anything since his hooker/butcher account was even from the start. In effect one person broke even and everyone else in the town paid off a $100 debt via the kind tourist (ie FED). What's any different from a bank taking an interest free loan from the FED and then passing it around eventually returning it to the FED? Certainly no net capital investment occured or any real benefit to the economy. Just smoke. The hotel/bank canceled out its credit/debt from competing sides of a swap. Of course in real life, once that $100 is loaned out there, it rarely comes back, especially if your balance sheet is full of toxic assets that have no discernable market value.
Interesting that 1 day after the 2 yr bond auction that rates have jumped from 1.15% to 1.20% putting the buyers into an immediate hole. Let's see if the 5's and 7's follow the same path. Gold surprisingly jumped to 940 while holding steady the same gold to silver ratio that it has for the past week or so (66.6-67.3). That was unlike the action it demonstrated on the way down from 74 and the way back up 60.
roadrunner
Lost? The money was lost? I think not. This all goes back to roadrunner's famous observation, "lather, rinse, repeat".
The "money" was redistributed. A hefty amount went to pay the bank employees and officers, along with the Wall Streeters who thrived on leveraged buyouts and sales of leveraged financial instruments. And the lawyers who always get in the middle of most transactions. Also, let's not forget those slush funds that politicians love so dearly, and the perks that they extort from their favorite interest groups.
Stockholders and taxpayers paid the tab (like they always do), and inflation is used to mask the difference. Inflation always works to the looter's advantage. They get the benefit upfront, and then the govt looters skim off taxes from the "gain". (The "gain" isn't a gain if inflation caused it.)
The net result - loss of capital by anyone stupid enough to play with them very long.
When a company issues more stock in a public offering, the value of the existing stockholders' shares is diluted. That's exactly what happens with inflation or money creation.
What's happening now is that the massive money creation is indeed replacing the money that was "lost", except that it wasn't lost. It was redistributed to the favored groups and then re-created for the banks who did the redistributing in the first place.
The reason that the banks weren't forced out of business is because this crap is planned and excuted per the plan.
I knew it would happen.
<< <i>Cute, but someone lost $100 in your story. Can you see who?
Yes, the hotel proprietor watched the €100, which was the debt owed to him by the hooker walk out the door.
But didn't the hotel proprietor (banker) pay off the butcher first? In "effect" he paid that debt with the money that he got from the hooker on the last transaction. >>
Wow, you are abolutely right. I stand corrected.
Random Collector
www.marksmedals.com
The current yield on the 2yr is 1.14%. So those who bought the auction yesterday are actually at a profit.
A very good auction for the 5yr. Commentary from Briefing.com......
Another strong auction as it would appear U.S. debt remains high on the wish list of investors. A bid cover of 2.58x marks the fourth straight increase in this auction and is well above the 4 auction average of 2.29x. Yields were below expectations, signalling investors did not need to be enticed to purchase the notes as much as some feared. This is a positive for the economy on two fronts as the cost of debt for the U.S. government remains contained and thus the borrowing rates for the U.S. consumer also remain lower. The 10-year yield, a closely followed measuring stick by equity traders dipped 5 bps to 3.59% and is now at LoD. Indirect Bidders remained a key contributor as foreign buyers purchased 62.8%. Indirect Bidders have been primary contributors for the past couple of auctions but there is some discussion in the bond markets that this number is somewhat embellished due to a change in the accounting for guaranteed bidders. This is a subject that we will keep an eye on going forward and provide updates when and if necessary. The markets will turn their attention to the FOMC announcement scheduled for 2:15 pm ET. The key issues that people will watch for are if the Fed plans on expanding its $300 bln bond purchase program and any comments offsetting a growing belief that they may need to raise rates by the end of the year to contain inflation. Treasuries fell after the last FOMC announcement when the Fed left the size of its repurchase program unchanged and said the economy is showing signs of stability. This statement pushed investors to contemplate the possibility of a rate hike. The Fed will need to offset this belief or else another sell-off in Treasuries is possible.
Knowledge is the enemy of fear
Fed Reserve
Buffett's thinking (tt's link is the same, sorry)
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
The above from the FED statement today. Resource slack should actually be decreasing as producers slow down production faster than consumers slow down purchases. With more dollars chasing fewer goods, we will see inflationary effects after this summer's 2nd annual deleveraging/deflationary event.
In its current issue, HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days."
Someone expecting world-wide bank problems later this year? A world banking consortium holiday to work out the problems facing the system?
roadrunner
This could also be written as.....demand from foreign govts for greenbacks is increasing. The foreign central banks have purchased 100's of billions of greenbacks over the last year. It is not a collapse of the greenback that they fear.
Knowledge is the enemy of fear
Listen to wed, 6/24 show about fdic and much more
From a trusted source. "go long on gold"
I linked this somewhere on this forum and then couldn't find it. But thought it would be worthwhile to put on the main thread as well. Besides, I've always been confused as to which of these is what. In fact I thought MZM (short maturity money) was between M1 and M2 when in fact it's larger than M2. If the FED could eliminate M2, MZM and M0 as they did with M3, it would be a lot easier.
The St. Louis FED's most recent reports puts the Money Supply (M1) at $1.6 TRILLION. M1 is made up of currency, demand deposits, other checkable deposits, and traveler's checks. I checked the figures that Katz quoted by going to the St. Louis FED's website under fred2 stats. They are all correct to a tee.
A problem comes in when the FED reports M0 (money base) as $1.8 TRILLION. That is, larger than M1. Money Base is made up of currency plus deposits at the FED banks with a tiny adjustment for reserve magnitude. But M0 is part of M1 and therfore should be less than M1. Typically, MO has been running about 60% of M1. Katz offers a compelling argument and also gets input from the St. Louis FED on how they do this sleight of hand by reclassifying 1/2 of the demand/checkable deposits as time deposits....which pushes those into M2.
The bottom line is that by using Katz's estimate of what real M1 should be using the guidelines the St. Louis Fed supplied, ups it to $2.34 Trillion. That's a 70% yoy increase rather than 16%. And is a factor of 4X the previous high recorded back in 1986. And since many use M0/M1 as their primary tool for measuring monetary inflation, what better way to manage it than to shift some of those dollars into M2.
roadrunner
7-year Note Auction Results: Bid/Cover 2.82x (4 auction avg 2.28x); High Yield 3.329% (expectations were 3.36%); Indirect Bidders 67.2% (avg 32.8%)
And since many use M0/M1 as their primary tool for measuring monetary inflation
the most important part is velocity. There could be 100 gazillion dollars but if it never moves, there will be no inflation.
Knowledge is the enemy of fear
roadrunner
By stellar, you mean well-subscribed, lots of bidders, and strong prices for the debt instruments. And low interest rates.
Let's assume that the government is trying to establish a new baseline for commerce and savings. It's good for "business" to see low borrowing rates, and it's terrible for retirees and pension plans. Tough luck for them, eh? Just wait and see what happens after more of the same people get sucked into bond deals and inflation ignites.
The new paradigm - given the low bond rates, better "returns" will (always) be found in the "stock market". Jim Cramer can proceed to sell more stocks, at least. He can cite how stocks outperform bonds over and over, and how risk is taken into account in the asset pricing models for our enterprising capitalistic system. Right? Ask the GM bondholders about "risk" in dealing with the government's new approach to bankruptcy succession. And let's not forget that we haven't begun to see the impacts of heavy taxes on energy coming down the pike, and the cost burden of universal health care that haven't yet been priced into the financial system. Not to mention the $50 Trillion of already-unfunded liabilities that never make it onto the books. Everybody is watching to see when the first big buyers of debt refuse to buy more debt. Don't kid yourself, everybody knows the game.
Reward for risk. Sound familiar? We've seen what happens, haven't we? The same groups are still in congress, and in the financial system. Goldman Sachs is giving out record raises. Nobody who caused the meltdown is being prosecuted - heck, they always seem to get re-elected. Nothing is solved, and nothing has been corrected. Let's remember that.
It's an axiom of finance that low rates signify low risk. Thus, the lowest rates are normally found on the low side of the yield curve, in the shortest maturities.
So, everything's cool, right? Break out the cigars, boys. NOT!
In my entire life, I've never been more aware of such total manipulation in multiple markets than we are seeing now. We're involved in two (2) wars, watching the debt load climb to higher and higher percents of GDP, watching new spending initiatives bounce through congress like a superball, massive money creation..............
.............and you tell me that inflation isn't in the mix?
Yup, we shall see.
I knew it would happen.
Now that the govt had its slam-dunk bond auctions, its time to get back to goosing the stock market via Goldman and the PPT and supporting the dollar a bit better. They can't do all 3 at once.
roadrunner
I think the odds may be quite high. Banks are not lending because potential borrowers are not really creditworthy. Most people have too much debt, as do many businesses. As people save and pare down debt, demand for business expansion decreases further reducing demand for money. '
If the economy improves to 2006 or 07 levels then I think maybe you can have inflation. But since I think the 06-07 economy was based on home equity loans and other cheap credit that wont be coming back, I dont see any chance of a strong economic recovery. What we are seeing now is simply an inventory adjustment cycle. One can only put off a new refrigerator or stove or car for so long.
jmski52
I am just stating that inflation is not an inevitable. And if I had control I would make sure it doesnt happen. Ask yourself this, what would be the best way to keep entitlement programs in check? By not having cost of living adjustments. Wouldnt it be better for the Govt to manipulate prices down so that they dont have to pay so much in the future.
China and Japan are our biggest creditors holding about $1.3 trillion in debt. They say we there is $3.9 trillion in cash sitting on the sidelines in the USA. How about issuing $1.3 trillion in debt to Americans at 7%, pay off the Chinese, and then pay ourselves the interest. The money stays within the USA which in turn will promote domestic growth and savings.
Knowledge is the enemy of fear
Does it not seem just a little odd that several days before one of these big auctions, gold, silver, oil, etc. all start dropping in price, and right after the auction the prices start going back up?
Everyone keeps looking for the old ways inflation can come into the system. Too much money chasing to few goods!
In days past this was done by private industry raising wages etc., but you can have hyperinflation with the government printing the money and handing it out like candy.
As we go forward more that 50% of all Americans will be getting government checks in one form or another.
These checks will be issued for producing very little in the way of products and services.
AIG is government, Citi bank will soon be, GM, Chrysler, Fanny, Freddie, all government employees at every level, all social Security, Medicare, etc.etc.
What will happen when all of the trillions in notes and bonds wants to go into hard assets?
What happens when the interest rates do go up and the interest on the debt becomes a trillion per year that has to be rolled?
How many games of hide the notes are being played now with the Fed buying 180 billion in treasuries?
This is the biggest game of musical chairs ever conceived of, and the chairs are being eliminated each and every auction.
When the panic starts it will be to late for planning.
My humble advice is stay the course we have been discussing here the last few years, and protect what you can!
Not as easy as it may sound...
1. Maybe a better cash position is called for. Not cash in the bank but cash (USD) stashed some place where you can get to it, maybe a couple of months worth or more.
2. PM is good but getting tricky if the govt. starts wanting to place some controls on the purchase and sale, maybe small denominations that you don't have in the sdb.
3. Funds and investment accounts...hummmm, this is a crap shoot, recently tried to get some money out of a fund and had to listen to 25 minutes of why I shouldn't do it including admonitions that the govt. is going to tax 20% of it as soon as I get it and then concluding with a brief discussion of them asking "What are you going to do with it?" I replied PM (not that it's any of anybodys business but mine) and he responded it is just so volitile and then I countered with "More volitile than the stock market?" and that ended the discussion. Then I accused them of just buying DOW 30 indexes and letting it ride while they charge us for management expenses...that didn't go over well and then I followed with...Why didn't you just go all in with F at 1.29 and we'd all be at 300X instead of losing $. Still trying to get my money out. Go ahead and try it for yourself, just to see what happens, you may be suprised.
4. Buy and hold investments...nah.
5. Realestate...maybe, but you should have in place a quick exit strategy. Now if buying a place in the country where you can grow some food, have a well and electricity and maybe a little fishing lake/pond...yeah. Methinks the urban centers are going to get quite dicey quite soon. Spend a little time getting it ready while you live in the city and when things get ripe...you're outta there.
6. Coins, difficult call but it's hard to let them go; maybe trim the herd a little to lessen the exposure some.
7. Debt...if it's more than 6% interest get rid of it as quickly as you can. Do not use any of the big boys, they are gonna be gaming you big time. Edited to add: think credit unions here, they manage their exposure very well.
8. Hunker down, get that way and stay that way, this is gonna get a lot worse and it will happen quickly as in cascading effect.
The above observations are simply my humble opinion but if you are going to do something, don't be thinking about it, do it as quickly as possible...be prepared, pay attention, have a plan.
Peace
<< <i>As we go forward more than 50% of all Americans will be getting government checks in one form or another. >>
<< <i>These checks will be issued for producing very little in the way of products and services. >>
////////////////////////////////////////////////////////\\\\\\\\\\\\\\\\\\\\\\\\\\
We're very close to the 50% point now if we haven't already passed it.
The amusing thing is that many in Washington see this as a "solution" and not as a problem.
Agreed. There are numerous examples of strong/hyper inflation througout the 20th century. And for the most part they were not inspired by consumer demand nor increasing wages, but simply creating too much money. It didn't matter if the business climate was good or bad. But usually it's the result of the govt adding too much liquidity as a way out of a downward economic spiral.
How many games of hide the notes are being played now with the Fed buying 180 billion in treasuries?
The game has been escalated to hide the "money supply." M3 was eradicated and M1 is now understated by about 50%. The $750-$775B in commercial bank deposits now sitting at the FED only appear in M0. This was never a big problem before because for at least the past 30 years, no banks have bothered to leave money on deposit with the FED other than the minimal required reserves. Those were negligible in the big picture. But not now. Since the FED is now offering interest (rather than a storage fee), the money sits at the FED until the point when the FED decides to start charging money for storage. Prior to the money infusion in 2008, M0 trailed M1 by $550B. Add that to the current M0 number of $1.8T and you get $2.35T for an "effective" M1, far larger than the $1.6T as reported.
The yoy increase of 112% in MO is far more representative of what's going on than the 16% yoy increase in M1.
roadrunner
Can you name any that occured with a reserve currency?
Knowledge is the enemy of fear
That sort of implies that a reserve currency can not be or has a small chance of being hyperinflated. From world history, Rome, England, France and others could probably attest to the contrary. In the 20th century post WW2, China, Japan, and Russia all attained hyper-I status, though none were reserve currency holders, but at the time were advanced industrialized nations. Only England and the USA have held Reserve Currency Status in the 20th century. England's inflation rate in the 1914-1918 period peaked at 25%, imo that's hyperinflation. And this was sort of the final twilight period for the British Pound as the USA started becoming a top contendor for world's strongest currency, as both nations started ignoring the gold standard.
The USA reached the 18-20% level in the 1970's, an annual rate also nearly achieved for several years in the 1916-1919 era. And while the 1970's may not have reached the definition of 20/50/100% that some define H-I to be, it bears further watching considering our currency and financial situation is today far worse.
UK inflation rates
roadrunner
After WWII, China, Japan, Russia, did experience inflation and they were "important" economies. I believe however that that inflation was caused by the complete disruption of the supply/demand equation. Same for England, USA and Germany durning and after WWI. There were massive supply/demand shocks then as well as in the USA in the 1970s.
So there still hasnt not been any inflation associated with the sole criteria of printing money. It all comes down to a supply/demand shock. Even the widely watched Zimbabwe situation comes down to massive supply contraints brought about by price controls and a chaotic govt.
Knowledge is the enemy of fear
The following article suggests that lending by the banks will recommence when the FED and govt are satisified with new controls placed over the system (ie that they have increased their controls to a higher level).
Droke and Bernanke on lending during the Great Depression -
Even the widely watched "XXXXXX" situation comes down to massive supply contraints brought about by price controls and a chaotic govt. .....insert your favorite western govt in the XXXX's. It seems each one is trying to outdo the next guy with price controls, loose money, nationalization, induced shortages, chaos, etc. Zimbabwe may have just provided the 21st century roadmap...........
Where your money went. List of programs and companies receiving money adn how much they got..
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>This was offered up on Ackerman's website as one possible way to pay off debts: “It is the month of August, on the shores of the Black Sea . It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. “Suddenly, a rich tourist comes to town. “He enters the only hotel, lays a 100-euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one. “The hotel proprietor takes the 100-euro note and runs to pay his debt to the butcher.“The butcher takes the 100-euro note and runs to pay what he owes the pig farmer. The pig farmer takes the 100-euro note and runs to pay his debt to his supplier of feed and fuel. “The supplier of feed and fuel takes the 100-euro note and runs to pay his debt to the town's prostitute that, in these hard times, proffered her ‘services’ on credit. “The prostitute take the 100-euro note and runs to the hotel to pay for the rooms she rented when she brought her clients there. “The hotel proprietor then lays the 100-euro note back on the counter so that the rich tourist will not suspect anything. “At that moment, the rich tourist comes down after inspecting the rooms, takes the 100-euro note off the desk, tucks it back into his wallet, and explains that he did not like any of the rooms. He then leaves town. “No one earned a penny. However, the whole town is now without debt and looks to the future with great optimism. roadrunner >>
Cute, but someone lost $100 in your story. Can you see who? >>
Yes, the hotel proprietor watched the €100, which was the debt owed to him by the hooker walk out the door. bumanchu Edit: for some reason the post with the correct answer did not show up when I was just looking at this thread and neither did my answer after posting, until I "turned the page"'. Weird...... >>
Wait just a darn tootin minute: no one LOST money. The hotel prop lost only potential income. No one won or lost.
<< <i>Well, yes, I am kind of implying that. After WWII, China, Japan, Russia, did experience inflation and they were "important" economies. I believe however that that inflation was caused by the complete disruption of the supply/demand equation. Same for England, USA and Germany durning and after WWI. There were massive supply/demand shocks then as well as in the USA in the 1970s.
So there still hasnt not been any inflation associated with the sole criteria of printing money. It all comes down to a supply/demand shock. Even the widely watched Zimbabwe situation comes down to massive supply contraints brought about by price controls and a chaotic govt. >>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Ummm......how would you answer this question? In high school, I earned about $2500 in my part time job in 1970. Today that amount would equal $13,779. My math tells me the dollar is worth 20 cents (roughly) compared to about 40 years ago.
Is that price inflation or dollar deflation? What caused it?
Many people can argue convincingly that the Fed's ability to create money out of thin air is the main cause of inflation over the decades. I'm firmly in that camp.
Lots of good information available online about the cause and effect of adding more 'fake' money to the system. Considering greenspan added more during his tenure than
the entire history of the Fed, then along comes 'non-disclosure' of the amount added each year, then comes the huge amount reported publicly in the press the past 24 months........
YIKES, yes there will be inflation. Or devaluation if inflation becomes too high.
Either way, no matter how you want to protect your assets, there really is no where to run, no where to hide, because it's all subject to govt. manipulation.
Every single asset can be depreciated to zero; wages can be frozen; PM can be illegal, and not just new PM;
Sorry for rambling...........10 years ago, I thought the above was silly for an educated person to believe...now I've reversed my belief just by observing govt. actions which have
affected me.
Then I look back another 10 years to the 1986 tax law which was simply stated: pure FRAUD. I got taken to the cleaners, and so many people I know were wiped out
overnight by the depreciation portion alone. Oh, and the reason the laws were on the books in the first place: to stimulate the economy due to the 1981 recession.
Edited for clarity.
Is that price inflation or dollar deflation? What caused it?"
Of course this inflation, but it really isnt what we are talking about. A couple % inflation every year isnt really a bad thing. If the dollar is worth 1/5 as much but you are now making 5x more, is there really a problem? It is just when prices increase faster than incomes when a problem arises. This inflation has been caused by a huge bulge in the population that has created disruptions all along the curve. There was a housing bubble in the late 80's as the boomers were in the peak of family formation. We had a bubble in stocks in the 90's as boomers finally had some disposable income and discovered online trading. Now we have inflation in health care as the boomers encounter health problems associated with aging. Predict the demands of this group 20 years from now and you will have found the next bubble.
Knowledge is the enemy of fear
A couple percent per year inflation is insidious and works to slowly transfer wealth from the poorer groups to the wealthier groups. It may take 100-150 yrs for the full effects of this transfer to be felt, but it is being felt. While one can focus on the "average" couple percent per year over the past 96 years, it is the swings of 6-20% followed by FED induced contractions that really transfer the bulk of the wealth. As Keynes noted, the process is unrecognizable to less 1 in a million people.
If you go back to the 1970's average inflation adjusted wages have declined. We discussed this a few weeks back. I believe 1973 was around the peak year for real average wages. If you go strictly buy the Govt's post-1983 CPI you will come to an erroneous conclusion as to what overall price inflation has been. Temper this with the fact that due to owning the reserve currency the US effectively exported the largest chunk of its inflation to emerging economies overseas. But, it is now working its way back to us. Also factor in that it takes 8-20 years to fully reap the "rewards" of commodity price inflation. The total effects of the money supply going into over-drive starting in 1996, won't be fully seen for years to come. In other words prices will outpace wages more than they did in 2003-2007. The monetary excess of 2008-21XX will take a long time to play out.
The inflation wasn't really "caused" by the baby boom but because of out of control spending policies, the shift to pure fiat in the 1970's, a budding military industrial complex that required feeding, and a power shift in congress to pander to lobbyists and special interests. This would have happened with or w/o the baby boomer growth. I will agree that it accelerated and even accentuated the process. But the US was merely taking the next sequential steps in a maturing society. Where the baby boomers responsible for removing silver coinage in 1965? Eliminating the gold standard in 1971? The space race? The Vietnam War? The 1960's Great Society programs? Growth in military spending or size of govt? And most importantly, did the boomer generation cause the US to come out of WW2 with the world's reserve currency, "as good as gold"? Wouldn't these same events have occured with or w/o the boomers?
A sensible policy would have been to increase the money supply at about the same rate as the population growth. But that was not done. In fact the money supply was ramped up to a 10% yoy average starting in 1996....basically to turn the economy around following the doldrums of 1990-1995. We didn't experience 10% pop growth in the last 13 years. And even with these dislocations caused by the boomers into the 1990's, the fallout would have at best been moderate if allowed to occur naturally in 1999-2002. Instead, the securitization mania which started around 1998 went into hyper-drive. Of the problems we are seeing today, probably 90% were caused as a result of things done following 2000. Even in 2002 the total number of otc derivatives was still only around $100 TRILL. A big number indeed, but fixable. That was increased by another factor of 10X over the next 6 years. That, is the source of most of our finanical woes, not the baby boomer dislocations....unless you want to blame the baby boomer bankers, insurers, and politicians for feeding into the frenzy rather than taking their medicine in 2002.
This mess would have still been created w/o a huge baby boomer generation to feed and maintain. The problem was not 401K's or even on line trading...but a greedy financial elite that was well-connected and figured they would allow the game to continue, then shift their losses on to an unsuspecting electorate. The process would have taken longer w/o a baby boomer generation to accelerate it, but it would come nonetheless. We still have 1 President and his administration, 100 senators, and 435 Congressman. The boomer generation growth didn't affect that. A little bit of restraint was the answer all along. I think it's too convenient to blame the population growth of one generation for the bulk of today's financial ills....unless we want to blame our own apathy in letting this occur by who we elected to office over the past 10-25 years and not holding them accountable for sensible choices.
Has there ever been a reserve currency in history that inflated at 2-3% average annual rates for 80-100 years that enabled the economy to continually prosper with an average higher quality of life throughout the nation or that didn't destroy the currency via inflationary effects?
It's easier if we just blame it all on Keynes.
roadrunner
Some tidbits: In Germany there is an 8% tax on income that goes directly to the church fund and distributed to the churches. Even though traditional churches are relatively empty the government says they do good work and therefore they need the money. Germans can opt out after some time. My uncle says that health care was great but now sees a huge degradation and worries about the next generation.
In Belfast, if you are hurt and bleeding they people know to pack some change of clothes and food before they go to the hospital because of the wait. If you have a slight heart attack your wait is reduced to two hours. Also, there is a two hour wait for the police to come out if you have suffered a robbery. But if you speed you are caught immediately because of the cameras.
The younger generation is concerned about work. On the outside it looks as if everyone has a few "quid" or euros in the pocket and go shopping in nice new city centers...yet many seem not to be working. They say many are living on credit...sounds familiar.
My aunt in Berlin said while we were driving around town..."communism is great if it weren't for the people." Some nuances lost in translation but this was a lady who lived in free Berlin, Soviet Berlin for 28 years and back to free Berlin for the past 20 years. Her reflections were priceless.
R95
<< <i> Predict the demands of this group 20 years from now and you will have found the next bubble. >>
That's easy .... cemetery lots and funeral homes.
<< <i>"Ummm......how would you answer this question? In high school, I earned about $2500 in my part time job in 1970. Today that amount would equal $13,779. My math tells me the dollar is worth 20 cents (roughly) compared to about 40 years ago. Is that price inflation or dollar deflation? What caused it?" Of course this inflation, but it really isnt what we are talking about. A couple % inflation every year isnt really a bad thing. If the dollar is worth 1/5 as much but you are now making 5x more, is there really a problem? It is just when prices increase faster than incomes when a problem arises. This inflation has been caused by a huge bulge in the population that has created disruptions all along the curve. There was a housing bubble in the late 80's as the boomers were in the peak of family formation. We had a bubble in stocks in the 90's as boomers finally had some disposable income and discovered online trading. Now we have inflation in health care as the boomers encounter health problems associated with aging. Predict the demands of this group 20 years from now and you will have found the next bubble. >>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Ahem......my pay was $5 an hour back then, 10 hours a week = $2500. Today a dishwasher (at $5/hr. in 1970) doesn't make $25 an hour today, which is what it would be if wages kept pace with inflation. That's the difference I'm referring to. People are not making anywhere near what they made in 1970.
Edited for clarity
Full senate report is referenced in the above link.
Last week the Senate issued a report that approx 25-30 index funds were responsible for speculating on wheat price futures that basically disrupted the price discovery mechanism. They found that the CFTC's willingness to raise the limit on the amount of long positions a fund could take was not in the best interests of fair commodity trading. The Senate suggested lowering those limits substantially to minimize the % of market share that these funds can assemble. These index funds were apparently passive speculators since they held their positions in 2008, even after wheat prices fell.
OK, so Senate "speculation" qualifies as having up to 25-30 "passive" participants that are taking longer term positions in the market at a position limit of 0.16% of annual world wheat production. So what would they call the Comex Silver market? There you have only 2 to 3 huge banks taking up to 80-96% of the total short positions who actively trade the market on daily basis with a position limit of 4.5% of annual global silver production. The CFTC limit on Comex silver positions is equivalent to 83% of US annual silver production.
Maybe we should be thankful that only 2-3 US banks play this game rather than 25-30. The real slam dunk in silver speculation is not in the Comex but rather the $190 Billion in silver derivatives held by 2-3 banks (equivalent to 50 years of annual global production). That position is held just in case of the 100 year black swan event where a method is developed to easily extract silver from seawater.
One explanation as to why a doubling of the FED reserves, even if not lent out, is inflationary
Manipulation via US oil and gold swaps?
roadrunner
no i guess not being from the midwest their is no doubt in my mind why! wheat when higher
jmts
I'll worry about this if I live 150 years.
The inflation wasn't really "caused" by the baby boom but because of out of control spending policies,
I wholeheartedly disagree, but that is probably a topic over over a few beers.
I do believe we are in store for a massive deflationary bout, whether that occurs next year or in 20, it will occur. Make money for today, save for tomorrow.
Ethanol is a farce. The local Miller brewery went out of businees a few years ago. They converted it to an ethanol plant at a cost of about $10 million. It went bankrupt without producing a single drop of ethanol. This "ethanol" policy has done nothing but take food from the mouths of babies. US farmers are the most productive in the world. They always meet demand.
Mr Pento,
This is the funniest comment I have ever read in print.
The dollar price of gold increased from just under $840 an ounce to $980 from the end of August 2008 thru the end of May 2009 time frame. That means gold rose over 16% while the US dollar declined just over 14% against the yellow metal.
Only this statement is more ridiculous.."The dollar price of Citigroup increased from $1 in Mar 09 to over $4 in May 09. That means Citigroup rose over 300% while the US dollar declined over 70% over a nationalized, insolvent bank."
People, follow the charts. If/when gold breaks over $1010, buy it. Dont make excuses about why it did or didnt move. Look, I want gold to break $1010 as it will be a tremendous trade, but what if after 2 years of the most tumultuous times in American history, gold doesnt move. Then what? Do we wait for another 2 years for the "promise'? For the inevitable? For the conspiracy? What is the opportunity cost?
Be smart.
Knowledge is the enemy of fear
> but what if after 2 years of the most tumultuous times in American history, gold doesnt move. Then what? Do we wait for another 2 years for the "promise'?
Good point. I can remember back in the 70's it was said this same gold thing would be happening ... soon
A similar comparison could have been made for getting out of stocks for good in October 1987 or at any number of points leading up to 1999. Bull markets take a long time to play out. Gold is now in its consecutive 8th year up. My only question is where do you put your money to work in the current situation if one is not willing to wait for the next inevitable gold move with an impending deflationary bust looming on the horizon? Cash? CD's? Tbills? Bank Stocks? Reits? Is the stock market ready for another 30% move while gold languishes? Sometimes sitting with minimal risk is the best play for the masses. Most of them now wish they had settled for zero return, and a loss of "opportunity" rather then being in stocks from 2007-2008. Many wished they had been out of them even years before then. Some lost opportunity!
Do we wait for another 2 years for the "promise'? For the inevitable? For the conspiracy? What is the opportunity cost?
The conspiracy has been here for 10-15 years or longer (possibly for 95 years), one doesn't have to wait for that. You won't have to wait any longer than May 2010 to see if gold puts in another record high. If we get to then without a new all time high and gold still <$1000, cash in your chips my friend as the gold bull will be dead.
But fwiw, gold has been basically on a 2 year cycle with strong moves peaking in 2004, 2006, and 2008. You don't have to wait 2 years from now since we are only 9-11 months aways from when previous peaks occured. If anything, the cycles from here will become more compressed. Do I mind waiting until May 2010 to find out? Not really.
8 straight years gold has closed higher on December 31st. Now if the stock market had done that, everyone would be proclaiming a perpetual bull and be in La La Land. But in gold, it's just another reason to have to "wait" for the promise to appear. In the meantime gold has tripled in price against a Dow that has fallen 40%. Gold protected one's assets perfectly since 2001 and increased their value 3.7X. Seems to me that the promise was kept for gold, but certainly not for the manta of long term holding of stocks, esp. those of insolvent and effectively nationalized banks. Let's see how 2nd quarter earnings for the banks look after all the accounting tricks were used up in the 1st quarter to show "profits." After remarking toxic assets back to "myth," they can always mark them to "myth+10%."
roadrunner
That is exactly what concerns me. If it is higher this year, that makes 9 years. And if it gets that breakout but May 2010, that would make 10 yrs. I cant think of anything that has had that kind of run.
But lets just say that by May 2010 gold is at 800 and it is obvious that it wont breakout. Wouldnt it be better to just sit in cash rather than sitting with the "opportunity" to lose 15% from todays price.
I just dont want to see the word "gold" substituted for the words "stock market" in your above example 2 years from now. Your arguement about the stock market not making anyone money for the past 15 years is the same one that the gold bears use about no one making money in gold for the past 30 years.
As I've said numerous times, every asset class has its day in the sun, hopefully it is just cloudy for gold.
8 straight years gold has closed higher on December 31stNow if the stock market had done that, everyone would be proclaiming a perpetual bull and be in La La Land
Why should the psychology surrounding the gold market be any different than the equity market? Are you not saying gold is in a perpetual bull market and in La La Land?
Knowledge is the enemy of fear
Gold hasn't really had a straight 8 year run when you consider the long lay offs from May 2006 to August 2007 and then from March 2008 to today. In fact the stock market had basically a 25 year run from 1982 that puts the gold bull to shame so far. Maybe it didn't close higher on Dec 31st for X number of years, but the trend was incredible when not considering dollar inflation.
But lets just say that by May 2010 gold is at 800 and it is obvious that it wont breakout. Wouldnt it be better to just sit in cash rather than sitting with the "opportunity" to lose 15% from todays price.
The value of gold right now is more than just waiting for a possible big move or trying not to lose 15%. It really comes down to a black swan type of event where people will have little to no time to react. And these so-called black swan events have now been happening with regularit. It will be just be there in your face one morning when you wake up. One doesn't buy insurance based on daily market fluctuations. You buy it to protect your family and get it when you first need it.
I use the stock market against gold because it's where most people have invested their monies over the past 15 years vs a commodity where almost no one has money invested. When the stock market starts outperforming gold yoy then I'll reconsider the value of stocks. But for now, they are in a secular bear market. Gold is about 50% behind published govt inflation stats over the past 29 years. The stock market is still many multiples above that level. There is still a lot of paring that needs to be done to restore the balance of commodities/gold to stocks and other assets. When that has been achieved then one can consider the next 20 year run in stocks. For now we must wait for that guy who has been holding gold since 1980 to start making some inflation adjusted money.
Why should the psychology surrounding the gold market be any different than the equity market? Are you not saying gold is in a perpetual bull market and in La La Land?
It may be so. But when looking at the number of negatives out there against gold, it still looks to be a baby bull. But look at what the world and esp. the USA still thinks of gold: barbarous relic, central banks only sell it, overpriced, useless, it "always" falls just when the big crisis hits, if it can't get going after 2008 there is just no hope, etc. The vast majority of Americans have no gold and could care less. Doesn't seem like a perpetual bull. And gold performs best when things are the most out of whack. We're not at that point yet. Gold could probably be in a bull market for 20 years and no one in the US would take notice or really care.
roadrunner
<< <i>When evaluating whether gold has gone anywhere, one must not forget the dollar index. At the $1033 peak last year the USDX was at .71. In the 2 attempts at $1000 so far this year, the dollar was much stronger, in effect making those lesser highs actually higher highs when dollar adjusted. And isn't that what it's all about, how assets compare to the dollar?
roadrunner >>
yes, it says that the make-up (values) of the USDX currencies are weaker.
it would seem that a line will be drawn between just gold and the USD at some point in the future.
I just closed my parents home that I lived in while in H.S. My dad bought it in 1967 for $27,000 and it closed at $910,000. Last year I sold a rental in Los Gatos that I bought on the courthouse steps in 1982 for $107,000 and it closed at a little more than 800. Cal RE has done well IF you had a location that did not go to the dogs. Buy the school district and you seldom go wrong out here.
This is the time when cash talks and as I understand from a couple of friends who were at Pheasant Run CC...a couple of corvette dealers are in a cash flow crunch right now and the sharks are circling the waters.
Oh, and by the way....in 1971 as a freshman at Cal...during the summer I made over 9 bucks an hour as a janitor and got 7/8 of a day sickleave per month....I'm sure that some freshmen would be happy with that as a summer job in 2009.
Back to nite school to bone up on how to make a living.
Stocks aren't likely to start doing much of anything. PE's are sky-high, which implies that one of two things must occur before stocks become desirable:
1) Stock prices must fall to bring PE's within their historic ranges, or
2) Earnings must increase.
Since PE's are likely to fall for at least one of the two above reasons, it seems to me that gold could stagnate and be a much better investment for the foreseeable future.
I knew it would happen.
They are also doubling the monthly payment requirement on some balances. I have a balance on one of my citi cards with a rate of 2.99% fixed til I pay it off which is a good deal I entered into about 2 years ago. They don't like that so they are doubling my monthly balance due now. I believe they are trying to get me to default so they can charge me 30% but that won't happen.
Box of 20
This sounds a lot like our system where the Fed just makes up billions in electronic money.
Isn’t electronic money Virtual Currency?
Perhaps this is a new world trend, you live in a crummy house and wear rags, but on line you are rich beyond belief.
In China, New Limits on Virtual Currency
By DAVID BARBOZA
Published: June 30, 2009
SHANGHAI — The buying and selling of the make-believe currencies used in online gaming has become so widespread that Chinese authorities fear it will affect the real economy.
To quell that threat, those authorities said on Tuesday that they had issued new regulations aimed at restricting the trade and use of virtual money.
China is one of the world’s biggest markets for huge so-called multiplayer online games like World of Warcraft, and tens of millions of young people are believed to be trading virtual goods and credits for real goods and cash.
The coin of fantasy realms have already moved markets here. So-called QQ coins — a form of currency produced by the Chinese Internet giant Tencent — have sometimes risen sharply in value against China’s official currency, the renminbi, alarming officials at the nation’s Central Bank.
Some people have even traded virtual currencies in China, and exchanged them for clothes, cosmetics and other goods.
Last year, nearly $2 billion in virtual currency was traded in China, according to the China Internet Network Information Center. Some experts say they believe there is a much larger underground economy in the virtual world.
Most of China’s big Internet companies — like Sohu.com, Netease and Tencent — have some gaming component and virtual currencies have grown up alongside many of them.
Some smaller gaming companies have even set up what are called virtual sweatshops, cramped quarters where young people play online games to earn credits that the companies then sell at a profit to overseas customers in Taiwan, South Korea and even the United States.
This practice is popularly known in the online gaming community as gold farming.
Many online marketplaces, like eBay and China’s Taobao, even have online advertisements offering virtual goods for sale, like World of Warcraft gold coins and virtual swords for the game Legend of Swordmen.
Edward Castronova, a professor of telecommunications at Indiana University Bloomington who says he believes virtual currencies could pose a threat to world economies, applauded Beijing’s move.
“This action shows that at least one government is concerned about the way virtual worlds challenge its control of society,” Professor Castronova said in an e-mail message Tuesday. “As virtual currencies take over more and more purchasing power, control over the effective money supply shifts from the central bank to the game developers."
What a riot! If I had to put money on who is smarter and most likely to win this faceoff, I'd have to go with the gamers.
I knew it would happen.