About Deflation...

jmski52 · January 22, 2012 10:00AM

Interesting stuff. They disagree with each other, but I agree with both of them.

Antal Fekete, agreeing with cohodk for various reasons... *link not fixed*

Jim Willie, disagreeing with cohodk for various reasons... *link not fixed*

Sorry guys, I tried to fix these links and I think it is the site that won't allow a live link directly to the article. Grrrrrr.

Justacommeman · January 22, 2012 10:06AM

<< Interesting stuff. They disagree with each other, but I agree with both of them.

Antal Fekete, agreeing with cohodk for various reasons...

Jim Willie, disagreeing with cohodk for various reasons... >>

I'm not sure it matters what it's called. MJ

derryb · January 22, 2012 10:56AM

all that new money will get flushed out sooner or later.

DoubleEagle59 · January 22, 2012 11:55AM

Gold can still rise in a deflationary period.

History has proven that.

yellowkid · January 22, 2012 11:43PM

Something happen to those links????

jmski52 · January 23, 2012 12:18AM

Grrrrr. I don't know, but they want a subscription to read them? They were fine yesterday...sorry.

bronco2078 · January 23, 2012 1:04AM

if I read a lot of articles on that site it will pop up a banner saying I have exceeded my monthly freebies and I need to register. When that happens I clean my cookies and I can read the articles again. Maybe you were on the edge and it triggered the link to go astray and pop up that message for everyone somehow.

derryb · January 23, 2012 1:22AM

<< Gold can still rise in a deflationary period.

History has proven that. >>

Our current policy of central bank economics will dictate which assets rise during a period of deflation. The FED's prime choice has always been equities with a strong dislike of PMs. If i did not see deflation ending down the road to be followed by some serious inflation, I would not personally be heavily in PMs.

derryb · January 26, 2012 1:14AM

Bernake has tripled (inflated) the money supply during his tenure. The reason we currently do not see price inflation is because most of that new money has not hit the marketplace. The TBTF banks that received it (at a low interest rate) are keeping it parked in the federal reserve (at a higher interest rate) and are actually profiting by doing so. But make no mistake - when banks see a greater return in releasing that money into the market via loans or private investment by the banks, price inflation will result. It is simply a compressed spring that will release massive inflation when released. Given the huge amount of money we are talking about it will eventually result in huge price inflation.

Think of the marketplace as if it were a coin auction. Everyone at the auction has $100 to spend. Someone walks in and gives everyone and extra $100 to bid with. Guess what happens to prices realized.

Additionally, given the history of fractional investing by the TBTF banks, when they do decide to invest that money elsewhere it will be in large multiples of its actual value. The result will make the 2008 financial crisis look like a picnic.

topstuf · January 26, 2012 1:51AM

Gold no longer needs inflation to rise in price. Deflation will do just as well.

So much trust and so many assets and so much opportunity has been destroyed that collapse is now the only possible scenario.

Savers have been gutted by low rates. Consumers don't have a chance in hell of finding good wages. Companies have lost their consumer base so there is no earning capacity except among a very few industries and that isn't enough to go around.

Gold will now confirm what its detractors always said.

It will revert to an "archaic" asset and be the only one that is infinitely storable. Thus, kicking and screaming, conventional thinking will be dunked into realization that fundamentals DO matter.

Gold is money. Always has been. Always will be. Chickens are roosting.

derryb · January 26, 2012 1:59AM

gold knows inflation is a compressed spring waiting to be released. It's baked into gold's price.

Baley · January 26, 2012 2:34AM

it will eventually result in huge price inflation

Gosh I hope you are right! My house will go up in value, and the mortgage loan will be so easy to pay by selling a little gold (not to mention that wage inflation should also go up in a general inflationary environment, also making a fixed loan amount easier to pay)

What I'm more worried about is asset, price, and wage deflation which would make the opposite happen

topstuf · January 26, 2012 8:21AM

Think of gold like Berkshire Hathaway. Huge price coming on fundamentals.

The bad news is that the fundamentals are going to consist of TERRIBLE news.

This is a wet dream for the super rich. Assets flopping and costs rising. Translates to BARGAINS!

And gold is the money of kings.

Berkshire was the darling of the stock era. The darling of the coming...... scratch that.... CONTINUING.. gold era is... well, gold.

Gold thrives on collapses of frauds and irresponsible behavior. I'd say there's been plenty of that.

Make mine gold, Jeeves.

roadrunner · January 26, 2012 8:54AM

Don't count on your house going up in value, unless you live in a growing community with fine schools and services, and little debt.
Most homes will be stagnant or declining in price as gold heads up over the next 3-7 yrs.

Gold has historically done its best during deflationary or stag-flationary times. But a feather in its cap is that it even did fine during the
inflationary run from 2002-2008. But note it did terrible during the inflationary run from 1982-2000. As long as real interest rates are negative
gold will do fine. Gold is more than happy with the bonuses of $1.1 QUAD in derivatives, tons of debt, and lack of confidence in govt and fiat currencies.
Those things are the rocket fuel.

Justacommeman · January 26, 2012 9:04AM

don't confuse disinflation with deflation

MJ

jmski52 · January 26, 2012 9:31AM

As long as real interest rates are negative gold will do fine.

Yep.

Baley · January 26, 2012 10:14AM

Don't count on your house going up in value, unless you live in a growing community with fine schools and services, and little debt.
Most homes will be stagnant or declining in price as gold heads up over the next 3-7 yrs.

I do live in such a community, but even if not, houses won't go up in value in a general inflationary environment?

Will lumber and copper and concrete go up? what about labor and hammers and nails? what about carpet and granite and appliances and electronics?

Are you saying those things won't go up in a dollar declining, gold going up, inflationary environment? Or will everything houses are made of go up but finished houses won't?

I'm trying to understand how the dollar can devalue so much, but be so selective in which things go up in price and which ones don't.

thanks

Justacommeman · January 26, 2012 10:23AM

<I'm trying to understand how the dollar can devalue so much, but be so selective in which things go up in price and which ones don't>

It's a very fickle beast

MJ

cohodk · January 26, 2012 11:55AM

<< don't confuse disinflation with deflation

MJ >>

Which is where I am usually misunderstood as I am probably more of a disinflationist than a deflationist. However, I would welcome a nice bout of deflation, especially in my favorite Mexican restraurant.

derryb · January 26, 2012 12:13PM

I'd like to see us caught right in the middle; price stability.

derryb · January 27, 2012 2:42AM

It really is all about the dollar:

Baley · January 27, 2012 4:28AM

aren't the labelled indicies backwards? (I read the red line on the left scale and the blue line on the right)

Nevertheless, in the time frame referenced, the dollar index is down from about 110 to 70 (-36%)
While gold is up from $250 to $1750 (+600%)

Is any other commodity up several hundred percent over the past decade? Or are most of them up (adjusting for seasonality and normal market gyrations) more like, oh, I don't know..... 36%?

quibble with the exact figures if you must, but I'm more interested in learning why gold has gone up so much more than anything else.

PS: overlay a graph gold ETF assets and trading volume on those graphs

Justacommeman · January 27, 2012 4:47AM

<quibble with the exact figures if you must, but I'm more interested in learning why gold has gone up so much more than anything else>

It is shiny my precious. MJ

cohodk · January 27, 2012 4:51AM

Baley,

Corn was about $2 in 2001, now 6.50.
Copper was 90c, now 3.90.
Wheat was 2.50, now 6.50.
Oil was 33, now 100.

The above are all relatively at the same price today as in 2007. Just as the dollar index is roughly at the same level as 2007.

Palladium is about the same today as the average price in 2001, however, palladium was as high as 1100 and as low as 310 in 2001.

derryb · March 2, 2015 3:30AM

David Stockman: Deflation is a result of all of the money printing

"massive money printing by central banks on a worldwide basis is inherently deflationary for two reasons. One, it fuels massive financial speculation. When we talk about speculation, we're talking about professional gamblers who borrow 95 cents and use that borrowed money that they pay practically nothing for to buy stocks or bonds or commodities or derivatives or biotech stocks and so forth as I indicated. All of that buying power is artificial. That is not coming from production today, real effort in the economy. That's coming from newly minted credit.

So it takes asset prices to unreasonable, unsustainable levels. They crash, and that creates a negative economic cycle. Secondly, massive money printing makes capital and debt too cheap to the real sector of the economy. So therefore, massive capital investments are made on the basis of cheap cost of capital, not on the basis of the likely return or sustainable return over time."

In other words, Central Banks are creating deflation. Are they smart enough to realize this?

mariner67 · March 2, 2015 7:22AM

<< David Stockman: Deflation is a result of all of the money printing

"massive money printing by central banks on a worldwide basis is inherently deflationary for two reasons. One, it fuels massive financial speculation. When we talk about speculation, we're talking about professional gamblers who borrow 95 cents and use that borrowed money that they pay practically nothing for to buy stocks or bonds or commodities or derivatives or biotech stocks and so forth as I indicated. All of that buying power is artificial. That is not coming from production today, real effort in the economy. That's coming from newly minted credit.

So it takes asset prices to unreasonable, unsustainable levels. They crash, and that creates a negative economic cycle. Secondly, massive money printing makes capital and debt too cheap to the real sector of the economy. So therefore, massive capital investments are made on the basis of cheap cost of capital, not on the basis of the likely return or sustainable return over time."

In other words, Central Banks are creating deflation. Are they smart enough to realize this? >>

Wait wait wait!!!!!
I think I recall you and many others stating that massive money printing causes hyperinflation!!
And that was the stated reason to buy silver and gold as a hedge against the soon to come inevitable hyperinflation.
I have heard that on these boards many times and for years!!!
Now it is supposed to be causing deflation?

derryb · March 2, 2015 7:44AM

<< Wait wait wait!!!!!
I think I recall you and many others stating that massive money printing causes hyperinflation!!
And that was the stated reason to buy silver and gold as a hedge against the soon to come inevitable hyperinflation.
I have heard that on these boards many times and for years!!!
Now it is supposed to be causing deflation? >>

Massive money printing leads to hyperinflation. Because the QE trillions were not put into hands of the consumers there has been no serious price inflation with consumer goods. Because the funny money was put into the hands of the speculating banks there was massive asset inflation. An estimated 81% of it has been sitting on the sidelines acting as collateral for Wall Street to roll the dice with asset investment. Now that QE has been tapered asset prices are deflating which leads to a general deflationary condition. Notice how all this deflation has not had a big affect on most consumer prices? That is because QE was not allowed to push them through the ceiling only to see them crash hard when the punch bowel was removed. When and if that new money gets into the hands of consumers you will witness serious price inflation. An amount over $3 Trillion? Hyperinflation. Hyperinflation was avoided and deflation was created by hoovering Ben's helicopters directly over Wall St.

Central banks inadvertently created deflation by purposely keeping the funny money off the streets in order to prevent hyperinflation. Comprende? Should they have seen this coming? Yes and they would have if they were as smart as we are being led to believe.

cohodk · March 2, 2015 8:53AM

Stockman......hahahahahaha

Mariner67, you are EXACTLY correct. That is precisely that they said.

Central banks inadvertently created deflation by purposely keeping the funny money off the streets in order to prevent hyperinflation. Comprende?

How can someone inadvertently purposely do something?

As has been stated by some on this forum years ago, the money being printed was just to replace the money that was created (and destroyed) by the banks. There was no fear or threat of inflation at that time. So yes, someone it coming, so he must be smarter than those who didnt.

But now, as we hear commentary from the inflationists that deflation is coming, we probably should be looking the other way. I still need to produce the charts that I promised Roadrunner a few days ago--maybe tonight.

BTW---There are lots of signs of inflation in the news. Funny how the "inflationists" cant see them. LOL

derryb · March 2, 2015 10:48AM

Central banks inadvertently created deflation by purposely keeping the funny money off the streets in order to prevent hyperinflation. Comprende?

<< How can someone inadvertently purposely do something? >>

For a banking spokesperson you sure need to work on your reading comprehension. Try using a chart.

jmski52 · March 2, 2015 12:07PM

Massive money creation will cause high inflation, and that may well lead to hyperinflation. Read carefully.

High inflation is high inflation, which is a devaluation of the currency on a proportionate basis to the extent that the money is released into the system. Thus far, the banks haven't been releasing their free taxpayer-wrought money because their balance sheets were destroyed by their bad bets in the CDS markets prior to 2008. For all we know, their still trying to figure out how to pay those contracts off while they sit on their books as "assets". (They have managed to pay themselves their regular bonuses though.)

Hyperinflation is loss of confidence in the currency, for various reasons, only one of which can certainly be high inflation. If prices are going up faster than your pay, are you going to wait to make that purchase, especially if you see it slipping away?

derryb · March 2, 2015 7:20PM

Inflation over the past year (official BLS data):

Beef and veal +22.5%
Ground beef +21.0%
Steaks +14.9%
Pork +7.4%
Ham +11.5%
Whole Chicken +6.1%
Fresh Fish +3.5%
Eggs +8.2%
Cheese +7.8%
Fresh Vegetables +4.3%
Lettuce +12.2%
Tomatoes +9.6%
Coffee +6.7%
Butter +19.5%
Restaurant food +3.1%
Housing +2.9%
Hotels +7.6%
Owners Equivalent Rent +2.6%
Homeowners Insurance +5.6%
Electricity +2.5%
Water & Sewer +5.5%
Home Repairs +4.4%
Footwear +2.6%
Car Insurance +5.0%
Parking Fees & Tolls +2.3%
Medicinal Drugs +4.2%
Prescription Drugs +5.6%
Hospital Services +4.3%
Veterinarian Services +3.2%
Sporting Events +3.6%
Newspapers & Magazines +4.6%
College Tuition +3.6%
Educational Books & Supplies +6.5%
Grade School & High School Tuition +4.0%
Childcare & Nursery School +3.0%
Postage +3.6%
Cigarettes +2.5%
Financial Services +5.7%
Tax Return Prep +9.3%

Baley · March 3, 2015 12:12AM

Look at all those wonderful things to buy! And with prices up, consumers are still buying

But wai.. wha..? Where is the list of things that went down in price over the past 12 months?

Start with gold -10% and silver - 20%

bluelobster · March 3, 2015 1:03AM

Derry, did anything go down?

bluelobster · March 3, 2015 1:24AM

Don't worry about it Derry, I'm sure there is no way to copy and paste the items that went down from one of those "legitimate" blogs ;~

derryb · March 3, 2015 1:47AM

Me? Worry? I see what's coming and I have ample insurance. Our banker shills don't bother me; price of speaking up.

bluelobster · March 3, 2015 2:06AM

Banker shill? please

cohodk · March 3, 2015 3:56AM

Then why you keep talking about deflation?

One post you talk about deflation and the next is inflation. Seriously, how is anyone supposed to take you seriously?

cohodk · March 3, 2015 3:58AM

<< Inflation over the past year (official BLS data):

Beef and veal +22.5%
Ground beef +21.0%
Steaks +14.9%
Pork +7.4%
Ham +11.5%
Whole Chicken +6.1%
Fresh Fish +3.5%
Eggs +8.2%
Cheese +7.8%
Fresh Vegetables +4.3%
Lettuce +12.2%
Tomatoes +9.6%
Coffee +6.7%
Butter +19.5%
Restaurant food +3.1%
Housing +2.9%
Hotels +7.6%
Owners Equivalent Rent +2.6%
Homeowners Insurance +5.6%
Electricity +2.5%
Water & Sewer +5.5%
Home Repairs +4.4%
Footwear +2.6%
Car Insurance +5.0%
Parking Fees & Tolls +2.3%
Medicinal Drugs +4.2%
Prescription Drugs +5.6%
Hospital Services +4.3%
Veterinarian Services +3.2%
Sporting Events +3.6%
Newspapers & Magazines +4.6%
College Tuition +3.6%
Educational Books & Supplies +6.5%
Grade School & High School Tuition +4.0%
Childcare & Nursery School +3.0%
Postage +3.6%
Cigarettes +2.5%
Financial Services +5.7%
Tax Return Prep +9.3% >>

So this Govt data is true, but all other Govt data is false?

derryb · March 3, 2015 5:17AM

<< Then why you keep talking about deflation?

One post you talk about deflation and the next is inflation. Seriously, how is anyone supposed to take you seriously? >>

Consumer price inflation, asset price deflation. Try to comprehend two things at once.

<< So this Govt data is true, but all other Govt data is false? >>

Who said anything about "true?" I only said it was "official." You're the one who insists govt. data is true.

cohodk · March 3, 2015 6:07AM

<< 

<< Then why you keep talking about deflation?

One post you talk about deflation and the next is inflation. Seriously, how is anyone supposed to take you seriously? >>

Consumer price inflation, asset price deflation. Try to comprehend two things at once.

<< So this Govt data is true, but all other Govt data is false? >>

Who said anything about "true?" I only said it was "official." You're the one who insists govt. data is true. >>

Oh ok..I get it now...you are back to posting erroneous information. Hard to keep up with you as you constantly change position.

derryb · March 3, 2015 6:38AM

<< 

<< 

<< Then why you keep talking about deflation?

One post you talk about deflation and the next is inflation. Seriously, how is anyone supposed to take you seriously? >>

Consumer price inflation, asset price deflation. Try to comprehend two things at once.

<< So this Govt data is true, but all other Govt data is false? >>

Who said anything about "true?" I only said it was "official." You're the one who insists govt. data is true. >>

Oh ok..I get it now...you are back to posting erroneous information. Hard to keep up with you as you constantly change position. >>

Typical. Attack the messenger if you are unable to attack the message. Quit trying to keep up with me. Your are not capable. My position does not need your validity.

Log out and log Baley in, give him a shot.

Baley · March 3, 2015 6:40AM

Gentlemen.. no need to compare members

cohodk · March 3, 2015 9:00AM

Maybe the messenger should read the message once in a while.

I see my scheme of paranoia is working,

carew4me · March 3, 2015 9:21AM

( ͡ʘ ͜ʖ ͡&#664

derryb · March 3, 2015 10:41AM

Crude Parallels: A River of Denial

" As we saw in 2008-09, oil liquidations were entirely appropriate for economic conditions; how can “everyone” deny outright something even slightly similar?"

dpoole · March 4, 2015 1:26AM

<< Then why you keep talking about deflation?

One post you talk about deflation and the next is inflation. Seriously, how is anyone supposed to take you seriously? >>

Cohodk,

I've been in the bleachers watching you (and Baley to a lesser extent) go after members here prophesizing that The End Is Nigh.

I'll have to say, though, that my impressionistic layman's perspective (foster by a childhood admonishment that you should save, stay out of debt and live within your means) has set me up to be concerned about trillions of QE squirreled away for the moment, but presumably eventually due to one way or another to make it to the street. That, combined with the presumed eventuality that the dollar will eventually be dethroned as the de facto international currency because of international dissatisfaction with that state of affairs (whether warranted or not), has me making my own financial decisions with an eye on bad times ahead.

I adhere to Baley's philosophy that one should focus on one's blessings, and know that mankind generally survives catastrophes in the end. But still--when you're not focusing on what Derryb and Roadrunner are saying, what is your perspective about where we are headed?

cohodk · March 4, 2015 2:30AM

That, combined with the presumed eventuality that the dollar will eventually be dethroned as the de facto international currency because of international dissatisfaction with that state of affairs (whether warranted or not), has me making my own financial decisions with an eye on bad times ahead.

Yup save and diversify. Always the best course.

My belief is that the "bad times ahead" will be no worse than any other times we have faced and someone with a diversified portfolio who focuses on logic and rationale will fair much better than someone who is adamant on a particular asset class and makes investment decisions based on fear and misconception borne of conspiracy and manipulation theory.

The world is not going to end and the US dollar will not be dethroned by any other country for at least several generations. There simply is no competitor.

Some view the information I present as hogwash just as I view that presented by others. Thats what makes a healthy debate. A debate that can be made even more healthy via supporting data and research rather than hyperbole, rhetoric and funny cartoons.

I own real estate. I own equities. I own precious metals. I am not afraid of the future. I used to be and i've learned from the mistakes that caused. I even relocated my family to take advantage of demographics and better the opportunities for my children.

The US economy will have another (many) severe recession. It will undergo periods of deflation and inflation. This is nothing new and we have all lived through these events. Show your kids the best course of action is to gain knowledge rather than live in fear. To take risk and accept failure. To enjoy our brief existance.

I use technical analysis to filter the noise and emotion that we are bombarded with everyday and interestingly enough those charts can show the cumulative effects of these emotions. Knowledge of investor psychology can be a much greater tool than knowledge of fundamentals. Most people dont know how to use charts effectively and correctly and thus them as voodoo. Ive tried to show otherwise and for those with an open mind I believe somewhat effective. Surely mistakes can be made, just as a skilled surgeon can cut an artery or Kobe can miss a free throw, but to have an investing toolbox without this tool means many jobs cannot be accomplished or done correctly.

For the last 5 years ive been a big believer that the US dollar would strengthen and commodities would suffer. I didnt not buy into the inflation scenario because simple money printing does not increase money velocity and ive thought that the best way to cure high prices is high prices. If we cannot afford something we will will not buy it and prices will either stagnate or drop. And for the most part thats exactly what we'e gotten. However, in the last few months we have seen wages rising--Seattle, California, Walmart, Target, ect. We are now giving people the ability to afford those higher prices, so the likely result is now going to be higher prices. Also many, many commodities, especially consumer commodities are at multi decade lows. I dont see them going lower. Yes, eventually that QE money will enter the global economies.

The USA is not Weimar, it is not Argentina, it is not Zimbabwe. It is however a society built on principle, innovation, risk, "sound governance" and a unique geographic presence. Talk of its demise is highly exaggerated and IMO, foolhardy. Surely we have "problems" but we have always conquered them and we will in the future. There will be wars, there will be famines, there will be natural disasters. Some things no matter how hard we try can never be fully prepared for. But one thing we can do, that is almost always useful in crises, is to build our knowledge. There is a reason why they say knowledge is power. And I believe it is actually more powerful than most realize and can be a tremendous weakness for those that dont. The greatest asset we have is our children. Treat them that way. Show them the power of knowledge. They will survive.

dpoole · March 4, 2015 3:00AM

Cohodk,

Thanks for a thoughtful reply.

The usual rebuttals have to do with the magnitude of the mechanizations now with the banks, the Fed and fiat money, and with the fact that some acquisitions HAVE to occur (i.e., food). no matter the market prices. Muddling through may be enough to survive it all, transpire, but it does have the feel of bailing out a leaky boat with a sieve these days.

I guess for me, I diversify as much as I can, and then figure that's all I'm willing to do. I'll enjoy my good life now, and go with the flow with what happens thereafter. And I very much agree: guide the children with affection and principles, and so arm them as well as one can to face their own challenges and uncertain futures.

cohodk · March 4, 2015 3:34AM

<< Crude Parallels: A River of Denial

" As we saw in 2008-09, oil liquidations were entirely appropriate for economic conditions; how can “everyone” deny outright something even slightly similar?" >>

If you believe the decline now is due to loss of demand then appropriately one should consider a weakening economy.

If one believes the decline is due to excess supply then a weakening economy may not not necessarily be the correct assumption.

If one is focusing on the magnitude of the prices decline (50% drop), then one is probably focusing on the wrong thing Perhaps oil had been way overpriced given the supply/demand mechanisms.

derryb · March 4, 2015 3:59AM

<< The End Is Nigh. >>

Disagreeing with the "forum keynesians" does not equate to saying the End is Nigh. Bashing the sources of differing opinions is an age old political trick designed to gain support. Base your opinion on what you see.

Baley · March 4, 2015 4:02AM

what is your perspective about where we are headed?

downhill today, maybe uphill tomorrow

About Deflation...

Comments