, where M is money supply, V is money velocity, P is Price Level, and Q is the Real Value of Final Expenditures
so we see that the price level P = (M x V) / Q therefore P is a function of both M and V. V is of most interest right now because a lot of the increase in M has went to slow V as money is locked up in Commodities and such which throttled inflation somewhat due to less money chasing real products. But commodity inflation is causing input costs to rise now as evidenced by CORE CPI increasing towards 3%. One has to conclude that Q is then decreasing. Yes, we are becoming poorer because we make less REAL STUFF. But if commodity prices collapse, where will that money go? We could see V unleashed which would cause good old money chasing product inflation. Comments?
V will increase… and it will be hailed/spun initially as evidence of recovery. This will cause the sheeple to even farther down the rathole of denial, led by the mass media. But this velocity will not be about recovery… it will be driven by a loss of confidence in the dollar. In this way, people who know little of what is really happening under the covers in our economy will be able to reassure helplessly paranoid doomers like me and you that all is well… didn’t you know that retail sales have been increasing sharply of late?By the way, speaking of fuel for inflation, Doug Casey mentioned the foreign held dollars, same as Chris, in his subscription email today; The End of the Dollar Standard
"Central banks won’t be the only players. The millions of people around the world who use the dollar as their second currency will join in. And for most of them, "the dollar" doesn’t mean Treasury bills, it means $20 bills, $50 bills, and $100 bills. The collapse in the foreign-exchange value of the dollar sparked by foreign central banks unloading their excess holdings will undermine everyone’s confidence in the dollar’s usefulness as a store of value. Private foreign investors will flee the dollar, further reducing its foreign-exchange value. And most of that privately held cash will flow back to the US as more fuel for price inflation. The dollar standard will be dead.
The consequences will be of historic proportions."
Of the many ponzi rabbit holes you can go down… I find this idea of dollars held abroad (called, confusingly, Eurodollars) particularly intriguing, and little talked about, since the Fed decided it best for us back in 2006 to stop wasting so much money measuring it’s growth… yeah, sure; http://inflationdata.com/inflation/inflation_articles/m3_money_supply.asp http://www.youtube.com/watch?v=kRCiA-gy4ds
Chicken layer pellets are a commodity I guess, now $14/50 lb bag around here compared to $12 last year. I should have bought ahead last year and saved 14%!
[quote=Woodman]Chicken layer pellets are a commodity I guess, now $14/50 lb bag around here compared to $12 last year. I should have bought ahead last year and saved 14%!
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I wonder:
How long do the pellets store for? Does buying in bulk and storing for a couple of years or three in cool, dry place make sense?
What did people feed layer hens back in the old days? Or did they make do with fewer eggs?
Do people feed egg shells back to chickens?
Poet
[quote=Woodman]Chicken layer pellets are a commodity I guess, now $14/50 lb bag around here compared to $12 last year. I should have bought ahead last year and saved 14%!
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This year I’m selling my 1lb jars of honey for $10. In 2009 it was $8. I’m sold out. :-) … dons
Last year we were buying 5 pound bags of unbleached flour for $1.25. Over the winter I watched with alarm as the price went up with each passing month. Earlier this summer, the price for the same thing was $2.22, a 78% increase over less than a year.
To ameliorate the increase, we switched to buying 25 pound bags at $8.88 a few weeks ago. To my shock, yesterday that same 25 pound bag was marked $11.88. A 34% increase.
I know the Fed doesn’t consider inflation in food prices a big deal, but I think they’re ignoring it at their peril.
Free range them as much as possible, they’ll eat less. Add fodder from your own yard. Cuttings from other plants thrown into their run helps too. Storing feed is hard. It seems to come with bugs that get a hold on if you store it. We found these containers that are water and air proof pretty much and the food does better stored in them than in the paper bags it comes in. But, we have not had luck stporing food more than 6 months wihtout it becoming buggy and often moldy.
As for shells, yes we refeed shells but only after they have been mashed up in other foods past the point of recognizbility. If you don’t you’ll teach your hens that shells are and contain food and they’ll soon start eating eggs, an utter disaster if it gets hold of your flock! I am currently battling it and we’ve gone from a dozen eggs a day to 4! Because some one is eating them.
Out of interest, Chris, could you name these "noted deflationists" and provide links to where they are calling for a top in commodity prices? Also, are these noted deflationists happy with the conditions that you’ve chosen to define and knock down? It seems that, for completeness and fairness, you should do this as a minimum.
Good tips land on feeding chickens; I do free range my chickens and with all garden leftovers this time of year their processed feed consumption is way down. I suppose the government factors in that kind of substitution though to calculate official inflation as much lower than it really is. After reading the link in Chris’s report about China’s growing corn demand I’m glad I spent those late nights blanching and freezing up so much of what I grew; my freezer is full of enough for all winter.
I believe one of the assumptions to reconsider has to do with credit. The article implies debt has to be paid back (credit -> debt ->money) and is therefore neutral and thus does not, over the long haul, effect money. Debt does not have to be paid back. There are many remedies to debt and pay back is only one. Default like is happening in Greece is one. Foreclosure of an 'underwater ' home is another. Bankruptcy of credit cards and other personal debt is another. Just running away (moving out of town) from debt is another if the person cannot be found and forced to pay. Death is yet another. IMHO at the present time considering the housing market and the second loan market, there will be a great deal of debt that will not be paid back. And thus the money and credit side of equation side goes down. This of course does not mean that the affordability of commodities will go down. To the rich, "Who Cares?" they can afford what they need. To the masses, they will not be able to afford things because they have used up all their available credit and their income is less. Even in hyperinflation (money with low value), wages are always behind prices so we see commodity inflation and affordability depression.
Thanks for the great info. I have already bought gold and silver, but… how do you buy other commodities like oil, corn, sugar, wheat , cotton etc. Is there an ETF you can buy that will track the price? I am not interested in buying stocks of companies since I don’t know if they will be there tomorrow or in a year from now. And I am not interested in futures. How do we buy commodities that are liquid like a gold or silver ETF that will simply track the price and you can buy and then sell it when you wish? Does anyone know please??
Chris, I think you probably have a better handle on the recent financial gyrations than I do, and I'm glad to see you accepting Grantham's general idea, but you seem to miss it's real significance. It's both a paradigm shift for physical and financial expectations AND a paradigm shift for the design of our economic model itself. My evidence of it is the 10 year commodity price trend, that to me leaps out dramatically, like a "smoking gun".
Commodities, as a group, have been inflating at nominally 20%/yr since 2001, when inflation for other things was quite low or nonexistent. That means... *something makes resources different* from everything else.
I have an article in the recent New European Economy on that, focusing on why a global resource system would display parallel elevated exponential increases in prices, for the whole spectrum of basic food and fuel resources at once. It's what you'd expect for a supply system responding to increasing demand, which was once able to relieve stress on one resource by exchanging another.
The whole system would become relatively rigid and unresponsive to increasing demand, with each sector unable to find surplus capacity at once. At that point the whole system acts as if “freezing up” as a growth economy, in effect, corners the world resource supply capacity.With nowhere to go, resource allocation needs to be done by shedding excess demand by raising the price.
Other people haven't caught on quite yet, but it would says we are at the natural point of overinvesting in the earth that Keynes discussed in Chapter 16 of The General Theory, and that the remarkably clear implications for altering the theory of investment strategies now apply. I'm pretty sure there's nothing to explain such a highly uncharacteristic and yet worldwide orderly phenomenon, other than as the natural effect of a diverse integrated growth economy reaching "peak everything", for its central resource exchange network as a whole.
If you combine Grantham's quite similar finding and mine, the picture becomes one of the world resource markets doing their normal work of scrambling to find new sources of affordable supply, but not finding enough to meet demand.As a result the only relief valve becomes, as Keynes said, to bleed excess credit by divesting investment funds. A decisive moment for Investing in Sustainability
[quote=joanne]Thanks for the great info. I have already bought gold and silver, but… how do you buy other commodities like oil, corn, sugar, wheat , cotton etc. Is there an ETF you can buy that will track the price? I am not interested in buying stocks of companies since I don’t know if they will be there tomorrow or in a year from now. And I am not interested in futures. How do we buy commodities that are liquid like a gold or silver ETF that will simply track the price and you can buy and then sell it when you wish? Does anyone know please??
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joanne -
Just about any on line brokerage will allow you to trade commodity ETFs. Shop around for the best commission rate and call and ask any questions you may have.
Chris:
I have noted the comments in the blog above. A very astute audience.
As a retired manager of people and things and training as a Chemical Engineer and a business manager, I have spent many years on the study of markets and economy. My observation is that the liquidity created by Ben has little or no momentum. The banks take it as cheap money(sometimes at zero cost-o/w at a small paid kicker) and proceed to try to find ways to loan it out. In fact, most of it resides in balance sheet repose as a liability against required collateral that is worth a (major) fraction less than the real dollars given to them by old Ben.
If they lend it out they make money, nice money on the spread. If they let it lie in inventory it represents real improvement in the real liquidity needed to improve their real liability ratios. And people wonder why there in no growth in the economy with all that liquidity when the real issue is confidence and trust. I read how most well managed businesses are sitting on prettty sunstantial cash inventories; they seem to be waiting for signs that the futjure is right for their business risks.
How can this scenario not promote deflation? Your argument, admittedtly on this point only, seems to me to be weak.
, where M is money supply, V is money velocity, P is Price Level, and Q is the Real Value of Final Expenditures