[quote=Dogs_In_A_Pile]Poet -
How about this? I will buy your 1 month membership subject to the following terms:
1. If you truly find nothing worth reading on the Paid Member side of the house, that’s it. Let your month expire and we move on, no questions asked.
2. If you find something of worth, pay it forward and buy a 1 month membership for another regular on the site who isn’t a paid member.
That’s it.
Let me know.
[/quote]
Dogs
I appreciate the kind offer. If my wife and I decide to do enroll, however, we’ll do it on our own. Thank you.
Perhaps someone else here may want to partake of your terms?
Poet
Actually yes – I’d love to take up that offer. I was just thinking of joining as well – this post is just too intriguing to not read through to the end.
Shouldn’t the title of this piece simply be changed to “There are no rules”?
If you can change the rules at whim, that’s equivalent to saying there are no rules.
[quote=TheRemnant]Shouldn’t the title of this piece simply be changed to “There are no rules”?
If you can change the rules at whim, that’s equivalent to saying there are no rules.
[/quote]
It’s more like they make the rules. You and me, we still have to follow them, so they are rules.
Samuel
It is possible that both camps are right – you can simultaneously have inflation and deflation.
I think it is certain that, on average, energy prices will continue to inflate. So when you’re dealing with things that are driven by energy, count on inflation.
It may be difficult to think of things that are not driven by energy, but those are the things that will continue to deflate. I would include things that are driven by energy, but are non-essential. Think “big expensive houses that require a long commute.” Think art, antiques, and collectables. Think non-essential, expensive gourmet food items. Think jewelry and fancy watches.
I’m banking that productive farm land will continue to inflate, even as second houses and big suburban McMansion real-estates deflate.
Bytesmiths: how does the Little guy invest in productive farmland?
Chris, I have enjoyed and appreciaed your stuff since I fuirst found it a couple of years ago, but for now I’m firmly in the deflation camp for one reason; there is no pathway for the inflationary money into the real economy.
Inflation can only happen if there is too much money chasing too few goods and services but, as you and many others have pointed out, the money being created in the upper echelons of the financial establishment is staying in the banks to rebalance their accounts, it is not flowing into the real economy in which most of us live.
Because all the money being created is in the form of debt, the only way it can reach the real economy is to be loaned and there we hit the bottleneck.
The banks wont lend to anyone, individual or business, because our chances of paying it back are slim to vanishing and those who can afford to borrow are either busy paying down debt not increasing it, or buying up real stuff (land, screws, glues, fertilisers etc) whose production and availability will vanish when the shit finally hits the fan.
The only other pathway is massive government spending on infrastructure that entails literally armies of people to do the work, but that isn’t going to happen under these people and, if it did, the work would be captured by the Halliburtons et al who would resile from paying for labour when they can buy big, expensive machines from their cronies in another big company.
I really don’t think there IS a pathway for the money into the economy so I’m a deflationista, but if you can show one, and show that it is a reasonable bet, I’m more than happy to be convinced otherwise.
BTW, that doesn’t mean prices wont rise, already my garden is saving me many $$ a week because food prices are going up, as is fuel, but those price rises are from genuine causes such as scarcity or rising production costs, not from the monetary phenomenon of inflation.
So, what is the pathway please?
One thing the Fed isn’t is an alchemist and they can’t make silver out of nothing. From reading the blogs, it appears that there is hardly any left, a couple months’ worth maybe. And the big investros know this. A default in the silver market could be the unextinguishable spark that triggers the collpase. This risk can only get worse, not better, as silver is used up industrially much faster than it is being replenshed, while gold isn’t.
One other question: wouldn’t deflation just be a pit stop on the way to hyperinflation? Given how utterly worthless the dollar is, isn’t hyperinflation inevitable when the world is forced to face reality after the ponzi scheme crashes?
I agree with rlmrdl in that there is no pathway for inflation. It simply is not happening.
In fact, deflation continues in the housing market. While it is true that the reflation has continued in equities and to a lesser extent in commodities (the Reuters/Jefferies CRB Index regained 50% compared to the S&P500’s 69%), I would argue that the reflation is in it’s last throes. No doubt a lot of it has been driven by the large banks with the benefit of cheap money. The big question, though, is to whom will they sell in the future? No doubt, they have made large profits off the short sellers but at some point the shorts will say enough is enough but will be unlikely to become buyers - so how will those pushing the market up continue to do so without the help of the shorts covering? The investing public, which is more or less everyone outside of the largest institutions must be getting very wary of a market which is increasingly being seen to be far from a level playing field. I am reading the same sorts of comments on the internet and in the major financial publications that we were hearing in August-October 2007. As always, people (and that definately includes those trading for the largest institutions) become trapped by a sense of their own brilliance and their fatal linear thinking. The market will top and no amount of rationalisation ( better earnings, QE2 etc) will overcome the sheer weight of debt and unemployment.
With all due respect for Chris Martenson, his argument is just a conspiracy theory rationalisation for what has been going on. No one is in control - least of all the Fed. Money cannot be created out of thin air indefinitely without consequences. The common sense economics of the Austrians will hold sway. The Fed’s huge expansion of its balance sheet from mid 2008 had no effect on the stockmarket which continued crashing throughout the QE1 buying program. Bob Prechter has recently pointed out the illogical aim of Bernanke (as claimed by the Fed chairman) to boost the “wealth effect”. As Bob Prechter notes, boosting prices for food, rent, gasoline and other commodities will more likely create a poverty effect for everyone which will be greater than the wealth effect for a few stockholders. In addition, Bernanke has claimed his purpose was to force down bond yields to make mortgages more affordable. Since when has inflation tended to cause rates to drop? In fact the opposite has been happening with rates rising over recent months.
rlmrdl has correctly pointed out that banks are not lending and people are tending to pay off debt rather than borrow. For the first time since the 1929-33 crisis M3 plus total credit market debt fell in 2008 and has not, so far, managed to get past its peak. As Bob Prechter describes it - It is a big deal. In fact it is deflation and it is signifying a turn of historical degree. For various cyclical reasons it may not be fully recognised for another year. Which is not to say that markets will not turn down in the near future but that the uh-oh moment will not be recognised for a while yet. Sentiment is still too bullish but that is exactly what is required for the turn in the markets to begin.
I do think that Chris Martenson is right in his description of what the Fed and the TBTF banks are doing - the manipulations, the rule changing, the lack of transparency, the dodgy accounting - but these actions all have consequences which will become uncontrollable. The manipulators may fiddle the numbers and the rules but they cannot control the mass mood which drives the markets. Quite the opposite, in fact. They are doing what they are doing because they themselves are subject to the same deterioration in mood - a lack of belief in themselves and in other people. In other words, it is fear that is increasingly becoming the driving force around the world. People are becoming more polarized and angry. It is a time for wealth destruction rather than creation. People neither want to borrow or to lend or to co-operate for mutual benefit. Wealth has become too concentrated, corporations have been getting bigger by takeover rather than by organic growth and just a handful of banking institutions control the world’s credit supply. Despite that, banker’s like Jamie Dimon consider that they are not big enough and have fought tooth and nail against the new regulations that have been brought in well after the horse has bolted. We are in an extremely vulnerable position. Common sense tells me that there are not enough fingers to plug the dike.
Worries about inflation are meaningless when the main stream media has obfuscated any understanding of what inflation means. Illargi on The Automatic Earth has it right when he says…“a clear view of causation is essential when it comes to defining your reaction to rising or falling prices, and prices that rise because of scarcity demand a totally different set of actions than those that do because of a rise in total supply of money and credit, combined with velocity of money, which is what inflation truly is.”
What we facing right now in front of our noses is deflation. Again, Illargi gets it right when he says…“Preparing for hyperinflation is not just useless at this point in time, it’s also damaging in that it makes people blind to the real problem: deflation. And before we get to hyperinflation, if we ever do, deflation will cause so much pain and grief and unrest and death, that the very thought of hyperinflation will come to be seen as a highly delusional non-issue.”
We are in a deflationary spiral as the velocity of money (95% credit), which is necessary to grease the wheels of the economy, slows down. Chris is mistaken if he believes that if the TBTF banks and the FED just pretend that they don’t have $Trillions in losses on their books then the problem will go away. Extend and pretend will not last forever as every dollar borrowed to paper over this stinking mess incurs interest which is being loaded on the backs of the American people. What we have is a political problem when the laws and regulations in the banking sector in our country are willfully not being enforced. The rule of law is not being applied to the richest and most powerful organizations in the country. This is not going to end well when the music stops.
But timeandtide I don’t think we can analyze this current deflationary environment in the same way as others like the Great Depresion because it’s totally different. The US dollar has absolutely no inherent value anymore. In the 1930’s the US dollar did indeed have a lot of value. And aren’t all hyperinflations preceded by deflations? Aren’t the two just brothers on the same pathway of economic destruction?
I agree that deflation is an inevitable event but the question is how long will it last and what will be its effects on the US economy at this point in time now versus any other time, ie what events would a deflationary spiral trigger and how long would that take … given that the fundamental state of the US economy is beyond anything ever seen before in history. I guess what I am thinking is that given that a currency is simply a measure of the collective ability of a country’s population to be productive and to pay off debts, then when you look at the situation in the US where most of its manufaturiong has been exported overseas, debt levels are beyond anything ever possibly serviceable (and this would only go up in a deflationary environment), and it is an oil dependent economy that can’t power itself. Not only that, but because of its official reserve currency status, there are trillions more notes out there floating around outside of the country. Now, after a deflationary spiral where the productivity of its population is even worse, how could this currency maintain any value whatsoever, because it is fundamentally completely worthless, and will be even more so after deflation destroys the productivity of the workforce? Making a worthless currency twice as not-worthless through deflation is still worthless. When the financial institutions lose control then won’t the world be forced to face this reality?
Mark_BC - I don’t think it gets one anywhere to try to figure what the US dollar is actually worth. It is a medium of exchange and its value will fluctuate against the euro/Yen/ Swiss Franc/Yuan/whatever. Since all paper currencies are issued by fiat, they are all suspect and their value relative to each other is based on little more than the market mood at any given time. It is pretty hard to talk about fundamentals when you are talking about trillions of dollars of credit based on nothing more than the productive abilities of a nation or a grouping of nations and the ability of their leaders to tax their people. The mistake most people make in the inflation/deflation debate is to focus on currency when the real issue is about credit which dwarfs the currency in circulation.There are roughly US$970 billion currency notes in existence and more than half are estimated to be outside the US. The pertinent issue is the amount of credit in existence. Bank vaults are not stacked floor to ceiling with greenbacks. Banking today is about management of the ledgers which, collectively, add up to trillions of dollars. M3 + total credit market debt topped out somewhere north of $60 trillion. This is an almost incomprehensible number (probably only comprehensible to those who “do God’s work”) and requires massive computing power to just keep track of it. It is mostly credit which has been issued too cheaply and as a result has led to monumental malinvestment - notably in housing. It makes up a major part of the “assets” festering on bank balance sheets. Most of those “assets” will disappear like a puff of smoke when the US government/Treasury/Fed/Wall St accounting shenanigans can no longer hide the fact that many of the assets on their balance sheets are near worthless. The regulators are allowing the banks to maintain the fiction that their non-performing mortgages are actually worth something by letting these corrupt institutions book as income the phantom interest which is not even collected! ( see :
http://blogs.forbes.com/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/ )
These are the “tools” to combat deflation that Ben Bernanke and the other Fedmeisters talk about. This also means that the large earnings that many financial institutions are reporting are based on pure fiction.
Eventually, the deflationary impact of these assets evaporating (into the thin air from where they came) on the financial markets will spread to prices right across the board, including wages and salaries. We will most likely be dumped backwards by 30 years. It will be a huge recalibration. Those with large borrowings will be hurt the most. Good businesses which are not over-geared will survive, as will productive people. The parasites on society will find it very tough. The Zombies as so well described by Bill Bonner in The Daily Reckoning. The difference between the top and the bottom will narrow. Housing will become more modest and affordable again. Food and the farmers who produce it will be valued more than the financial engineers who have done so much harm. The elements of the environment (biodiversity, water catchments, forest reserves, the oceans etc) which sustain us will hopefully be recognised as crucial to our well being. However, my faith in humans being rational enough to consider the survival of the next generation is more limited. We may continue to ignore the many warning signs and push our most important resources to the point of collapse. A severe check now, in the form of a deflationary depression, would be tough but not the disaster that our rulers are trying to frighten us with. It would be a chance to regroup and do things better.
People who sit in ivory towers in the financial districts and governments of the world tend to see things in terms of numbers. For them it is all about how many points they can squeeze out of this transaction, what fraction they can skim off that high frequency trade or how many votes there are in that pork barrel. Economics and markets have been reduced to numbers and bloody algorithms. In reality, economics is about life and people. As long as people are alive and kicking there will be an economy, even if it is reduced to barter. Bartering does not usually last for long because paper, as a means of exchange, is so much more convenient. Paper has been abused several times over the last few centuries. This time it has been credit, which is even easier to play merry hell with because it does not even have a physical existence. It is literally not real - until, ironically, it disappears. That is what scares governments and bankers so much because they have borrowed more than anyone. I welcome a dose of reality.