I love all the great comments and votes of support for Adam’s brainchild which is this series. To be crystal clear, the questions came from you, the audience, and this was not the result of me interviewing Mish as this article has been portrayed elsewhere on the net.
And I am deeply grateful to Mish for taking the time to share his brain with us. It’s clear he put some time into composing his thoughts and I always appreciate when such care has been taken because there’s a much better chance that a good discussion that can change minds and shift perceptions will result.
The key issue here is not to get hung up on definitions of inflation or deflation, which are slippery at best (e.g. if deflation is a decrease in available money, what do we include as ‘money’ in our definition?), but to answer the burning question, “how do I preserve my wealth in the future?”
As I have regularly maintained in my deflation/inflation outlook it’s never a question of either/or. It’s entirely possible to have both at the same time, or to have elements of either as subcomponents of a larger trend that is headed in the other direction. For example, it’s possible to have food costs going up even as general deflation is gripping the land.
My views on this have also been pretty clear - I expect the US authorities (fiscal and monetary) to favor the relative ease of printing over the immediate pain of austerity. So far, they have not disappointed me.
While we can debate whether the Fed can print enough to stave off deflation until the cows come home, there are two things I try and keep firmly in view:
- So far, their efforts at printing have worked. Armageddon has been held off, there have been no systemic failures, losses have been hidden, prices for most things have not fallen off a cliff. We are now two years into the crisis and so far we have to (somewhat grudgingly) admit that the printing efforts have more or less worked.
- Peak oil is now closer than at the start of the crisis.
I don't know exactly when peak oil will arrive on the international stage as something that is suddenly self-evident, but my analysis leads me to the range of 2013 to 2015. But even if it comes much later the basic story is this: More and more printing (staving off the inevitable) will someday run smack-dab into peak oil.
When it does? All bets are off regarding the “prices of things.” Some will drop horrendously, some will rise stratospherically. We can only guess intelligently, place our bets, hedge them somewhat, and try and remind ourselves to be ready for anything.
I love what Mish had to say about probabilities and risk management. There is much wisdom there.
Beware certainty in these times. That’s the most important lesson I’ve learned to date.
Now let me undercut my own advice by telling you that I am utterly certain of one thing; whatever happens next, I will be surprised.