The Great Unwind 13 comments
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Inflation or deflation… stag-flation, stag-deflation … hyper-inflation… possibly even hyper-deflation… or maybe just a bout of frisky-flation?
Never has it been so hard for the consensus to agree on the coming trend in prices but given the circumstances, it should come as no surprise.
While the “invisible hand” has been working overtime to right the ship, deflating the system of fictional value made possible only through the dynamics of a multi-decades long credit fueled speculative mania, our federal government will stop at nothing to attempt to prevent such an adjustment and its disastrous political consequences.
As it stands, the consensus expects that the feds will win this struggle with many citing the “power” of the printing press, our now more advanced knowledge of Keynesian chicanery as well as the caliber and quality of the stewardship within the Administration, the Treasury and the Federal Reserve.
Yet, in this classic “man versus nature” match-up, man must come out the definitive loser lest he stands unchallenged to invent his own future not of hard earned progress but through fraudulent planning, gimmicks and manipulation.
But will he ultimately lose to inflation, deflation or both?
Although in the long term there could be a mixture of both, deflation appears to be the larger overarching force.
First, with the mania now long gone, consider that homes were easily the single largest asset that most Americans have ever had an opportunity to speculate in.
Likely many millions of American will never again in their lifetime ever be allowed access to the level of debt that they had at their disposal in 2005-2006.
This means that they are likely permanently sidelined in terms of consumption... they will never again be able to over-consume to the degree seen in 2005.
At the same time, it’s more than likely also true that a massive natural deflationary force will be coming from aging Boomers reverting to a more net-seller and net-liquidator posture as they struggle through their “retirement” years and especially in light of falling home prices.
This appears to be a classic trap of sorts… the unwinding of major assets, contraction of credit, aging population and a perpetual decline in consumption.
Add in declining wages and structurally high unemployment and the outcome becomes clear.
What is less clear is how hard the feds will try to prevent the inevitable.
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This article has 13 comments:
The curse of the victor is hubris. You come out of a huge war extremely rich and powerful. You build a massive army. You get involved in war after war because your army needs something to do. Your institutions, your very system of government become profoundly corrupt because of the vast amount of money sloshing around. You permit the massive expansion of debt because you know that you will be the first empire in history on which the sun shall never set. Right. Ask the Romans about that one.
Any thought of "Green Shoots" should be put away.
The biggest Amarda in the World's history is now in the Singapore area awaiting goods.
Article:
Shipping Shows Economic Recovery Disappearing Into the Sunset 14 Sep 2009 07:15 GMT
... Clearly, that hasn't been enough to convince the ... the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent ... why these ships are here. The world's ship owners and government economists would prefer you didnt know.
There are more ships awaiting cargo than the combined Armada's of the US and Britton.
We are heading into a depression "deflationary" period.
It's very clear to me - they will keep trying until they've done it. It's also clear that deflation is not inevitable (minor deflation yes, but serious deflation no).
It's not just the Fed either, it's the government too. Between them, if necessary, they can stick, say $100,000 freshly printed dollars in to every consumer's, or tax payer's, pocket. If they need to do it, that's what they'll do; and if they need to do it again, they'll do that too. Go back and read Bernanke's own words on the subject: "Deflation: making sure it doesn't happen here".
In my opinion, it has become quite clear how hard the Fed will work to try to prevent deflation. The answer is: they will do *whatever* it takes, no matter how potentially destructive in the long term it may be. There is nothing they will stop at to prevent short-term pain. Therefore, bears must be extremely careful where they draw their 'lines in the sand' and be willing to retreat quickly and minimize losses. Bulls, as sweet as the previous months have been, must fight the urge to eek out further upside, 'sell at the top' is just about as hard at buying at the bottom. To finer tune the question, at what point will the Fed begin to protect bonds and the $US at the expense of the market? Soon me thinks. But, when this turns and I increase my short exposure, I will be ready for the Fed's next WMD's - they won't stop their assault on deflation until all foreign backers of our debt flee, that's when things get really ugly...
1. For the Ruling class, even as their golbal stature,power and influence decrease their domestic power increases. The more impotent the governing elites become abroad in everything from trade, debt and currency management to facing present and clear dangers the more potent they become domestically in issuing fiat dollars, unreeedamable debt, in political, economic and social coercion and in suppressing(or seeming to suppress) threats to self perpetuation at home. The more the ruling class cringes before adversaries abroad, the more it swaggers before its own protesting citizens. The more the economy loses its capacity to generate wealth and income for all, the more the ruling classes seeks to appropriate national resources for itself via manipulated financial markets, various bubbles, taxes, and regulations that create false but powerful assymetries in markets and industries that massively benefit the Bosses and their pets.
The ruling calss seeks multiple ways to reassure itself that it is beyond challenge: the more challenged abroad the more absolute dominion it seeks at home.
2. The middle class faces simultaneous deflation in asset values(chiefly real estate and stocks of industrial and manufacturing companies) and inflation in the neccessities of daily living(including all municipal services whose taxes, fees, charges ,other burdens rise while quality falls; insurance;education; healthcare; and food and beverages). The middle class is caught in the pincer of falling wealth and rising claims on income. At the same time middle class opportunities for economic advance compress while risks to middle class financial security , generated by its own Govt, expand.
3. The lower class faces an accelerating devestation in its opportunities and skills to perform productive work at a living wage as it becomes increasingly uncompetitive in both the global and domestic economies:its value added , after wages, subsidies, transfer payments and low quality of work becomes minimal or even negative.
At the same time the envy and aggrieved sense of entitlements, carefully nurtured by the remote and almost invisible ruling class and directed at the proximate and visible middle class, expand grotesquely. The less opportunity and capacity the lower class has to honestly create value for others, the more free or heavily subsidized bread and circus it demands for itself. The Bosses oblige with money illusion(more and more transfer payments that buy fewer and fewer goods and services in real terms or in terms of quality) ,with class warfare and with increasingly degrading digital addictions
4. National wealth creating capacity decreases even as National indebetedness increases; the productive economy diminishes while the parasitic economy expands, further burdening and crushing the ability of the productive economy to regenerate. Resource allocation via true, free, and fair markets decreases while resource allocation via fiat and manipulation increases. National power diminishes while National delusions and diseased fantasies soar.
We do not know and cannot credibly predict whether we are rapidly approaching a transition to a far worse state than we are in at present: a huge National markdown in stature and stepdown in prosperity----- or, quickly nearing a rather brief but very painful transformation to something new and grand.
Eventually,contradicti... paradoxes and opposing forces do resolve themselves in the well known sequence of logic, illogic, new logic; or order, chaos and new order.
The current state is clearly unsustainable, which is why contradictions abound and co-exist: models, systems and institutions and norms are breaking down but at uneven rates and with uneven regional, class and even ethnic effects. An observer can find support for any prefereed theory or notion by being both dishonestly selective in the data, trend, statistical aggregation or collection of annecdotes he or she focuses on or being unwittingly blind to truths that do not fit. It is enough to look without seeing and hear without listening and the current state will validate whatever the observer has already decided is reality.
The inevitable may be put off for now, but it will come to pass. By definition, the inevitable will happen; it is only a matter of when. The when, IMHO, will come when it becomes clear to our foreign partners that continuing to finance the US's insatiable appetite for an ever-expanding debt will not turn out to their advantage. At some point, those who currently finance our binge debt will come to their senses and decide to cut their mounting losses. Then the inevitable will inevitably happen.
As one of the people above pointed out, 2005 was the height of speculation in our lifetimes. People will not be able to speculate like that ( I would say ever again, ever again in our life times), but in 75 or so years people will forget the lessons learned.
Your home ( and mortgage) are the most expensive purchases you will ever make, and those prices were bid up and up and up away into the stratosphere. Areas like Phoenix Arizona have seen 50% price declines. I mean, that's for your most expensive asset you own!
These create huge deflationary forces... Yes, the RESPONSE of the fed was very inflationary, but that's with a HUGE deflationary environment/backstop. It's not like things are the same as last year PLUS we have twice as much money... Things are far different, banks aren't lending, the money multiplier is contracting, credit is NOT being extended and fractional reserve banking is being reversed/contracted... but yes, we do have a much larger money supply.
As long as ...
- Banks are lending money
- Money isn't flowing through the economy
- Wages aren't increasing
- We have high unemployment
It will be difficult to see a general increase in prices ( inflation), even with all the crap the Fed are doing.
It seems like most inflationists are bearish, while most deflationists are more on the bullish side ( they believe in green shoots). I'd say that I'm a bearish deflationist ( at least in the near term) so that makes me a little unique.
On Sep 14 01:06 PM User 353732 wrote:
> During great transitions or episodic transformations multiple contradictions
> abound. This is a characteristic feature.
> 1. For the Ruling class, even as their golbal stature,power and influence
> decrease their domestic power increases. The more impotent the governing
> elites become abroad in everything from trade, debt and currency
> management to facing present and clear dangers the more potent they
> become domestically in issuing fiat dollars, unreeedamable debt,
> in political, economic and social coercion and in suppressing(or
> seeming to suppress) threats to self perpetuation at home. The more
> the ruling class cringes before adversaries abroad, the more it swaggers
> before its own protesting citizens. The more the economy loses its
> capacity to generate wealth and income for all, the more the ruling
> classes seeks to appropriate national resources for itself via manipulated
> financial markets, various bubbles, taxes, and regulations that create
> false but powerful assymetries in markets and industries that massively
> benefit the Bosses and their pets.
> The ruling calss seeks multiple ways to reassure itself that it is
> beyond challenge: the more challenged abroad the more absolute dominion
> it seeks at home.
>
> 2. The middle class faces simultaneous deflation in asset values(chiefly
> real estate and stocks of industrial and manufacturing companies)
> and inflation in the neccessities of daily living(including all municipal
> services whose taxes, fees, charges ,other burdens rise while quality
> falls; insurance;education; healthcare; and food and beverages).
> The middle class is caught in the pincer of falling wealth and rising
> claims on income. At the same time middle class opportunities for
> economic advance compress while risks to middle class financial security
> , generated by its own Govt, expand.
> 3. The lower class faces an accelerating devestation in its opportunities
> and skills to perform productive work at a living wage as it becomes
> increasingly uncompetitive in both the global and domestic economies:its
> value added , after wages, subsidies, transfer payments and low quality
> of work becomes minimal or even negative.
> At the same time the envy and aggrieved sense of entitlements, carefully
> nurtured by the remote and almost invisible ruling class and directed
> at the proximate and visible middle class, expand grotesquely. The
> less opportunity and capacity the lower class has to honestly create
> value for others, the more free or heavily subsidized bread and circus
> it demands for itself. The Bosses oblige with money illusion(more
> and more transfer payments that buy fewer and fewer goods and services
> in real terms or in terms of quality) ,with class warfare and with
> increasingly degrading digital addictions
> 4. National wealth creating capacity decreases even as National indebetedness
> increases; the productive economy diminishes while the parasitic
> economy expands, further burdening and crushing the ability of the
> productive economy to regenerate. Resource allocation via true, free,
> and fair markets decreases while resource allocation via fiat and
> manipulation increases. National power diminishes while National
> delusions and diseased fantasies soar.
>
> We do not know and cannot credibly predict whether we are rapidly
> approaching a transition to a far worse state than we are in at present:
> a huge National markdown in stature and stepdown in prosperity-----
> or, quickly nearing a rather brief but very painful transformation
> to something new and grand.
> Eventually,contradicti... paradoxes and opposing forces do resolve
> themselves in the well known sequence of logic, illogic, new logic;
> or order, chaos and new order.
> The current state is clearly unsustainable, which is why contradictions
> abound and co-exist: models, systems and institutions and norms are
> breaking down but at uneven rates and with uneven regional, class
> and even ethnic effects. An observer can find support for any prefereed
> theory or notion by being both dishonestly selective in the data,
> trend, statistical aggregation or collection of annecdotes he or
> she focuses on or being unwittingly blind to truths that do not fit.
> It is enough to look without seeing and hear without listening and
> the current state will validate whatever the observer has already
> decided is reality.
From the article:
"First, with the mania now long gone, consider that homes were easily the single largest asset that most Americans have ever had an opportunity to speculate in."
Most Americans live in their homes. If those homes go up in value, all the better. Opportunity to speculate in?
While each country and region has its own story, I suspect the stories are linked through structural imbalances, speculative excesses, surplus capacity and waning final demand. Each excess is likely the product of a preceding period of excessively accomdating monetary policy; and each country is presently responding with more of the same.
Today's monetary policies are being sterilized through decreases in money multipliers; liquidity expansions are being offset by contraction in money multipliers, frustrating central bankers who want to see prices increase. Money is not turning over at its usual rate and final demand, for a variety of reasons, is not responding to monetary stimulus.
Bentral bankers are fearful of a long and protracted downward spiral of delayed purchases, fed by a belief that things will cost less tomorrow. The longer purchases are deferred and the longer prices decline, the more final demand contracts and leads to further reductions in employment, playing into an adverse feedback loop.
In this risky environment, the purchasing power of cash is increased as are streams of fixed income; debt becomes more onerous while savings is rewarded. Given our leveraged economy and our current underemplyment, deflation would impose a very painful cost. While there are signs to be concerned, I don't think any body knows how things will unfold because we are living through a singularly unique time in economic history.
"Freight rates for dry bulk ships, used to haul coal and iron ore, fell as low as $2,316 on Dec. 2 from a record $233,988 as China’s steelmakers cut output."
That would be a drop in rates of over 100 times (or 10000%). Does this sound like inflation is just around the corner? I don't think so.
Can’t happen here? As mad dog pointed out the British, the Spanish and Portuguese empires collapsed. And each of those economic transitions were caused by the same two conditions: The losing country had accumulated more debt than their economy could support and the losing country had such incredible hubris they were unable to see it. Our fate is sealed because even if we saw the light and "changed our ways" (1) we no longer have sufficient resources, physical, financial and manufacturing infrastructure left to "solve' the problem, (2) more than half of our population is an economic drain and (3) the emerging world doesn't like us so they are not going to help us recover.