Ben Young

The Unsustainable Lie of Inflation

I've never understood how a tautology could be useful in science even if completely true:

the fit survive =
the survivors survive =
water is water


On Nov 10 09:01 AM GotLife wrote:

> Paco said:
>
> "Intelligent Design – This is how a bunch of envious Christians respond
> to a concept as cool as Natural Selection. I’m still wondering what
> they’re going to come up with in response to The Big Bang. Maybe
> Provident Ejaculation? Whatever it is, I’m sure it will sound positively
> scientific and rational. I can’t wait."
>
> Correction to your error. Natural selection is not evolution. Many
> examples of natural selection exist in the near term. Also, how does
> your reference of "envious Christians" differ from Goebbels propaganda
> against Jews, homosexuals and communists?

Not Your Grandpa's Deflation

We were informed that our Advanta small business card is going belly up on May 31st. This eliminates credit line of $30,000. Our Home Equity Line of Credit was rescinded which eliminated $125,000 of credit. We appealed that decision, and it was rescinded, but I wager that of the 10s of thousands of Heloc removals, ours was one of the very very few that were reinstated. An Exxon card we rarely used was cancelled. Thus, while our net worth and FICO score have actually *improved* over the last year, our credit/ PLVOM (personal latent velocity of money) available dropped by over 80%. Our family is also saving 20% of income. We learned our lesson in the dot.com collapse when I was out of work for 1.5 years.

...and, at the same time, I find that there's nothing I really want to buy. The family has 3 cars that are of high quality, a house that suits and more computers/TVs than I know what to do with.

What have I bought recently? tooth implants. This "filled" a real honest to god unmet need. There is an ocean of unmet need in regenerative medicine...but I DEFINITELY do not need yet another car.

So, credit is truly disappearing even for the well-to-do, savings are increasing for those who can, there's little in the way of "gotta have" purchases, all implying continued drops in velocity of money on the consumer side...and that's for people who still have jobs/assets.

China's Metal Imports Are Impressive

A precondition of emerging hyperinflation is the preferential choice to hold real things vs hypothetical claims on future value. Thus, the Chinese appear to be putting their surplus cash into things. This is raising the nominal price of commodities - inflating them. It is doubtful that other large holders of currency will follow this trade because so many of them are in (or nearly in) the quantitative easing boat. I am not predicting hyperinflation. I'm saying that the seeds for it are there.

The Government Has Played Its Hand Nicely

Another way that gamed statistics cloud thinking is the "owners equivalent rent" line item in the Consumer Price Index. By pretending that mortgage payments don't exist, but only rents.

If mortgage payments during the bubble were reflected accurately in the CPI, it would have been reflected as hyperinflation during the runup, and would *definitely* have generated an outcry to STOP it. Instead, it was ciphered away, inflation was "low"! and the problem went unrecognized/unrepaired. Owner's equivalent rent is *still* being used, and this is now disguising the true shape of CPI which is in net deflation due to massive deflation in housing prices over the last 3 years.

Why in the world would owner's equivalent rent be used instead of a patently accurate figure? If this had not been used, the country would long ago have gone bankrupt from automatic CPI adjustments from Social Security and other contracts that give auto-raises based on CPI.

But, eventually facts, like gravity will have their say and their way

On 'Rock Bottom' Housing Prices

Losses and foreclosures in the bubble states affect all other states by reducing the total private capital available for mortgages since they are demonstrably a losing proposition (ie loss of capital, not just interest). This leads to the govt having to be the lender of first resort to the mortgage market - even though it is still a losing financial proposition. This will drive the cost of private capital up, make it more scarce (see Advanta taking their punch bowl away from GOOD customers), and cause zombie companies to be able to outcompete prudent survivor companies because the zombies have govt backing and no debts.

- private capital becomes very expensive and scarce
- Zombie companies outcompete and destabilize prudent companies
- Deficits skyrocket which sucks away global capital
- Paper assets get gamed which results in net capital annihilation over time (bear traps)
- all the while, as RE prices go down, people increasingly mail in their keys to the banks either through foreclosure or from walking away from upside down property
- terrified prudent folks save like there's no tomorrow
- soon such savers will be pilloried as "horders" (see private property/gold confiscation)

shampoo rinse repeat

Dollar's Purchasing Power Annihilated - The Chart They Don't Want You to See

ummm - those greedy elderly gave birth to you. They gave you every technology you use. They wiped your rear ends when you didn't know how to go to the bathroom. They sent you to college when they could have blown the money on themselves. They paid their taxes. You will be elderly sooner than you think.


On May 11 07:17 PM sabre_jenn wrote:

> The elderly in this country have created a ponzi scheme that would
> make Bernie Madoff blush: Social Security
>
> For all the complaints that today's children aren't good at math--
> I have to wonder about the baby boomers making the accusation.<br/>
>
> Social security, even using government accounting "standards" that
> no private company could get away with, is trillions of dollars in
> deficit. There is no way today's children will even get their money
> back in real terms -- it is mathematically impossible.
>
> Greedy, selfish elderly have bled the system almost dry. There is
> very little left to meet the onslaught of the baby boomers.
>
> Comments like archman's explain why we have yet another completely
> stupid man as President. Bush and Obama are idiots -- but they
> unfortunately represent the populace (like archman) all to well<br/>

Dollar's Purchasing Power Annihilated - The Chart They Don't Want You to See

I remember these times too. All my friends were either in Vietnam, returned from Vietnam, afraid they were going to be forced to go to Vietnam or deciding to take a nice vacation to Canada. We had just finished massive burnings of cities over race hatreds and real prejudice. I remember personally wondering for two days if the riots would reach my home and family.

I remember cities where if you could breathe the air, you knew it was killing you and if you went to a restaurant or flew on a plane, the smoke was inescapable.

I remember pressing the brakes going down a steep hill in our Pontiac, and experiencing total loss of brakes because the brake hose ruptured and there was no backup brake circuit like cars have now. THAT was a fun crash...no air bags, no engineered deformable front end...only the seat belts which had recently been mandated save my life.

We waited over an hour to get help because there were no such things as cell phones...and when we got to the hospital, compared to today's technology it was utterly medieval.

I also remember persecution of religious minorities. If you weren't Catholic, Baptist, white or Protestant you could get seriously beat up. Very seriously.

The police could do pretty much anything they wanted.

Women got no respect. Men and women died 15 years younger than today.

If you go back 76 years to 1933, most of the country had no telephones, electricity, indoor plumbing...there was no TV, no birth control (mostly illegal) other than ugly back alley stuff. Massive numbers of children were still orphaned because their mothers died in childbirth after having too many children. Large numbers of men had been mutilated physically and emotionally by World War 1. It was an ugly and brutish time.

Yes, if you look only at money, gold has kept its purchasing power...but to say that inflation is the only metric by which to judge progress is just a bit too one dimensional for my taste.

This is not to say that I have a problem with TD. I think his stuff is top notch.

On May 09 09:44 AM Bill S. Friend wrote:

>
> If you happen to be old enough to remember 1971, How many people
> do you know that do not have it much better now than then
>
> I happen to be old enough, it didnt take two incomes for the average
> household to survive, and society had alot less ills. Nobody knew
> what a latchkey kid or a crackbaby was, now they run our government.
>

One Trillion Dollar Commercial Real Estate Time Bomb Now Ticking

It almost doesn't matter how serious the swine flu danger is. The massive inflation in media outlets all clamoring for the newest/scariest "if it bleeds it leads" story will guarantee that there will be a significant reaction. The key thing holding back the telecommuting is the baby boomer generation (of which I'm a "member"). They are still unconvinced that people they can't see will work. Someday there will be a swine flu style tipping point that will validate/actualize the potential order of magnitude (deflationary) cost efficiency that telecommuting represents.


On Apr 26 07:36 PM cameroni wrote:

> Scary stuff indeed.
>
> Nice work Tyler. Don't know if I will sleep so good tonight.
>
> My own worry about Commercial Real Estate revolves around this weeks
> headline story about a possible flu pandemic. We do not yet have
> all the facts but if this thing is really killing 5 to 6% of all
> the people it infects then commercial space will take a huge hit
> as companies encourage workers to start telecommuting and staying
> at home. A major pandemic could freeze up the whole economy for
> the better part of a year as there is no vaccine available yet and
> producing one in quantity takes 6 to 8 months. (World Health Organization
> comment).
>
> Further, any space (and business) that depends on revenue derived
> from gatherings of large numbers of people, like stadiums, theaters,
> restaurants office buildings etc will take a huge hit if people shun
> them fearing disease transmission.
>
> This could readily be the straw that breaks the camels back and sends
> Commercial Real Estate tumbling in value. A trigger. It remains to
> be seen how this will play out but we won't have long to wait. We
> should hear as early as Monday or Tuesday how dangerous this swine
> flu is and know what contgagion risks we face.
>
> This is a good time to keep posted to the nightly news.
>
> Cam

Intel (INTC) Q109 EPS of 11 cents beats by 8 cents. Revenues $7.1B vs. consensus $6.98B. [PR]

I can't remember buying anything from intel for the last 3 years. I have no need for the faster and faster processors. My next purchase will be a smartphone. Perhaps someone can tell me where the demand/growth will come from?

Simuflation: The Powder in the Market's Keg

since it is a dynamically proceeding phenomenon, first government gets amped up tax results - this is exactly what happened during the Clinton administration when there was a *surplus* that generated such a powerful false signal that the 30 year treasury bond was deep sixed.

So, the theory remains intact in that the false signal lead the government to do exactly the wrong thing at the wrong time.


On Nov 24 10:41 AM Smarty_Pants wrote:

> I got this far and stopped reading because the author's "facts" don't
> reflect reality:
>
> "The result of wholesale substitution of stable industries with new
> methods creates A major source of surplus money ... thus releasing
> the money that used to be needed to grease the wheels of the old
> industry in such quantity that it creates a defacto increase in the
> money supply ... As governments find their need of borrowing is reduced,
> the absolute and prospective supply of debt (treasury bonds) is severely
> constrained"
>
> The excess money coming from increased efficiencies is dwarfed by
> the gub'mint's printing presses. A quick glance at the ever increasing
> federal gub'mint debt will show that the author's claim that their
> "need of borrowing" is INCREASING, not decreasing as the author claims.
>
>
> Any conclusions based on this skewed view of reality are not likely
> to be worth very much IMHO.

This Is Not Your Garden-Variety Downturn

I agree with the author that extreme caution is in order. Regarding percentage comparisons with employment in the great depression (25% vs now 7.6%). A more interesting comparison would be actual human beings without jobs or severely underemployed. I think that the number at the peak of the depression was:

13.5 million
vs today
11.6 million

and these calculations were much more conservative/unadjuste... in 1937

GMAC: Three Key Questions

ummm - for my money, buying a new car is just dumb at any interest rate. Cars last 200k miles plus now, and great cars can be had for 60% of *discounted* new same vehicle pricing...great 2009 vehicles with just a touch over 10k miles with fully intact multiyear bumper to bumper warranties. The best thing to do is to have govt buy the cars at their realistic market prices, and get them off the market. Give them at cost plus 10% to the returned/ing vets who are going to have or are having an horrific time getting and keeping jobs - and who have suffered with lower/lowest wages while overseas. Then, after having cleared all the lots with the soon to be decayed/unsellable brand new cars, there can be resumption of valid production from real car companies who compete on the merits *without adding yet another impossibly thick layer of moral hazard" to the mix.