Jim Kingsdale

Does Wealth Equal Money?

In para. 5 I said car and commercial loans will increase. I meant to say defaults in car and commercial loans will increase. Sorry.

Can Deflation Be Avoided?

Two brief comments: I caught the mis-spelling of Roubini but not quickly enough - Seeking Alpha picked up the piece before I changed it. But the criticism is justified. I should have been more careful before posting, not afterwards.

Someone misunderstood my point about stocks and deflation. I did not mean that risings stock prices would cause the economy not to go into deflation (although rising stock prices would help improve consumer spending). What I meant is that rising stock prices would be a predictor that the economy is not falling into deflation.

A problem with my suggestion that we might use stock prices to predict deflation (or anything else) is what period to look at. For example, stock prices could well rise for a few months then fall back again so that the temporary rise would be only a correction in a bear market. Do you look at the rising period or the longer term trend?

It might take so much time for a true bullish trend in stock prices to emerge (a series of higher highs and higher lows that conclusively breaks the downtrend line) that by then it might also be clear from the rear view mirror that deflation was not prevailing.

Can Deflation Be Avoided?

Thanks all for the spirited discussion. First, an apology for the Rubini link. It actually does work if you click on it and then click on the "open message" link. But I've amended my original post on my site to include Rubini's full comments at the end of my post. Go to: www.energyinvestmentst.../

On the actual matter, I think John Lounsbury's point clarifies my own view of inflation and deflation and I should have been more clear and specific. Leading up to late 2007 we experienced conflicting trends of inflation and price declines. There was an asset inflation of enormous proportions in houses and stocks that lasted for many years. There was also some inflation in commodity prices based on real demand from the growth of the world economy. At the same time we experienced price reductions effectively in imports and real wages in the U.S. based on globalization. So any discussion of past or future "inflation" or "deflation" needs careful definitions which I did not provide because different parts of the economy can experience rising and falling prices simultaneously.

When I used the word "deflation" I was thinking about the term as defined by economist to refer to CPI, which, as has been pointed out, is still in positive territory. I'm not an expert on the CPI, but I'll accept it at face value for now. It seems to me as a general rule that if CPI turns negative for long enough the economy can be said to be in a period of deflation. I think that's what Rubini means and his caution about liquidity traps, etc. refers to that.

Clearly we can avoid such deflation while still experiencing the unwinding of the asset bubbles that created enormous increases in the prices of homes, stocks, and (though caused not by a bubble) commodities. The dangerous risk is not the fall in asset prices but a much more general fall in CPI that produces a self-reinforcing feedback loop that it is very hard for government to reverse and which basically emasculates the Federal Reserve because of the "pushing on a string" problem.

Rough Economic Seas Toss Many Boats, Including Oil Price

All: I mixed up the names of the current CEO of Exxon, Rex Tillerson, with the recently retired and agregiously over-compensated past Chairman, Lee Raymond. My apology to readers and to Mr. Tillerson. JK

Economic Anomalies Explained

Reagan campaigned on a combination of lower taxes, higher military spending and lower deficits -using the laughable Laffer Curve to justify what George I correctly called "vudoo economics." But the Reagan insiders at the time were specifically trying to achieve huge budget deficits on the theory that a big enough deficit would be the only thing that could "stop the Democrats from spending money."

That theory didn't work either because it turns out that the American public actually likes the programs that the government spends money on. Each and every program has its powerful and/or broad based constituency - even those awful earmarks.

Anyway, I believe that Reagan knew very well that the Laffer Curve was a joke and did not mind at all inflating the budget deficit. Reagan is a false god of the GOP, in my view. He was a great orator but actually a very ineffectual president with one important exception: he shifted the country away from a union stranglehold on the corporate cost structure.

That shift has continued ever since Reagan and has now unfortunately gone too far. This election will reverse the shift of wealth away from working people that Reagan began, assuming Obama is elected.

Incidentally, for those who thing Reagan brought down the Soviet Union through militiary spending, that is wrong. What brought it down, aside from its own corrupt and inefficient system, was low oil prices. It is true that Reagan's CIA helped engineer those low oil prices.