Because we all knew that this academic do-nothing was laying in wait to put his theories to the test. Here is something I wrote in 2005, not coincidentally mentioning Gentle Ben and not the actual Fed chief of the time, Alan Greenspan. It has always been fated that Ben and his theories of battling the dreaded deflation would come center stage as a late-stage, former great economy (and society) is brought to its knees. The result is maniacal monetary policy that seeks to monetize our own used up excess (debt). It won't work. People should have been preparing for this since the guy made his "Why IT won't happen here" speech in 2002.
I will maintain that the deflationists have it backwards; it's inflation first, and then the final deflationary destruction. Unfortunately, if this holds true, those most prepared for deflation will not have survived financially to take advantage when the whole thing pancakes one day. A continuum has been in play here for years. Re-reading the article below, I realize that things just do not change along a continuum. Especially when things are controlled by the most myopic and predictable clerks on the planet.
Have fun with the current bubble fest. I am sure the nervous nellies are right now planning to enter da house, feeling as though they've been duped by the deflation canard. Problem is, deflation is real and it has a way of happening in impulses; violent, terrible and destructive impulses that come out of nowhere. So I would look ahead and tell the i Boys and i Girls, that the script has always been deflation impulse... inflationary heroics... deflation impulse... inflationary heroics... deflation impulse... inflationary heroics... until one day, the final deflation and the end to the system.
Contrary Indications II
By: Gary Tanashian | Thu, May 5, 2005
The good folks at Elliot Wave International must be taking notice. They are always on the lookout for indications of group-think as manifested in major publication headlines, investor sentiment surveys and other tell-tale indicators of the great herd's mindset at any given time. The dreaded "D" word is starting to show up in what seems like every other article posted to some of the most popular market analysis websites. EWI does not particularly like running with the herd, and as you may know, they are the most visible and in my opinion, esteemed members of the deflation camp on the planet.
Here at biiwii, I have personally been writing about deflation from the humble beginning, which admittedly is only last summer, but became more strident about it [of late]. Analysts I respect, such as Steve Saville, have been tracking the current deflation "scare" for even longer. I must tell you that, as one of the "fringe" types alluded to in another commentator's very recent article, I am on high alert for continued DEFLATION or THE BEAR IS BACK type headlines. Right now, it seems that nearly everyone is following the trail of bread crumbs the Fed is leaving. Following the obvious path that everyone knows will lead the way out of the woods. I should note that in my personal (non trading) accounts, I am not fighting the Fed either, but rather diversifying and walking a middle road between gold/silver ETF's/CEF's, short term treasuries, global bonds and cash. But this [tack] will only apply until the picture becomes more clear, and the time to make a stand arrives.
As stated in this space many times, a true deflationary spiral CAN NOT be allowed to take hold now. We are too far out on a rotted limb, and if it snaps, the whole sordid mess falls to the ground in one big heap. I will watch the USD's daily progress, the bond market's ongoing dance with the Fed, the cracks deepening in the largest and most dangerously leveraged of America's corporations, the relationship between gold and the miners, and of course those deflation headlines for indications as to the duration of this deflation "scare".
The Fed is telling us that they will continue to remove accommodation at a measured pace. Those who have charted the course of the enormous liquidity bubble that they have accommodated thus far, know that this is all for the headlines. Every time I hear a mortgage add on the radio touting "interest only" or "Poor credit? No problem!" or "shouldn't YOU own a piece of the American dream?", I want to hurl (the radio out the window!). Something for nothing does not work people.
But I digress from the main theme. The damage has been done, and now the name of the game is financial survival. Following the Fed's bread crumbs is fine in the short term, as I am sure that the term "don't fight the Fed" was born of someone's painful experience. But in the big picture, one may want to consider that the Fed created the overflowing punch bowl they're now trying to take away, politicians always want to do what is most popular and America has become a country that seems to value feeling good above all else. This is a recipe for inflationary policy, in the guise of fighting the dreaded deflationary forces.
We "fringe" types will be watching for Ben Bernanke's helicopters after we see enough "Deflation" and "The Bear Is Back" headlines. As stated previously, I see two paths left open. First is the obvious where the Fed continues to drain the swamp, triggering a painful and enduring deflationary progression as truly awesome levels of debt and leverage are unwound. The second is the path human nature would dictate, following the instinct for (financial and economic) survival, down the happy road to inflation, whereby the ongoing, productivity-based and righteous (and now sadly, toxic) deflationary environment is again used as a reason for policy makers to come to the rescue.
As always, the headlines and group sentiment should prove valuable in helping to determine what course will be taken and when. Right now the herd is becoming ever more convinced the Fed is in control and staying the course. What do you think? Disclosure:
No positions mentioned