After this morning's link to Rick Ackerman's latest deflation article, his site manager contacted me about doing a guest post on RA.com and noted that Rick has offered to provide one for me to post here. Now, when one of the relative few who you kind of look up to in the field offers something like this you say "hell yeh!". An article will be forthcoming in which I will use the email exhange below as a starting point.
This prompted me to go search Rick's site to see if I could dig up an old re-printed email exchange Rick and I had on the subject of inflation and deflation. Here it is: Readers Weigh in on Deflation Threat. This was almost exactly 5 years ago folks and just goes to show how long these slow motion train wrecks can take to play out. Oh and there's that term 'deflation impulse' that we are seeing pop up all over the place now.
Ah heck, here it is reprinted. I don't think RA will mind. People, you must be really careful about what you read and what you believe going forward. This is not a drill.
by Rick Ackerman on June 16, 2005 4:49 pm GMT
My recent comments on deflation have prompted some interesting responses. Here’s one from Gary Tanashian, proprietor of www.biiwii.com (‘Not bullish or bearish, just dealing in what is!’).
‘I couldn’t agree more with most of the ideas put forth, and I am one of those inflationists. I think those of us talking about inflation or hyperinflation, at least those who bother to think out the details, know that the whole argument revolves around how we get to our final destination, which is of course a deflationary reckoning of levels of excess layered one over the other for decades. [Those 'levels of excess' include a derivatives market valued at over $200 trillion ' an outlandish sum when you consider that global GDP amounts to less than $40 trillion per year. RA]
‘In my view, the inflation game is played against the deflationary impulse or need to correct. It is the Fed and other forces pushing on a string, and one day they will find the string simply goes limp and all the inflated chickens will then come home to roost. [I agree, of course. Credit cannot expand unless there's an asset that can be used as collateral, and we've pretty much exhausted the big one: real estate.]
The ‘Good’ Deflation
‘I am a friend of [a well-known guru whom you also know], so you may guess where some of my influence comes from. But also, I am a manufacturing guy, and I have witnessed productivity first hand in the form of automation and other progress through technology and ideas. The crux of the way I see things is that deflation (at least in capital flowing to the US manufacturing sector) has been a good thing, driving progress and productivity; but it has been perverted in recent years/decades to the point where it is cast as bad, while inflationary policy is cast as good. This scenario makes me ill when I think about it, because it has become a self fulfilling prophecy. Deflation is a wellspring of progress and resulting lower prices that has been poisoned by the easy money crowd.
‘Anyway, thanks for the well thought out review of the situation. I swear after a while it all sounds like “inflation blah blah blah………..deflation blah blah blah” and meanwhile, 95% of the people are sleeping right through the debate. [�to be rudely awakened someday. Thanks for weighing in, Gary.]‘
Disclosure: No positions mentioned