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Fri, 12 Aug 2011, 5:26pm #1
eggdescrambler
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Wow, excellent. Recapture Austrian business cycle in a very nice way.

http://www.financeandeconomics.org/Articles%20a...

Yes OT, but to what extend, we are talking about economic policy that affect manufacturing, which EEstor is part of, well not yet (I think) :-)


Each month, Dick Weir moves 50% closer to his goal. But when he does: I'll be ready to kick the door and get out of the barn upon reveal. Ron Paul 2012!

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Fri, 12 Aug 2011, 8:54pm #2
who67
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WOW my worst fears confirmed


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Fri, 12 Aug 2011, 10:10pm #3
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A nice post.

Thanks Eggdescrambler, this is a thoughtful article and a good find.

kind regards
ei

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Fri, 12 Aug 2011, 10:35pm #4
eggdescrambler
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Thx guys.


Each month, Dick Weir moves 50% closer to his goal. But when he does: I'll be ready to kick the door and get out of the barn upon reveal. Ron Paul 2012!

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Fri, 12 Aug 2011, 10:45pm #5
grizz
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eggdescrambler,

NO NO NO NO NO NO ! ! ! That article is ABSOLUTELY WRONG. TOTALLY, COMPLETELY WRONG.

It is a very common misconception and sounds logical, but is just plain WRONG. Here is why:

Our money system is special. It is called Fractional Reserve Banking. Money is debt and debt is money. If there were no debt, there would be no money. Expansion of the money supply requires an expansion in debt. Contraction in the money supply means a contraction in debt. This is why the FED tries to regulate the money supply by changing interest rates.

The problems we are having in the world today is called DEBT SATURATION. There is simply too much debt built up since World War II. Too much debt went into building too many shopping centers, too many houses, too many offices, too many factories, too much of everything results in a sharp drop in demand, along with a sharp drop in productivity. Debt is now the biggest bubble in world history. Demand for money is ZILCH even with interest rates at record lows.

Debts cannot be repaid, too many foreclosures, too much unemployment too many empty shopping centers, too many bankruptcies. BOTTOM LINE IS TOO MUCH DEBT DESTRUCTION, and debt destruction is spiraling out of control. Debt destruction means FALLING MONEY SUPPLY and DEFLATION. We are going into the 2nd Great Depression, and inflation is just not possible.

The definition of Inflation is Rapidly rising debts that results in too much money. The Definition of Deflation is falling Debts which results in falling money supply.

The MASTER on this subject is Economist Mike (Mish) Shedlock, here is his latest text on the Inflation controversy. This will settle this Nasty issue once & for all:
http://globaleconomicanalysis.blogspot.com/2011...

Also watch this 2 minute video: Debt is Money
http://tinyurl.com/Money-Is-Debt-2010

Here is the Full Version 40 minutes:
http://tinyurl.com/Money-As-Debt-Full

For the In Depth video series watch "Crash Course"
http://www.chrismartenson.com/

Grizz


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Fri, 12 Aug 2011, 10:53pm #6
eggdescrambler
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Grizz
I totally agree with you, the dollar is a stupid IOU.
It started as being a bank note, to a federal reserve note that could be redeemed in gold coins, to not redeemable (thx to FDR) to floating (thanks to Nixon).
Since then, it's pure debt.

I don't see what you see wrong in this article/essay.

The system is broken and they have to go for an amazing deflation or hyperinflation
(Death by ice or death by fire). We know very well fire is what they like.

I mean, I'm sure you agree with most of this article, so which part you don't?


Each month, Dick Weir moves 50% closer to his goal. But when he does: I'll be ready to kick the door and get out of the barn upon reveal. Ron Paul 2012!

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Fri, 12 Aug 2011, 11:04pm #7
grizz
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On a SIMILAR but related subject is the Federal Debt.

Many people have no clue about how the government makes its budget every year. It is very simple, and called the BASELINE BUDGET LAW that was enacted under Clinton to guarantee expansion of the debt every year.

Baseline Budget Law:
1) Take last year's entire budget
2) Add 7%
Equals new budget.

Now when CONgress was squabbling over "Cuts" in the budget, they were actually squabbling over trivial cuts to that HUGE 7% INCREASE ! So in fact, the entire budget for this year is 6 15/16% higher than last year, which will require 2 trillions more in "Borrowing" Of course our debt is SATURATED and will soon go into default, destroying even more of the money supply. This is why S&P downgraded the USA.

We have arrived very close to that "Day of Reckoning."

Grizz


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Fri, 12 Aug 2011, 11:20pm #8
grizz
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eggman,

The system is broken and they have to go for an amazing deflation or hyperinflation
(Death by ice or death by fire). We know very well fire is what they like.

You are correct,
1) The system is broken, but because of debt saturation
2) Yes, fire is what they want, but ICE is what they get. They WISH they could inflate it away, but they have no choice that DEFLATION is taking over and government is powerless to stop it.

As I said, the money supply requires debt to grow. And it is now impossible to grow debt. Read The Mish link I provided and you will understand and see everything wrong in your article.

Grizz


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Sat, 13 Aug 2011, 5:28am #9
grizz
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The HUGE problem in the inflation-deflation debate is the confusing definition of inflation itself.

1) Is inflation rising prices? NO!
Rising prices are the result of inflation, especially commodity prices.

* Inflation is excessive increase in the money supply which was caused by too much debt.

* Deflation is decreases in the money supply which is caused by reductions in debt levels. In our case by debt destruction.

We are facing a world wide debt collapse which results in DEFLATION and any talk of inflation as part of a debt collapse is purely marketing propaganda to sell gold to poor unsuspecting people. Mish covers the controversy step by step with graphs:
http://globaleconomicanalysis.blogspot.com/2011...

Grizz


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Sat, 13 Aug 2011, 8:13am #10
eggdescrambler
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Again, I totally agree with you. I'm well aware of all this.

The point is, what is the specifics of the article are you in disagreement with?

The guy is talking in the context of the Austrian Business Cycle Theory. Not sure if you are familiar with it - you are probably.


Each month, Dick Weir moves 50% closer to his goal. But when he does: I'll be ready to kick the door and get out of the barn upon reveal. Ron Paul 2012!

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Sat, 13 Aug 2011, 10:25am #11
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Inflation is not an increase in money supply. That's a nice but erroneous definition that ignores the true meaning of money, which is the ability to purchase real goods and services so that the price mechanism can send accurate price signals throughout the market and not change value in time and space as agents and goods and services move about in time and space. So money must be defined in terms of the availability of desirable forms of mass and energy, not the abundance of a fixed-quantity asset like secure-coded single-issue dollars or a hard measurable asset that is largely fixed in quantity like gold. The most accurate and practical way to define money as I described above is to make it follow a basket of commodities (some are mass and some are energy). For example, if the average commodity quantity increases, then the number of dollars in the system should increase so that the price of the basket stays the same. There is no argument from any branch of economics that disagrees with this, except the religious zealots, the Austrians, who worship the God of gold even though their prophets agreed with the basket. The extra dollars stimulate the economy to make use of the extra commodities. This can be done through loans, where debt increases the money supply. Now supposed those loans were not utilized to produce more commodities and even wasted current ability to produce commodities. Then at some point the quantity of commodities will decrease so that dollars will have to be removed out of the system so the value of the basket does not change, this will be destructive to outstanding loans (like house mortgages...houses do not increase the productive capacity of a society), but that is reasonable because the lack of commodities shows that the current cycle of loans were being wasted. This makes it harder to get new loans even if you want to produce commodities more efficiently, but it also means the only ones making money will be those who are producing commodities. This makes this type of money reactively intelligent because it makes loans hard to get if experience shows the loans were being wasted and it protects the average commodity price. If population or demand is increasing too fast for the commodity production to keep up, the deflation forces a slow down. Proper money prevents excessive bubbles across the system, but not in any particular commodity. A boom in prices in one commodity shows it was in short supply relative to demand, so money begins being invested in that particular commodity.

This shows how Mish's discussion is beside the point, not addressing core issues. It also shows inflation is much greater than he thinks and the degree to which he is wrong. Commodities are 3 to 4 times more expensive and this lack of large inflation that he is talking is only a lag in the system of how the U.S. systematically devalues the production of the commodities that we need to for EVERYTHING. If there were no lag in the system, then we would not have had a bubble in dotcom, housing, or shifted so much industry to china. Mish's reasoning is what leads to a day a reckoning while he sucks happily and ignorantly away on the tits of Asia.

Consider that Mish looked at only the past year in commodities. The argument for "we're headed to hyperinflation" is based on things we've been doing since 20002ish if not all the way back to 1972. Hyperinflation is a sudden occurrence that results from a much longer time period of bad behavior. I don't think we'll hit hyperinflation, but you can expect commodities to be triple in price again over the next 6 to 10 years, and at the same time stimulus will get smaller and smaller while taxes increase and social services decrease (military, medicare, social security). So the net effect in 2020 will make Mish seem even more moronic than he is now.

Last edited Sat, 13 Aug 2011, 10:30am by zawy


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Sat, 13 Aug 2011, 10:47am #12
eggdescrambler
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Currency must be:
a medium of exchange,
a unit of account,
portable,
divisible,
durable,
and fungible.

Money must be all those qualities plus be a store of value over time.

----
Disagree with you Zawy.

For example, if the average commodity quantity increases, then the number of dollars should increase

The market will adjust. This means your gold coins can buy more (if their quantity didn't go up).
So what?

By printing money, no matter what form you do, you are screwing up/stealing from the savers.

Say Crusoe ends up on an island. He must get 12 coconuts per day to survive and it takes him about 12 hours to do so.
He decides to *save* 1 coconut per day and eat only 11. He does that for a full 12 days.
After 12 days, he has now 12 coconuts. He can spent the day at the beach and relaxing (this is the equivalent of consumer spending - no real gain) - or he can take that day to build up capital: a tool to knock off coconuts out of trees so he can get 12 coconuts in 2 hours.
Suddenly, he has 10 hours per day available to improve his life! More time to relax, more time to work on other improvements...

If you print money, you are not creating any more resources Zawy, resources allowing to either consume or to invest in building capital (tools, etc):
- commodities
- labor
There is a fixed amount of those, so printing coconut notes will do nothing.
If there was a few more crusoes and one of them was acting like a coconut bank, giving more coconut receipts would do no shit.

Hyperinflation results from a feedback. When people lose confidence on the dollar, this will accelerate. I mean, there won't be any suckers to put any of their money in treasury bonds anymore, which means the federal reserve will have to print the whole thing, which will lead to higher prices which will lead to higher government expenses, which therefore (feedback) will require even more printing (exponential rate).
The official CPI numbers are cooked - check shadowstats.com. If calculcated as in the 1970s, it would show up more around 8% right now. We will likely get into the double digit in a few months. There after, in a few years (2, 3, 4 max) will reach 50% which then sets the fire for good - makes it very visible inflation on the population which accelerate the decline in confidence and trust on the stability of the currency.

BTW- in that crusoe example, after that wonderful tool, the price of coconuts would dive down. So deflation with sound money indicate economic growth as it shows production capacity actually increase.
This is what happened in the USA in the late 19th century. Carnegie's steel factory was able to create steel at a much much cheaper way then before, this lead to much lower prices. Prices across the board then were declining while wages were stable or even increasing. (And the dollar was sound money then. Although using fractioanl reserve banking, banks were careful not to lend too much because there was no potential bailouts then - since no central banks)

Last edited Sat, 13 Aug 2011, 11:02am by eggdescrambler


Each month, Dick Weir moves 50% closer to his goal. But when he does: I'll be ready to kick the door and get out of the barn upon reveal. Ron Paul 2012!

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Sat, 13 Aug 2011, 11:01am #13
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zawy & eggman,

As we get deeper into Great Debt Collapse, the battle between the Inflation camp & the Deflation camp gets ever more heated.

The problem is that arguments from both sides are perfectly logical and make perfect sense. In the end only one side is correct, and the other loses. Some even argue that both sides win, their argument is, First comes the DEFLATION, then comes the Hyperinflation ( or visa versa).

IMO, I am a believer of the Kondratief "Long Wave," which has been 100% Spot On correct since WWII. The Long Wave states that we are now into Deflation and government cannot prevent it. Further, CASH will be KING and all other assets will fall in price.

It is interesting to review steps the government has taken to prevent the coming Depression.
* It was Clinton who first said, "Drop Money from Helicopters" to increase the money supply
* It was Greenspan in the 90's who failed to raise stock margin rates in order to promote the Stock Bubble. This was a FIRST since all prior bubbles were stopped by increased margin rates
* Bank deregulation to promote Sub-Prime Housing
* The Housing bubble to promote debt expansion + employment
* It was Bush who frequently made references to increases in employment, he was trying everything he knew to boost the money supply ( debt).

Bottom line here, I am happy with Mish & Kondratief's Long Wave. One thing is certain: this controversy between inflation & deflation will rage until that "Day of Reckoning" arrives. So pick your side carefully.

Grizz


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Sat, 13 Aug 2011, 1:03pm #14
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At last something I agree with Grizz about.

Baseline Budget Law:
1) Take last year's entire budget
2) Add 7%
Equals new budget.

ALL governments operate this way, and have done since money was invented.

Where I differ from Grizz is that I do not see any reason to suppose that eventually a 'day of reckoning' is bound to come.

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Sat, 13 Aug 2011, 2:33pm #15
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tec,

The "Day of Reckoning" has already started. It is not all packed into a single day, it is within a time interval spiraling into debt collapse. Here is the progress toward the day of reckoning.

1) Sub-Prime Housing collapse, housing prices continue collapsing.

2) Rocketing unemployment now 23% and climbing ( as it used to be measured prior to Clinton)
http://www.shadowstats.com/imgs/sgs-emp.gif
http://www.shadowstats.com/alternate_data

3) Treasury rates near record lows, Bernanke Calls Depression
http://market-ticker.org/akcs-www?singlepost=26...

4) Problem Banks List, 888 banks near record levels:
http://problembanklist.com/problem-bank-list/

5) Debt Collapse has already started in Europe, within the PIIGS countries. Portugal, Italy, Ireland, Greece, Spain. Also severe Austerity stunts demand.

6) Local communities going bankrupt
http://www.zerohedge.com/news/follow-jefferson-...
Also in Rhode Island + California

7) The 1.5 Quadrillion Derivatives Bubble is in dire danger of collapse
http://www.dailymarkets.com/stock/2011/06/13/da...
Translation: Major banks around the world collapse & ALL need bailouts.
Derivatives: The Quadrillion Dollar Financial Casino Completely Dominated By The Big International Banks
http://theeconomiccollapseblog.com/archives/der...

I could go on and on, but I'm afraid everyone's eyes are already glazed over.

Bottom line, it is debt collapse depression, NOT hyper inflation.

Grizz

Last edited Sat, 13 Aug 2011, 3:28pm by grizz


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Sat, 13 Aug 2011, 4:45pm #16
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Grizz
Rick Ackerman was strongly on the deflationist camp until he changed his mind:
http://www.rickackerman.com/2011/04/at-last-a-h...

...after reading this article:
http://fofoa.blogspot.com/2011/04/deflation-or-...

You might not agree with everything stated there but it does substantial foundation.
One is based on that old joke about outrunning the bear in a camping ground: you don't need to run faster than the bear, you need to run faster than the slowest camper...
Since the bankers will be the closest to the printing press, they will be the first to benefit from the newly printed money yet to lose value.


Each month, Dick Weir moves 50% closer to his goal. But when he does: I'll be ready to kick the door and get out of the barn upon reveal. Ron Paul 2012!

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Sat, 13 Aug 2011, 4:47pm #17
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Well if you WANT a day of reckoning, I'm sure you can have one. It appears the tea party do. Your problem.

My point is that it is not necessary.

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Sat, 13 Aug 2011, 5:07pm #18
zawy
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Be sure you are not confusing asset-based debt deflation with price inflation. We will continue to experience a worsening of BOTH debt deflation and price inflation. The price of assets and commodities (goods) are separate economies. They do not affect each other and they are not related EXCEPT as determined by politics (mostly tax law). In our situation, debt inflation was used to inflate the price of houses and other assets so that banks could reap more profit and so that the increasing debt could add some stimulus (we got a sugar high). Unfortunately the loans were not being used to increase our production or improve infrastructure. Assets prices are an economic and mind GAME. The real economy is not related to asset prices. "Economy" in the classical sense meant "efficiency". It was called "political economy" because the purpose of politics was to increase the efficiency of production and to prevent excess wealth that leads to market manipulation. We don't even use the phrase "political economy" anymore because voters can't even relate to the idea that the primary purpose politics should be to increase production (like we understood in the 1800's). Singapore, korea, taiwan, norway, and japan did not lose that understanding (japan actually lost it in 1990). Japan industrialization even got kicked-started by an American economist in the 1800's who is more widely published today in Japan than he is in the U.S. The same story occurred in about 1970 when an American quality control genius went to Japan because he was ignored by American auto industry. You know what happened after that. Now the purpose of U.S. politics is to rape workers for the benefit of the lobbyists.

So as debt deflation sucks the excess sugar out of our blood (we're about to go on a diet), while price inflation from a rising RMB and Asia will continue to suck the protein and other nutrients out of our blood by making them too expensive at the same time our asset values decrease and ability to get a loan decreases. This is only natural given how we abused the ability to take out loans from each other and the world, squandering the money on a sugar high, same as Spain did several 3 centuries ago with gold as it lost it's power and the U.K. took it's place. It squandering the gold on foreign labor and goods, losing its skilled labor and industry. But I'm not a history dude. That's just the story I remember from junior high.

We had our chance to use the loans to build muscle and blew it on ice cream. We inflated asset prices instead of investing in production.

Last edited Sat, 13 Aug 2011, 5:25pm by zawy


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Sat, 13 Aug 2011, 5:36pm #19
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Guys, to fix a problem you need to understand causation.

Do you recall the figures produced by the BIS before the GFC in 2008.

It was something like
CDO's USD11 trillion
CDS's USD56 trillion
Derivatives USD1.3 quadrillion

These each comprise two elements, assets and liabilities.

The only problem is that the TBTF banks had learned to game the system. What is more, with the repeal of the Glass-Steagall Act, the US giants had the opportunity to do it using the leverage of everyone's savings.

Excessive government spending made the problem twice as bad.

Of the USD11 trillion of CDOs there was about USD 4 trillion that was never going to be repaid. That destabilised the CDS's in a way that could not be immediately understood. So counterparty risk shut down the interbank settlement systems. The USD4+ trillion is still there on the balances sheets of banks, the Fed, the ECB, BOE and numerous governments and government agencies.

So instead of jailing the bankers who gamed the system, the OECD governments rewarded them by changing accounting rules so they could continue to mask debt, by buying toxic assets off them and by providing bridging loans.

The only problem is that a proportionately similar number of rorts lay hidden within the derivatives market.

As a result, by my estimation the size of the problem was USD100+ trillion. This was reflected by bubbles in the strangest places caused by easy credit. Given global GDP was only USD61 trillion, the USD10+ trillion already wagered by governments to deal with the issue is just not enough to match collateral with debt.

To preserve the system using inflation we would need to triple the money supply (by all measures) at the very least.

Hence Bernanke is locked into QE3, 4, 5 etc. over the next five to fifteen years - depending on whether it is possible to reintroduce responsible government into the USA and split the TBTF banks by anti-trust legislation - or not.

The biggest problem is that in Germany the man in the street has learned their history well and hyperinflation is nothing that they want to have anything to do with - yet they don't want their banks to fail. So the ECB could fall off a cliff and the Eurozone and its currency collapse while German politicians dither.

I favour neither the inflationary route nor deflation. I would instigate the split of the TBTF banks, introduce benevolent dictatorship to the USA for five years and both increase taxes and reduce government spending to return the system to an equilibrium.

USA. Read my lips. Your democratic model has failed you and you are now locked into a series of dysfunctional governments. They have shown no accountability to the people in the key areas of economic management or the power to wage war.

If the economic crisis was the only problem things could be manageable. But that is not so. We are now entering an epoch where there will be competition for global resources. Remember the golden rule, "He who has the gold makes the rules".

That means that as peak oil approaches, many formerly rich OECD countries that are now laden with debt, will be unable to compete for resources with the emerging economies - unless they do so militarily. Already this is happening in Libya with China giving up and taking its 30,000 oil workers home.

We live in dangerous times. So Mr Obama, as the Aussies would say. "either piss or get off the pot". You must use your position to impose strong government.

Your choice.

Meantime the economists will continue to think this problem is all about them. It is not.

kind regards
ei

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Sat, 13 Aug 2011, 5:52pm #20
Tec
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As a dispassionate observer, it seems to me that Obama has been targeted by Fox News (Roger Ailes) and the tea-party nut cases for daring to suggest that americans deserve to be relieved of the financial stress that currently accompanies illness.

Clinton, who also pointed out that this was a good idea was similarly destroyed by the media.

Its not for me to tell any other country what to do or not to do, but I can tell you this. You are very ill-served by your media.

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Sat, 13 Aug 2011, 6:26pm #21
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Perhaps this audio/visual is helpful for explaining the current problems the world faces...

http://peakoil.com/generalideas/the-crash-cours...

kind regards
ei

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Sun, 14 Aug 2011, 3:32am #22
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energy investor, those are just asset prices, not goods, services, or commodity prices. Therefore it is just a finance game, not a part of the real economy. We can and should let those assets and liabilities fall to zero or mark-to-market. Governments can then tax or print to cover what little is left over and reasonable like money market and bank deposits. House values falling would be a deflation pressure only for those who do not already own their house and are going to pay it off. This deflation pressure is mainly to the benefit of the young and poor, so it is like a tax on the rich. Retirement plans would lose on some investments that they should not have made as a result of listening to ratings agencies instead of conducting their own DD. Short term liquidity could be provided by government keyboard credit or money printing. The U.S. gov would still lose about $10 trillion in mortgaged-back toxic assets that it paid 100% on the dollar for from banks (a gift to banks that has not yet come back to haunt taxpayers). So there would be both inflation and defkation pressures, but nothing like what you describe. What you describe may happen, but i'm showing why it is not necessary.

If there are a lot of bets on commodities on margin that are backed by asset inflation that we suddenly eliminate by defaulting on loans, it would cause a deflation in commodity prices, but this is not reducing the number of dollars in the transaction economy. It is simply making commodities cheaper that hurts commodity producers but helps manufacturers. Also, cheaper housing from asset deflation would nearly stop new construction until the inventory was used up and thereby reduce demand for commodities, goods, and construction services, making them less expensive again without decreasing money supply, helping some and hurting house construction. In both cases it is a needed readjustment of market forces. So there is equal good and bad deflation from asset deflation if the debts are cancelled by defaulting, and it makes resource allocation smarter.

It is commonly thought that repaying debt is monetary deflation in the real economy, but it is not if the loans were used to inflate asset prices. But if the loans were used for 2nd mortgages for transitory spending, they were simply a monetary stimulus which has to come back as necessary and harmful monetary deflation once the loans are paid back. There is no way around this, and it is fair. The amount of loans the government and the people took out for transitory spending is tremendous, and it will come back as monetary deflation if the government stops printing, or inflation if the government prints. If the government does half-way between the two, then prices could stay the same as more and more people lose jobs and wages are lowered. So deflation and inflation are the same sides to the same coin: misery. Saying they are two different dangers in our situation is like saying a temp of 100 C is different from a temp of 212 F.

$1 to buy a loaf of bread when you make $1 an hour (deflation) is the same as $10 to buy a loaf of bread when you make $10 per hour (inflation).

So the way to prevent harmful monetary deflation is to default, or to not let loans be used for mere consumption in the first place. Asset price inflation only shifts wealth to those who were already in possession of the asset. It can inflate and deflate via debt creation and payment with no other effect on the economy, provided the money is not cashed out of the asset more than it is cashed into the asset and thereby no net use of the asset price change was used in the real economy (therefore no net effect on other prices).

Americans have had commodity inflation hidden from them by asset inflation. When those assets come back down to mark-to-market values, the commodity prices will hit will full force, 4 times their 2002 prices if they do not increase anymore. Tomorrow's increased taxes and decreased services (a.k.a. today's government debt) are keeping the asset prices inflated while the banks are being allowed to shift their assets elsewhere, leaving the taxpayer with a $10 trillion bill in mortgage backed securities, in addition to the $14 trillion the government already owes (not counting social security obligations). Interesting times are ahead.

Anyone interested where I learned this type of stuff should read Michael Hudson.

Last edited Sun, 14 Aug 2011, 6:41am by zawy


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Sun, 14 Aug 2011, 5:41am #23
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Registered: May, 2009
Last visit: Fri, 23 Mar 2012
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Eggman,

...after reading this article:
http://fofoa.blogspot.com/2011/04/deflation-or-...

Sorry but that is just a mix of fact & fiction.

Zawy got it best.

Here is the problem: The inflationists mix true facts to come up with false arguments.
* It is indisputable that severe price inflation has occurred since 1940's, this we can all agree on. Why? Because of the massive increase in debts. Debt creates money. Massive increases in debt creates massive amounts of money. We all agree that the FED can buy worthless debt. We all agree that the banks WANT to inflate the money supply every year so people can pay interest on their debt. Unfortunately, this debt expansion cannot go on go on forever.

* Here is what changes EVERYTHING. The mass of debt & money since WWII created much more than inflation. It created too much of everything. Too many shopping centers, too many homes, too many office towers, too many factories producing too many goods, too many closets STUFFED with clothes, too many roadways, too many TV Sets & just too much of EVERYTHING. This is THE turning point between inflation & deflation. From this point forward:
1) Demand for money collapses & interest rates fall
2) Unemployment rockets
3) Businesses shuts down
4) Homes & offices go vacant
5) Factories shut down
6) Demand for money continues collapsing.
7) Bankers tighten lending standards ( no more sub-prime )
8) >>>Debt levels stop increasing and actually go into decline. This is the beginning of the Long Wave Winter phase.
Money is debt & debt is money. When people vastly reduce their borrowing, and bankers tighten lending standards, overall debt levels go into decline causing the money supply to decline. RESULT IS DEFLATION. No more inflation & certainly not hyper inflation.
9) No mention of debt destruction as yet caused by foreclosures & bankruptcies. No mention yet of Sovereign debt collapse. No mention yet of TRADE WARS. Plunging demand for loans is the MAIN force behind this depression.

We all agree that prices of goods will fluctuate as always, however the motive force behind decades of inflation (ever rising debt levels) is now GONE. For the next 10 to 20 years it is DEPRESSION with falling money supply.

Maybe if government starts dropping money from helicopters there will be hyper inflation. Maybe World War III will reset everything to cause a new debt cycle. Maybe a lot of things, But not today.

Government can't force people to borrow & they can't force bankers to lend. Those days of SUB-PRIME & easy money are GONE.

The Kondratief Long Wave is in control. Bernanke & Greenspan used to brag that they were more powerful than the Long Wave. They are no longer bragging.

PS) Beware of anyone trying to sell Gold. They have an agenda to twist the facts to justify their gold sales.

PSS) This subject of Inflation vs Deflation is extremely tough because so many people twist the facts to support their agendas, or they are simply confused about what causes growth or decline in the money supply, or they are confused about the definition of inflation/deflation.

Grizz

Last edited Sun, 14 Aug 2011, 10:34am by grizz


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Mon, 15 Aug 2011, 5:25am #24
grizz
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THE FAILURE OF KEYNESIANISM
================================
The current economic crisis shows that the state has failed to manage the economy and that politicians have too often adopted the Keynesian approach, writes journalist Urs Paul Engeler in the conservative weekly Die Weltwoche:

By following today's apologists of the British economist John Maynard Keynes (1883-1946), the so-called 'welfare' states pumped too much money (which they didn't have) into consumption: into pensions for all (Europe), exorbitant armament (US), endangered industries (both), and finally bailouts for ailing mortgage banks (also both). This intervention was celebrated by Keynes' disciples as the 'return of politics'. In reality the hopelessly over-indebted states only exacerbated the crisis. Today they are locations of insecurity.

Those who argue that the state should be active with funds, subsidies and interventions - in short that it should perpetuate the debt economy - turn the wheel in exactly the wrong direction.
http://globaleconomicanalysis.blogspot.com/2011...

Grizz


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