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A Day Of Deflation | |
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Date: August 11, 2004 10:30 AM
Author: Finster
Subject: A Day Of Deflation
Ever wonder what deflation would look like? Nothing mysterious about it. Just look at today. Dow down. Nasdaq down. NYSE down. Realty down. FTSE down. Eurozone down. Gold down. Oil down. Bonds down. Silver down.
What do all these prices have in common? They're denominated in dollars. If you were to price dollars in stocks instead of the other way around, you'd see that the stock price of dollars is up. The gold price of dollars is up. Dollars up.
If deflation is the next trend, days like today would be common.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175059)
Date: August 11, 2004 11:54 AM
Author: The Reaper !
Subject: Finster & Deflation
The vast majority of people don't have a clue as to what deflation is . They think that in deflation , that one morning they will wake up and prices on all the things they buy just start falling . They think that deflation would be a good thing . and actually cheer it on . I might add that they also think that their pay check will remain the same , and that everything they purchase will become like an eternal Blue Light special . Most of the people alive today ,have only experienced Inflation , due to the fact that they were born into the post WW2 inflationary era . Ask 1000 people for a definition of what happens in deflation and not one will have the correct answer . First , history tells us that deflation is a global event , in our new era of deflation it's seeds were planted in Japan , the first of the G7 to experience Baby Bust Deflation . Just as one would expect , it is in fact spreading throughout the world like a cancer . Companies don't even announce their restructuring any more , they are now constantly restructuring , cutting cost has become just a daily part of staying alive in business today . Stock holders cheer this phenomenon on , in fact if the management doesn't fire more people and get the stock up , they will sell the stock . What the majority stock holders don't realize , is that they too are employees and will eventually be fired too . Today we see the net worth of companies and households falling , it starts with the most vulnerable and then eats it's way up the totem pole . At the same time we see the net worth of the lenders rise in exact proportion to the borrowers losses . In deflation profits don't exist , this is why corporations begin book keeping fraud , they start counting eye balls and other silly things instead of dollars of profit . Without a monopoly position widget making or service businesses actually lose money in deflation . This is why services are moving to India and the production of widgets are moving to China . Eventually India and China will become to expensive , and those jobs will move again and again . It all ends when there are more defaults than the lenders can absorb , and then the next Great Depression begins . The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175084)
Date: August 11, 2004 12:14 PM
Author: Finster
Subject: Cash
Deflation is a good thing only if you have plenty of cash.
Cash is king!
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175093)
Date: August 11, 2004 12:30 PM
Author: The Reaper !
Subject: Finster & CASH
You wrote ,...."Deflation is a good thing only if you have plenty of cash."....That is exactly correct , and that my friend is exactly why I am now in CASH ! It took a dozen years for me to get to this point , and I can honestly say that I have zero regrets . Since selling out my standard of living has improved dramatically . Instead of trying to survive in a service or widget making business , I have become the financier of same . Low and behold , there are profits to be had on this side of the fence . On this side of the fence there are no clocks to punch , no ditches to dig and no quotas to meet . The borrower does all that mundane stuff . My only regret is that I didn't get here sooner . The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175101)
Date: August 11, 2004 02:23 PM
Author: slopro
Subject: Reaper.......a man with a different View!
http://www.mises.org/fullstory.aspx?control=1583
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175125)
Date: August 11, 2004 10:12 PM
Author: Thye Usual
Suspect
Subject: Inside the fence,,or behind bars?
Being the inside man on bank jobs, probably won't lead to a long career, REAPO,,,,,
What did Willie Horton say,,,,the best way to rob a Bank, is with a PEN.....
I am still trying to fathom what "Hot Checks" Funster had to do with all this.
I thought he was supply'n the illegals "list",, to market those espanolers, bunk rooms; from the guvment arrests records...
OH well, I am sure Mr. Holmes and DR. Watson will get to the bottom of all this soon enough...
HARR & TUTs
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175323)
Date: August 12, 2004 08:11 AM
Author: Finster
Subject: Hot Checks?
Usual, you got something mixed up here. It's "Hot Chicks" Funster...
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175437)
Date: August 11, 2004 11:11 PM
Author: Lucius Foster
Subject: Stay fast on your feet and the race can be run on a wet
track
Inflation, Deflation so what. Merely a different situation and this calls for you to react. In Inflation you do a series of events. You gather, hold and then sell. You repeat until you see the waver in the flower pot up at the top of the Spike. You get off and you go cash. If you do not like the cash in your country, then take it somewhere else. In olden times people held money in Swiss Banks and designated the deposits in Swiss Gold Francs. Or they invested in down cycle business. Entertainment a great down cycle business. For some reason everybody wants to be entertained and not look at the realty of the times. So Boys and Girls stop, look around stay loose in your seat and make the moves as they are called for. For example there is a thing done in depression times in real estate. It is really profitable and calls for no capital just a lot of Hutzpah. Like being an agent for a non talent comic. You take over ownership of a multiple unit with no money down just a lot of talent and prior experience. It is helpful if you have at least lived in a multi unit. AKA an apartment house. You pay for this unit by a sliding scale of what you can collect in rents. When you take over it is a looser and you just pay a percentage of collection. As time goes by and you do a good job the income get bigger and the return to the prior owner now mortgage holder is larger. Did you ever hear of this before? Of course not. You have to research hard times you will be amazed at what methods you will find. This is survival and actualy it is a lot of fun. You will be suprised at what you will see if you will only look and be knowledgable as to the times. This little method goes back to the time of Gracus and the slums of Rome. Four and Five stories up and tipping toward the middle of the streets. The property managers mostly ex members of the Praetorian Guards took them over into ownership and paid a percentage of rents collected to the old owners who in time settled for less and less.
Oh Tempore!
Cheers Lucius I must visit my old Apt in Rome super slum.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175344)
Date: August 13, 2004 06:51 PM
Author: richard
"You have to research hard times you will be amazed at what methods you will find"
Anyn help re: sources for research? Im a little on the younge side and would appreciate some perls thrown my way.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176112)
Date: August 11, 2004 03:19 PM
Author: Vangel Vesovski
If you want to see true deflation you should look to the era of the gold standard. If you want to see lasting deflation under a fiat system you will need luck. No debtor nation has ever seen the purchasing power of its currency go up over the long term so your question is a purely theoretical one.
As you know it is my opinion that you will see a worthless FRN well before you can see deflationary pressures in your economy.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175165)
Date: August 11, 2004 09:04 PM
Author: DaveGillie
Subject: So why do you want to live in a world of DEFLATION??
Most every economist I've ever read says price STABILITY is best, WHY do you prefer deflation? I don't, I'd prefer stability.
DaveGillie
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175307)
Date: August 12, 2004 08:26 AM
Author: Vangel
Vesovski
Because a market driven deflation that comes about because of improvements in productivity allows workers to live in dignity as their savings gain in purchasing power with time and are not wiped away by inflationary monetary expansions. Price stability is good but occurs so rarely that it is not even worth discussing except in theoretical terms. Of course, deflation does not work out well for anyone in a fiat system which is designed to inflate or collapse. It requires commodity money that is not controlled by a central bank and cannot be created out of thin air.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175441)
Date: August 12, 2004 08:51 AM
Author: Finster
Subject: Deflation Does Not Require Commodity Money
Or Japan would not have just been through it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175455)
Date: August 12, 2004 08:05 PM
Author: Vangel
Vesovski
Subject: The future is Argentina, not Japan...
As long as you run a current account surplus you can have deflation in the prices of some goods and services even in a fiat system. But you cannot have a fiat system, a current account deficit and general deflation at the same time. I expect that US real estate, bonds and equities will fall in price at a time when the costs for energy, insurance, health care, tuition, gold, silver, platinum, etc., are moving up higher. The future is Argentina, not Japan.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175714)
Date: August 12, 2004 08:30 PM
Author: Finster
Subject: Neutraflation
That would not be much "flation" at all, though. Price inflation and deflation are terms referring to changes in the general price level. If some prices fall and others rise, you have general stability in the value of your currency. Let's call that "neutraflation".
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175722)
Date: August 13, 2004 11:32 AM
Author: Vangel
Vesovski
But you need to drive and eat while you can always move to smaller and cheaper digs. When the FRN does not buy the things you need to sustain you I would hardly call it neutral.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175907)
Date: August 13, 2004 12:22 PM
Author:
Finster
Subject: Middling Muddle Through
So in your scenario, the FRN appreciates relative to equities, bonds, real estate, and depreciates relative to materials, energy and tuition.
So if you were in charge of the FRN and trying to steer a steady course, is this not the best that you could do?
If you have equities, bonds and real estate falling, and materials, energy and tuition rising, it seems to be you only have three choices:
Now the dilemma here is obvious. If you were successful in pursuit of the first objective, you would be pursuing a course of high inflation in materials, energy and tuition. If you were successful in pursuit of the second objective, you would be pursuing a course of deep deflation in equities, bonds and real estate.
Would it not then be reasonable to "shoot down the middle", and try to aim for aggregate stability, and settle for mild inflation in materials, energy and tuition and mild deflation in equities, bonds and real estate?
That is, would not the neutraflationary outcome signify your success as a central banker?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175925)
Date: August 13, 2004 08:22 PM
Author:
Vangel Vesovski
You are continuing to propose that we have the banks and governments meddle with the money supply in order to come up with some desired outcome. Frankly, I have always favoured the free market solution. Let us abandon the idea that central banks are any better at planning than the Chinese or Soviet bureaucrats that drove their countries into failure. Let us go back to what works and allow money to have the property of storing value just as it always did. Unless we do that people will always be in danger of losing their savings to deflation and will lose the dignity that comes from the ability to be independent.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176129)
Date: August 13, 2004 09:21 PM
Author:
Finster
Subject: As It Is Or As It Should Be?
Oh goodness no! I am not proposing any such thing! I am merely discussing what might be expected to happen given that such a thing is being done.
If you were a central banker and had only the standard policy tools available, what would you do? Would you choose the deflationary course? The inflationary one? Or the neutraflationary one?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176144)
Date: August 14, 2004 01:27 AM
Author: SirEdward
two of the three, sequentially. the second first, followed by the second. next problem please.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176182)
Date: August 14, 2004 08:33 AM
Author: JB
Subject: From prudent
bear chat
Post by 'tanstaafl' at prubear chat:
You are misusing the word deflation. Falling prices in localized assets and consumer items is NOT deflation under ANY credible school of economics: neither classical (Austrian), nor Keynesian/monetarist. Conciously, correctly, and consistently understanding and using words is vital if you wish to avoid babel. Let's call this the yellow pill. I presume you don't want the yellow pill ... it will make you look ignorant in economic circles.
That leaves you with a CHOICE of two pills: Red or Blue.
There are TWO sets of definitions in use by legitimate economists and knowledgeable laymen for the words "inflation" and "deflation". The difference is important, it is the difference between staying in The Matrix or toughing it out in Reality. Here is important history you should grasp before you make your choice:
Prior to the Great Depression, there was only ONE accepted economic definition of deflation: an actual reduction in the supply of tangible money. This definition worked well in communicating reality and permitting logical economic thought which led to correct deductions. Those who worshipped bigger government, though, had other priorities than truth, reality, and clear communication. These Statists hatched a plan to create more darkness ... "for the people's own good", of course.
Keynesian economists -- aka Statists of various persuasions, whether they called themselves Communists, Socialists, Fascists, Nazis, Democrats, or Repubicans, or something else -- found the existing definition embarrassing and "confining". It was embarrassing as it made it clear that government was THE CAUSE of all significant "inflation" and, generally, all economic busts or "depressions".
The existing definition was "confining" as the Statists all "believed" in endlessly bigger government -- in a ruling class. They were determined to destroy the Jeffersonian ideal upon which this country was founded: limited government. To do this, they determined to govern what you thought. To govern what you thought, they decided to change some strategic definitions.
It was commonly know at that point that without inflation of the currency the government could not be grown faster than taxes could be raised -- and taxes couldn't be raised much without encouraging revolution. "Tsk Tsk" said the Government worshippers, "we must find a way to get that damned inflation word out of the way."
So, F***ing Dictator Roosevelt made ownership of gold a FELONY (because Gresham's Law of economics couldn't be revoked, and Gresham's Law would quickly show the lie of fiat money) and changed the definition of the "dollar" so it was no longer a proxy for an asset but only a proxy for ... nothing.
As long as they were at it, they decided that "Depression" was too -- well -- depressing. So, to better manage people, they decided that henceforth all Depressions would be called a "Recession". And even then, they made it so that a Recession couldn't be called until well after the fact and by agreement of an appointed committee.
But this wasn't enough. So they mandated new definitions for the economic terms "inflation" and "deflation". (Pay attention, this is where you came in)
Instead of the traditional, objectively quantifiable definition of inflation/deflation being an increase/ decrease in the physical quantity of tangible dollars, their new definitions was strictly subjective. Henceforth, inflation would be DEFINED as a generalized increase in all prices and deflation would be a generalized fall. Note that by generalized I mean, a simultaneous increase or decrease in basically ALL prices. This was really nifty, for a number of reasons, including (1) it is impossible to accurately and simultaneously measure changes in ALL prices, so what was going on would be almost impossible to prove and (2) this would get people focussing on an EFFECT, rather than a root CAUSE.
Further, so that the sheeple wouldn't worry their little heads too much -- except when the Statists wanted them to -- the Statists adopted an "official" measure of inflation/deflation under their newspeak definition: the CPI. Henceforth, the sheeple shouldn't pay too much attention to their own sense and sensibility: the government would tell them what they needed to hear.
And, to make sure that people would never wake up and disrupt the new system, the Statists began the teaching of their new way of thinking and their newspeak in all the publicly mandated and publicly funded schools and refused to hire or countenance economists who refused to comply with the plan.
The brilliance! Henceforth there need never be deflation again, no matter how the government and the bankers abused the system. Further, the new definition of inflation as being only a subjectively measured EFFECT, made it easy to blame God, selfish businessmen, unregulated markets, stupid citizens, and awful Arabs for any bubbles, crashes, or inflation.
The slow and steady DECREASE in prices which was the EFFECT of productivity improvement and tremendously benefitted consumers, would henceforth be stolen for the government. The government called this beneficial general price decrease "deflation" and indoctinated the sheeple to fear it -- to BEG for more inflation to "fight" it. Diabolical.
Since the Fed could print basically unlimited numbers of dollars for an average be created for an average real cost of maybe 1/1,000,000 of a dollar in exchange value, the Plan brought the Statists close to Statist nirvana and powered the totalitarian State. People were turned into "coppertops". The US lost its Constitution and the vast majority of the population cheered. They cheered!
There's a lot of filler material which you can read on your own at mises.org.
But first you have a more fundamental decision. Will it be the Yellow Pill, the Blue Pill, or the Red Pill?
Knock, knock, Neo. The Matrix has you.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176229)
Date: August 14, 2004 09:36 AM
Author: Finster
Subject: Pointy
Headed Nerds
These semantic arguments are a waste of time. It amazes me how much effort people supposedly concerned with real financial and economic phenomena will put into defining terms - which is a linguistic, not an economic, endeavor.
Ultimately, the arbiter of language is not some academic committee in an ivory tower; it's the conventions people choose to employ in the real world. If enough people use the term "deflation" to refer to falling prices, that makes them - not self-appointed pointy-headed nerds - correct.
The substantive issue that sometimes gets overlooked is the cause-and-effect relationship between the nerds' definition of deflation and the one real people use. That is, a falling quantity of money and credit as cause as versus falling prices as effect. No doubt there is a such a relationship - basic supply and demand dictates that that be so. But the former is not so easily measured - economists can't even agree on how to properly measure the money supply (see e.g. "Other Voices", Barron's August 9, 2004).
So us regular people are not only right by definition, but have something more observable to talk about than the proverbial number of angels...
For the record, my postings here use the term both ways. The meaning is clear from the context.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176238)
Date: August 14, 2004 03:17 PM
Author: JB
Subject: The point
is...
There's nothing to stop inflation as it's truly defined and classically understood. especially with a Fed that makes comments about drooping dollars from helicopters and how liquidity can be created at the stroke os a keyboard.
Did you ever read the Ed Bugos article in the other thread or the one by Puplava??
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176332)
Date: August 14, 2004 04:54 PM
Author: Finster
Subject:
Nothing Personal
Of course, I didn't mean you were a pointy head ...! ;-) Just that quote kinda set me off on one of my tangents...
I should probably clarify that my citation of
last Wednesday as an example of what deflation looks
like wasn't intended to be construed as a claim it
constituted the beginning of a trend. At least that
looks like how Vangel took it. I've already laid out
my
deflation case in this forum.
The Bugos and Puplava articles are on point (I'm
an admirer of Puplava and FSO), but if the
conclusion to be drawn is that deflation can't
happen in a paper money and central bank system like
ours, I beg to disagree. Although Bugos does go
further than many analysts in recognizing the demand
side of the credit equation.
But he is incorrect in his insistence that the
deflation experienced in the US in the 1930s was a
consequence of the gold standard. It was a
consequence of debt. Just as Ben Strong determined
to administer a little "coup de whiskey" in the late
twenties, Ben Bernanke threatens more of the same.
He can flood the banking system with as much paper
money or its electronic equivalent as he likes, but
he still faces a distribution problem.
Japan provides a more contemporary example of
deflation, and one un-underpinned by gold. The US
recently experienced its own wave of deflation;
again, without the underpinning of gold, this time
making it a global affair.
Consider that if the central bank creates money
by lending it, what happens when it is paid back?
The lent money mostly winds up on the balance sheets
of people like you and me (well, hopefully not us in
particular) as debt. These are the hands into which
Bernanke must get his crisp new fiat, and there is
no quick legal mechanism to do so. Indeed it can
eventually be distributed, but the debt can easily
exert its effects well before that becomes a fait
accompli. When we see the helicopters coming, then
we know that the deflation is about over.
Meanwhile, the debt sits on people's balance
sheets, and their desire to borrow more funds is
depressed by its presence. The Fed ratchets rates
down, as it has done for most of the last quarter
century, each time succeeding in selling more
credit, but only via progressively more desperate
cut-rate pricing. But the zero bound eventually
looms. At this point, the Fed has backed itself into
a corner. Either it must allow a credit contraction,
it must create money and deliver it to debtors
without the corresponding creation of debits, or it
must create credit so fast that the value of the
money unit outruns the addition of debt on the
downside.
Scenarios 2 and 3 produce hyperinflation,
scenario 1 produces deflation.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176367)
Date: August 14, 2004 08:21 PM
Author: Vangel Vesovski
Consider that if the central bank creates money by lending it, what happens when it is paid back?
The debt will never get paid because if it does the fiat system collapses. And that is the point you miss; the fiat system needs constant expansion of money and credit in order to keep the charade going. Please note that the one thing that never happened in Japan was debt repayment. Lots of debt went bad but the government expanded its own borrowing and dropped rates low enough that corporations were able to pretend that they were solvent and capable of paying off their obligations.
These are the hands into which Bernanke must get his crisp new fiat, and there is no quick legal mechanism to do so.
Really? You can simply have the Treasury sell bonds to the Fed (which increases the money supply) and give every taxpayer a refund like the last one. Such a scheme would allow Americans to meet their repayment obligations and would 'stimulate' the economy.
If things get bad you can create a federal corporation to purchase distressed bonds, equities, corporations or real estate from the public and selling off the real components to investors. The corporation would get its financing from the Treasury which would sell bonds to the Fed for just such a purpose.
Does that sound easy? You bet it is; in a fiat system where money supply can be increased by turning on a switch the printing of money is very simple.
Japan provides a more contemporary example of deflation, and one un-underpinned by gold. The US recently experienced its own wave of deflation; again, without the underpinning of gold, this time making it a global affair.
But Japan's crisis is not over and may well end in inflation. Because it is a huge net exporter and a net saver Japan has the flexibility to do many things that the US cannot get away with. The proportion of Japanese bonds in foreign hands is miniscule compared to the 50% or so figure for the US. Since it is a net exporter foreigners need Japanese Yen to make purchases. That demand keeps a support level under the Yen that is unavailable for the FRN. In fact, to keep the FRN from collapsing your government relies on central banks to print foreign currencies and purchase FRNs that are used to purchase Treasuries. If the FRN goes up in value without foreign buying then your argument may be worth something; the fact that the FRN needs foreign buying to keep the FRN from collapsing nullifies the argument.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176419)
Date: August 14, 2004 08:35 PM
Author: The Reaper !
Subject: Vangel & The Japanese
saver ?
Are the Japanese really savers ? Have you ever bothered to look into that ? Have you ever figured out what the combined public and private debt was on a per capita basis ? Some economist say that the real Japanese national (government only) debt is really 350% of GDP . Add to that all of the re-scheduled debt due to their real-estate collapse and you get a far different picture that the one you paint . While I do not like for a moment what is happening in the U.S. , I think that of all the G7 , the U.S. is probably in the best shape . That doesn't say a hell of a lot for the rest of the world , does it ? The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176422)
Date: August 14, 2004 08:42 PM
Author: Finster
Subject:
Great Question, Reaper!
And here's the answer:
Japan's debt hits record high
Tokyo, Japan, Jun. 26 (UPI) -- Japan's outstanding debts hit a record high of $6.5 trillion at the end of fiscal 2003, the Finance Ministry said Saturday.
The figure is up 5.1 percent from 2002, and 1.4 times Japan's gross domestic product for that fiscal year, Mainichi Daily News reported Saturday.
This is the first time government debts, including outstanding bonds, surpassed the $6.5 billion level. These figures demonstrate the urgent task for the government to balance the budget, the News said.
The government's outstanding debts have sharply increased because it issued additional bonds to make up for a tax revenue shortfall and issued extra finance bills for yen-selling, dollar-buying foreign exchange market intervention, ministry officials said.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176424)
Date: August 14, 2004 10:38 PM
Author: JB
Subject:
Gooolly, surprise, surprise
Given that the welfare state cannot exist under a bi-metallic standard, it's not surprising when the welfare statist come to the defense of fiat.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176459)
Date: August 16, 2004 06:16 PM
Author: Vangel Vesovski
Yes, I have looked into this and suggest that you also do so before you make claims that you cannot support.
The Japanese people are savers while Americans are spenders. Most of Japans debt is held domestically while about half of yours is held by foreigners. Japan must print yen and buy FRNs to keep its currency from rising. Without foreign purchasing of your currency it would be selling for far less than it does today.
Does Japan have a government debt problem? Yes it does because the government has run huge deficits to try to inflate money and credit and prevent deflationary pressures over the past decade. But while the government inflated the money supply private investors pulled back and tried to repay some of their debts.
As you know, I do not have much regard for the economic policies of any government. (Although there are days when Singapore is an exception.) I expect that the Japanese government's policies will eventually lead to problems and cause a major crisis that it cannot handle. But that would not mean that the US is in better shape because without Japanese support for your FRN your currency will become toilet paper.
I also think that most of the G7 nations are basket cases because all of them have ignored the retirement crisis that is about to overwhelm their taxation systems. Because the public pension systems are of the pay-as-you-go type there is no way that the current level of benefits can be maintained in G7 nations. I expect far more stress on the general population than we have today. That will mean more violent behaviour and a much lower standard of living. Countries with weak family bonds will do worse than those that have kept more traditional arrangements. Again, the US does not measure up very well in that regard and will likely face more pressures than a country like Japan.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176988)
Date: August 16, 2004 07:05 PM
Author: Finster
Subject:
Debt And Deflation
But the Japanese people did not issue the currency, the government did. Therefore, the debtor status of the Japanese government and American government are what we should be comparing if we want to understand currency fundamentals.
This is easily understood by considering the fact that Japan is ten years ahead of the US in its deflationary progress.
If you haven't already done so, I highly recommend reading Friday's (August 13) Daily Reckoning. Tom Dyson relates Steve Sjuggerud's analysis:
- He was really enquiring how these men intended to deal with the their country's severe economic problems. He wanted to know how they were going to pay the debts, reduce the deficits and restore faith in the currency. After a long pregnant pause, the most senior of the three men looked up at Steve and said: "Got any ideas?"
- Steve gave a great speech...this is a man with plenty of ideas. One of his more controversial ideas - especially to readers of The Daily Reckoning - centers on bonds. He thinks interest rates could possibly still go much lower for much longer.
- Are you okay? The audience might have been wondering about Steve's mental disposition. After all, isn't the U.S. government so extraordinarily indebted? Isn't inflation boiling up? Aren't China and Japan going to dump their dollar denominated debt when they realize how financially irresponsible the U.S. administrators are? Hasn't the bond market already begun to crumble?
- "Maybe not," says Sjuggerud. "Everybody hates bonds these days and they think yields can only go higher...but that maybe a dangerous attitude."
- To illustrate his point, Steve produced a couple of charts. On the first, he had overlaid the graph of Japanese 10-year interest rates from the late '80s with U.S. 10-year rates beginning in the late '90s. He set the two graphs so that they are lined up by the dates of the respective stock market peaks, showing that U.S. yields are following a path uncannily similar to that traced by Japanese yields 10 years ago.
- On the second chart, Steve showed U.K. government bond yields from 1720 to the present day and U.S. 10-year government bond yields from 1795. The long run average is 4.7%. "This," says Steve, "shows that, historically speaking, bond yields are not remarkably low."
- Yesterday, bond yields dipped a couple of basis points, settling at 4.25%, only 45 basis points below the long run average. And for the second day in a row, markets were weak. The Dow shed 124 points, and is now down on the week. The Nasdaq continues to plummet putting your editor's $50 in serious jeopardy. It fell 30 points to 1,752. Readers may recall that, last Friday, we bet a colleague that the Nasdaq would finish higher exactly one week later. The vicious sell off last week made us think the market was oversold. Apparently, it wasn't. Could this signify the end of the year's range-bound trading? Your editor thinks it does.
- And speaking of losing money by betting against colleagues, it's always a bad idea to take the opposite side of a trade with Steve Sjuggerud. As we told readers last week, your editor is short T-bond futures. And despite the danger of taking the opposite side on a Sjuggerud trade, we will keep our position...for now. [Ed. Note: Dr. Steve Sjuggerud is a market sage. The man is brilliant. We strongly suggest you check out True Wealth.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177003)
Date: August 17, 2004 06:13 PM
Author: Vangel Vesovski
This is easily understood by considering the fact that Japan is ten years ahead of the US in its deflationary progress.
Japan is a nation that runs consistent current account surpluses and has its debt held by domestic institutions and investors. Although I am also very negative on Japan I believe that it is in a much better position than the US. The question is what happens when Japan pulls back in its buying of your treasuries. In June it purchased more than half the treasuries purchased by foreigners for a net of $21.2 billion. If that is what is needed to keep the FRN from collapsing I cannot be very bullish on the currency or the bonds.
"Everybody hates bonds these days and they think yields can only go higher...but that maybe a dangerous attitude."
Does everyone hate bonds? If they were really bearish why would foreigners snap up $40.5 billon in US treasuries for the month of June? I think that too many of the analysts say that everyone is bearish on bonds when the actions taken are the opposite. Perhaps the real contrarian play is to say that you love bonds but sell or short them.
On the second chart, Steve showed U.K. government bond yields from 1720 to the present day and U.S. 10-year government bond yields from 1795. The long run average is 4.7%. "This," says Steve, "shows that, historically speaking, bond yields are not remarkably low."
In 1720 the British used real money, not fiat. The same is true of the Americans in 1795. Using historical averages that include periods when a monetary commodity was used is wrong. You would be better served to look at rates when the link to a monetary commodity had been severed. Unfortunately that picture does not look too good and few talk about it.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177315)
Date: August 17, 2004 08:55 PM
Author: Finster
Subject:
Fiat Deflation
You put way to much stock in foreign buying of US Treasuries. Let's see .. Japan prints up paper and exchanges it for paper the US prints up ... and it all goes round and round. We could all just save a lot of trouble by each country printing up its own paper and keeping it. What's the difference if the JCB buys them or the Fed does? See, no matter how you slice it, it all just boils down to fiat and paper promises. And we've been hearing for years now about how foreigners are going to stop buying US bonds. What we lack is that for all the ivory tower theories, they keep doing it anyway. Why? It must be something they deem to be in their own interest. To assume they are just giving something away out of the kindness of their hearts is overlooking something important.
Darn right not everybody hates bonds. What makes markets? And despite our insistence they're stupid for buying them, they're only acting in their own interests.
Ohhhh ...boy. 1720??? ... Isn't that about ground zero of the South Sea Bubble and Mississippi Scheme? Remember John Law?
No, fiat wasn't invented yesterday. And don't forget that that broad sweep of history also includes the Continentals and other examples of monetary flaccitude. Even since the Fed has been in existence, bonds yields in the US mid-century were as low as two percent or so for a long time. Not to mention, of course, sustained periods of JGBs denominated in fiat yen falling to unbelievably low levels on the order of 0.5% or so.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177365)
Date: August 18, 2004 03:48 PM
Author: Vangel Vesovski
Never before has the world's dominant economic power lived this far beyond its means. Most believe that America is special -- that it deserves special dispensation from current account, debt, and saving adjustments. Just as history is littered with the remnants of other such new paradigms, I continue to believe that the United States will have to pay a steep price for its imbalances. As America's twin deficits move inexorably toward the flashpoint, there is a growing risk that its external financing terms could take a sudden turn for the worse. The dollar, US equities, and credit markets strike me as most vulnerable to such a development. Stephen Roach, latest report.
Got to go; will respond later.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177587)
Date: August 14, 2004 10:34 PM
Author: JB
Subject: None
taken
But he is incorrect in his insistence that the deflation experienced in the US in the 1930s was a consequence of the gold standard. It was a consequence of debt. Just as Ben Strong determined to administer a little "coup de whiskey" in the late twenties, Ben Bernanke threatens more of the same. He can flood the banking system with as much paper money or its electronic equivalent as he likes, but he still faces a distribution problem.
Eventually, I think you will be stunned by how they infuse the needed liquidity. Vangel has given some examples, others include increasing Social Security payments, the already used method of inflating the value of equities, tax rebates, we are currently witnessing the housing bubble and on it goes. Even if these fail (which they will, in the long run) default by the federal government is always a possibility and has historical precedent. Default rained over the land in Argentina (both public and private) and hyper-inflation was the net result.
The US recently experienced its own wave of deflation; again, without the underpinning of gold, this time making it a global affair.
Deflation made possible through US inflation. We exported the inflation, which caused a distortion in the global market place, namely in China and India where rapid growth manifested itself in an explosion in manufacturing with the most modern and efficient techniques available. This caused excessive productivity, which led to price deflation (combined with low wages respective to their global competition). Deflation of increased productivity (reduced cost), not through an actual reduction in the supply of tangible money. This distortion has led to increased demand for energy, were we see the real effects of the US exporting inflation. Should this trend continue, the inflation in energy will show up as inflation in goods and services, even those which are imported.
Consider that if the central bank creates money by lending it, what happens when it is paid back?
Under fractional reserve banking, debt can only be paid back through the creation of more debt, which demands further inflation of the currency. FRB will chase it's tail until it burnouts, ergo: hyper-inflation. Even then, you can have price deflation when measured by real (honest) money: gold & silver. For as the fiat currency decreases in value, gold & silver increases in value, which means it takes less gold/silver to buy goods and services. You keep treating FRN's like real and honest money, it isn't. At best they are tokens. Even though fiat is used like money1, it's for goods and services which have no value relative to it, unlike commodity money. FRN's are forged in the fires of debt, debt that can never be repaid. Deflation is known to be bad for debtors, well, who is the world's largest debtor? Do you really think this debtor will not use any means possible to avoid deflation, which includes hyper-inflation, if need be? Again, there is historical precedent for this under a fiat regime, not commodity money. This train is running full tilt towards a cliff, and there's no one to slam on the brakes cause the drivers are too busy pick-pocketing the purses of it's passengers.
On a side note, I read your post about the Kitco article comparing fiat to gold and the utilitarian disadvantages of a gold backed currency in the modern global economy. I thought about this dilemma for a while back (one of Herr Doctor's complaints) and the problem with the analysis is two-fold. First, through the current fiat regime, we have no idea if the banking system is truly more utilitarian. Especially if it should ultimately lead to financial collapse. We have no idea the degree of financial distortions caused by a fractional reserve system as it spins off fractal forces in the market place. Most likely they have caused distortions, and I think you can see some of them at work. The example I've given before, is that we now have companies that once manufactured things to make a profit, which now manage debt to make a profit (I.E., GM begets GMAC, GE begets GE Financial). Of course I won't even touch here the moral distortions caused by a fiat regime. But I find it to be no coincidence, that corruption of the corporate culture has increased year after year since the US and the modern global economy went to fractional reserve banking (not to forget the simultaneous corruption of political institutions).
Secondly, we have no idea how a commodity money would have evolved so as to manage world finances in an effective manner, so to facilitate the global economy and global trade. If that indeed is inevitable and the more utilitarian system to meet the demand for goods and services globally. Commodity money was never given the chance to evolve due to any inherit financial defects, but due to the desire of political and banking institutions in the west to do what such institutions have always done, which is to gain and maintain power through controlling a nation's finances, which meant a fiat currency had to replace hard, honest money.
I have more thoughts on this, maybe I'll right and essay on honest money vs. dishonest (fiat) money and the social, economic and political consequences of the one replacing the other.
1 - and accounted for as if it was honest money. even though one uses classical accounting principles, that were created during an honest money system, it does not then follow that such a process will assure honesty when dealing with a dishonest medium of exchange.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176458)
Date: August 15, 2004 07:22 AM
Author: Finster
Subject:
Honest Money
No doubt the tax rebates we saw a bit back foreshadow such means of distributing money. Programs like these, however, do still require an act of Congress and a degree of political cooperation not well taken for granted. Although the last round may have been done quite quickly on a government time scale, there was still a substantial period of elapsed time between the onset of the deflationary bear and the realization of the "cure". Also, it's worthwhile to recall that such measures merely place the Federal government in the position of borrower of last resort - it merely assumes debt on behalf of the populace when the latter gets in trouble.
Next, just the increase in the amount of debt extant since the last round is staggering. The next time, the bailout will have to be much larger. And now that record federal deficits are back in the news, the politicians may expend more time and energy on a political field day of finger pointing and partisan squabbling before being able to agree on a strategy.
Frankly, I suspect Vangel is absolutely correct in his vision of the ultimate inflationary outcome - my main thesis is that there may be a period of intervening time when the deflationary forces are at least a little too evident and persistent for many investors to ignore.
Interesting view ... I agree that deflation is made possible by inflation ... in fact, I'd argue that genuine money/credit deflation couldn't really exist without inflation coming first. Also interesting how the fiscal and monetary stimulation of this latest round had most of its effects in China and India. But not surprising - China has virtually adopted US monetary policy as its own via its currency peg, and the dollar is a very global currency.
But tokens don't have to be "real and honest" to rise in value. Think of the numerous instances where investors took a short position in some hot Internet air stock with no underlying value, only to watch it double and quadruple from there due to the borrowed stuff having to be repaid. Next think of the staggering debt of millions of people who are effectively short the FRN, and you start to get a picture of why something of inherent worthlessness can rise in value. As you correctly point out, sure, new supply can be created at any time, but the distribution can be a little messy.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176505)
Date: August 15, 2004 07:44 AM
Author: Finster
Subject:
Honest Society
No argument here. The current system of institutionalized moral hazard encourages bad decision-making by insulating the decision-makers from the consequences of their bad decisions and systematizes risk. The consequences don't disappear, of course, they are just spread out. The "moral" adjective is apropos in more ways than one - collateral damage permeates the financial, civil and social spheres alike, just as you seem to suggest.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176509)
Date: August 12, 2004 08:26 AM
Author: Vangel
Vesovski
Subject: duplicate...
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175442)
Date: August 11, 2004 09:07 PM
Author: DaveGillie
Subject: Are we being EXTREME again Vangle?
Are you SURE that on the way to worthlessness that our fiat money has to NEVER become more dear??
I just can't fathom that if it is as you say, debt. when/if people opt out of fiat then the debt dissapears/decreases meaning there is much less money than before leaving a BIG risk of deflation, by definition, on the way down to worthlessnes, no????
DaveGillie
or what??
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175309)
Date: August 12, 2004 08:10 PM
Author: Vangel
Vesovski
You know as well as I do that in a primary bear market you will often find a number of secondary countermoves. But that does not change the fact that the trend is down and does not mean that you will be able to take advantage of the moves when they appear. Most of the money is made by playing the primary trend, not by trying to outsmart the market by trying to be clever when the best option is idleness.
To see what happens when debt gets too high and confidence in the fiat system look to Weimar Germany, 1943 Greece, 1950 China, The US Continental, the 1960 Franc, the 1993 Yugoslav Dinar, and the Mexican Peso throughout the 1970s and 1980s. I suspect that the FRN is not all that different and will suffer the same fate.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175716)
Date: August 12, 2004 08:31 PM
Author: m.
The price of oil in dollars.....
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175725)
Date: August 11, 2004 01:01 PM
Author: voted with my feet
Subject: deflation: your world view if holding USD
hope your cash is in a foreign currency.
looks more and more like people want out of the dollar and dollar denominated assets. Japan saw property and equities drown for more than a decade but other parts of the world(and other parts of Asia) eventually de-coupled and got on with the business of growth and living. Twin deficits, huge debt, trade deficit.... many markets presently correlate witht the S&P but that won't last forever. And if the slowdown becomes too severe then maybe the competitive currency devaluations that have been the norm for the past several years will stop and energy will be cheaper for those countries who revalue. It will be in their interest to do so, exporting to Americans buying TVs won't be so high on their marginal benfit curve. Nope, the dollar is looking more and more hopeless. Deflation/inflation will mean different things in different places.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175108)
Date: August 11, 2004 02:42 PM
Author: cherokee
Subject: about to vote with my feet and wallet too...
... if you think of oil as the currency, everything has been battered.
it used to be land that always rose.
hint: they're not making much more oil either.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175137)
Date: August 11, 2004 09:25 PM
Author: len
Subject: housing
If we experience deflation then what will housing prices really look like in San diego and Sarasota?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175313)
Date: August 11, 2004 10:37 PM
Author: SirEdward
Len, very possibly a continuation of this. One scenario - unless somehow high-multiple borrowers – 5x and above & self certified types can continue to maintain timely debt service when challenged by rising interest rates doubling/tripling & runaway oil prices. If not then reversion to the mean & below of 3X & less with the price of stock of construction companies, lenders contracting along with land & house prices.
Gt. Portland & Hammerson are two good UK examples of the 1990 crash.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175331)
Date: August 12, 2004 12:09 AM
Author: Chris
Manougian
Subject: UK Housing
Re-Post: Current Great Portland Estates and Hammerson charts:
and
Ed, are you shorting these two now? If not, are you thinking about it?
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175366)
Date: August 12, 2004 01:10 AM
Author: Lucius Foster
Subject: deflation in Real Estate. Looking at the past.
Going back to 1929 and the two years thereafter.
In Los Angeles, Bank of America was at this time making mortgages of only 5 years duration and with an interest rate of average 6% interest only payable monthly. These were foreclosed on and were held in the bank. The properties were offered for sale on the basis of the value of the mortgages. The mortgages were executed and the calculation of amount was 50% of value. My grandfather then bought the properties for the price of the mortgages which was 50% of appraised value. He then had a period of 6 months with no payment and no interest charge. At the end of that period of time he then made interest only payments at 4% for a period of five years at which time He must pay off the mortgages in full. So he bought the properties at 50% of their appraised value. The true price based on the new depression value was 25% of prior value. He reduced his rents in half. Employed those tenants that were unemployed on the properties. Gave rental credits in exchange for labor. Even reducing his rents in half he was still at a plus factor. Of course he held these properties up to and through WWII and reap'd his harvest by dying in 1946 and making my grandmother a wealthy swinging elderly lady.
But this shows you how far down properties can go. I think they are tied to the rent that such tenants can afford. Wages were way down, high unemployment and what my grandfather charged in rent for some strange reason equaled what the Relief Organization would authorize in a rental voucher. Interesting times. Just calls for an adjustment to conform to the new set of conditions.
Cheers Lucius
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175377)
Date: August 13, 2004 11:56 AM
Author: cherokee
Subject: since money is just a banker's fiction...
... a better analysis of house prices would be in terms of ounces of gold, or units of the CRB index.
i doubt there will be too much deflation in terms of paper dollars, but quite likely in terms of "other" measures.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175916)
Date: August 12, 2004 12:01 AM
Author: Commandante Pachuco
Pardon me amigos...I don't pretend to be a economist...what is cash but a FRN. Is this what is good to hold? Hard to believe.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175364)
Date: August 12, 2004 01:20 AM
Author: Lucius Foster
Subject: Commondante may I suggest you hold the following item.
There was a very nice man who was President of Mexico. The salary being of no great amount he had to make his money by utilizing his position to attract money. It worked well.
His son came to Los Angeles and fell in love, many many many times and finaly to protect his health and because he had so much family money, he bought a few houses in Beverly Hills and a strange A frame in Laurel Canyon.
In the escrows of purchase I noticed that he had to draw funds from a Bank in Switzerland and that the accounts, I peeked, held all funds in Swiss Gold Francs. Each time he made a demand for funds they had to be converted as of that moment into US Dollars.
Now mon Commandante, why not follow the example of this so smart a young man. Open your accounts in Switzerland in Gold Swiss Francs. Besides they are prettier.
Enjoy, Via Con Deos er Dollars
Cheers Lucius
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175380)
Date: August 12, 2004 02:28 AM
Author: SirEdward
when the lenders decide they've lent enough as their risk increases how will people get the money to pay their rising interest rate bills & 95 octane gas for their SUGuzzlehummers if their salaries don't rise. maybe as scrap they might help ease spiky steel prices. oh dear. on the other hand the Brits have learned how to live with $10/gal gas, or is it $12 now.
Lucius i think you're going to be very busy. if you need some help let me know but only if we can do everything by e-mail. you're only a stone's throw from my ex in Hollywood Heights & if i set foot in the place i might be compelled to go over & throttle her. i think my restraining order's expired now (she changed the locks during one of them! can you believe it). cheers.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175392)
Date: August 14, 2004 10:26 PM
Author: Lucius Foster
Subject: My deepest sympathy. Check the Ex or Ex means check.
My ex was the opposite. I had to have her restrained. In spite of extensive publicity to the opposite. She would show up at my office on Sunset Blvd. every lst of the month. We would give her a check for $2,500 and she would go out, get in her crappy little station wagen and put it in reverse and wipe out the grill on my Special Built one of a kind RR convertable coupe.I got it cause my client could not pay the commission on a deal. Away she would go shortling away as only little fat mean ladies can do.
After a few times I set her up. I called the West Hollywood Sheriffs Office and they parked a car across the street. Sure enough 0930 in she comes screaming and hollaring as only she could. We give her the money, out she goes and smash the RR grill is now smashed once again.
The cops zoomed across the street. streatch her over the hood and frisk her down. I come down to the street. reach out my hand she puts the $2,500 check in it and I hand her the change $1,000. She is admonished if she ever goes it again off to jail she will go.
About six months after this I packed it up and took two years off to travel and visit all the places I never got to spend any time in. Before I left I gave her and her close friend two 60 unit apartment houses and 10 little single family houses scattered all over Los Angeles. I instructed her to pay all the mortgages on time. Take about $2,500 a month for living expenses and let them grind away. In 10 to 12 years they would be free and clear and her income would jump to oh my god. Minimum for those days $50,000 a month and as inflation continued more and more. Never sell, just manage.
So I go away for two wonderful years. Name a place I went there and hung out. So back I come and guess what? She never made one payment. Just collected the rents until the banks foreclosed. Bought her and her Jags. Eichler house, etc. etc. etc. Now two years and she is tap city. Of course a talented daughter corrected that but all those assets were gone. I was so pissed I almost joined a Church. All my fault. Should have left a trust and a good watchdog.
The morale: Ya just never know. Ex wives are in a class by themselves. No Class.
Cheers Lucius a fellow suffer'or
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176456)
Date: August 13, 2004 11:52 AM
Author: SirEdward
Chris, not yet. i'm waiting for some figures that won't be released till mid November. plotted a chart of UK house sale volume from 1995, awkward to extract. it's approaching the bottom end of its upchannel. if it breaks out.... fundamentals look ok too. don't trust oil, too much politics but i have no doubt that will crash likewise, latest bubble. 4 more BoE MPC decisions till end of 04. when it crashes it will probably be in decline for several years.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175914)
Date: August 14, 2004 01:42 AM
Author: Chris Manougian
Subject: With an Eye on the U.S.
With Greenspan's insistence on more FFR hikes (to save the USD?), I'm looking for parallels. Although …
Two points: 1) FFR hikes may simply flatten the yield curve (Finster, you are looking righter by the minute). Today's PPI info was very benign (which I am having a tough time digesting). 2) If you are right about oil (and I'm with you in the short-run), low to mid-30s oil would also help the inflation outlook, and would presumably benefit the long bond (and perhaps, the equities markets also). All of this could conceivably extend the run/"bubble" in housing.
Excluding an oil-related shock event, VLO looks like a great short-term (undefined) short to me.
At this moment in time, it looks like the Fed's insistence on continued rate hikes is actually supporting the long bond. If this holds, the carry trade can unwind, but housing may continue to benefit.
Of course, all of this depends on no bond market shock event(s).
Am I missing something here? Comments are welcomed.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176183)
Date: August 14, 2004 09:45 PM
Author: Vangel Vesovski
Today's PPI info was very benign (which I am having a tough time digesting).
I do not trust most of the government supplied inflation numbers because they have been shown to be adjusted for several factors and far from reality. I would look at something like the JOC-ECRI Industrial Price Index data for a better picture of inflationary pressure. (It does not look too pretty.) In fact, hardly anyone trusts the government data any longer and even the Fed is looking to other places for their information.
If you are right about oil (and I'm with you in the short-run), low to mid-30s oil would also help the inflation outlook, and would presumably benefit the long bond (and perhaps, the equities markets also). All of this could conceivably extend the run/"bubble" in housing.
With the trade deficit hitting historical highs and the US government running massive budget deficits I doubt that holding bonds would be a hot idea and do not think that rates will come down as far as you may think. As for oil dropping by $16 per barrel, keep on hoping. Do you really think that the Saudi regime will survive if it keeps pretending that it is trying to increase production and the price of oil falls to $30? Do you really think that OPEC or Putin will simply stand aside and let it happen so easily? We are near the end of cheap oil and any position on the short side is too risky to justify the upside gain of 50% or so. You may try something safer like the RR game in the movie, Deer Hunter.
Excluding an oil-related shock event, VLO looks like a great short-term (undefined) short to me.
While anything is possible in the short term the US has not had a refinery built in many years but has closed many of them. With two more slated to be closed this fall you are playing a very dangerous game, particularly if the Venezuelan problem is not resolved satisfactorily.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176448)
Date: August 14, 2004 10:47 PM
Author: JB
Subject: VLO
Excluding an oil-related shock event, VLO looks like a great short-term (undefined) short to me.
I'd agree with Vangel. John Lansing over at trending123.com, has a numerous suggestions as to what to short, that are better bets than VLO. VLO has a number of techincials going for it and just now looking at it's chart, it recently bounced of it's uptrend line (going back to Oct '03) and is only two bucks away from bouncing off of the first Fibonacci line of support (64.50). So it's current price is running into it's first zone of heavy support.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176462)
Date: August 15, 2004 01:08 AM
Author: Chris
Manougian
Subject: Shorting Oil
V and JB, fundamentally, I agree that shorting oil aint such a great idea. Recently, I have put together some notes on various sectors and specific companies for both long and short ideas.
I do consider the fundamentals first. I try to use the TA to verify my fundamental thoughts. My broker is a point and figure Dorsey Wright practitioner. Concerning VLO, I believe a technical case could be made for a short idea. The technicals seem to follow some of the conventional wisdom (BS?) that has been flowing of late.
With that said, my current notations on ideas still lead me to conclude: STAY AWAY FROM ENERGY RIGHT NOW. I agree with the long-term bull case, but the fact that you can make a decent – good case for a short-term short trade, at the very least, keeps me from looking to buy the sector at this point. As far as shorting is concerned, there are many 'safer' ideas. Also, one shock event and energy is off to the races.
Both of you seem to be seasoned, long-term holders of energy issues. I certainly understand your thinking/discipline not to sell.
JB, I promised I would post Morgan Stanley's latest offering on oil if there was some meat on the bone. There seems to be plenty (per usual):
Geology, Statistics, and Economics: What Are Markets Saying About Oil?
and
Geology, Statistics, and Economics -- What Are Markets Saying About Oil? (Part II)
I have read through both MS articles once. I plan to do it at least one more time. Enjoy, and thanks for your comments.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176467)
Date: August 15, 2004 07:16 AM
Author: JB
Subject: Other Links
Your oppurtunity will come, it's just a matter of timing. One could make a case for shorting oil than refiners like VLO:
Long read, but helps to demonstrate that as price of oil goes up, other alternatives become economic:
Renewable Energy: Not Cheap, Not "Green"
Interesting post today on GE:
OIL (Nightowl2) Aug 15, 06:04
Had lunch with the recently retired CEO of a major oil refiner yesterday, was interesting to get his read on the current situaion. A few bullets:
- He says global demand currently 80 mio barels day, supply estimated at 81.5. Normally no reason to panick. Inventories throughout the supply chain are currently more than adequate. - The problems are two fold - a) shortfall in refining capacity, which has been a low margin business for too many years, attracting too litle new capacity. Lead times are substantial to build refining capacity.b) quality issues - i.e. demand for more heavy Saudi oil limited, mismatch to refining capabilities. - Plenty of oil reserves aound the world which can be profitably developed at well below todays price level.
Bottom line - he feels the $45 price level is driven by speculation, and as such unsustainable in the absence of additional major supply disruptions. $25 to $30 oil sufficient to provide adequate long term supply with good margins for development/production/refining.
We'll see if he's correct about the speculative component for the current price of oil (probably true to some degree), but notice the comment about refining capacity. Looks like refiners will be getting a good deal of steady business for awhile, no matter what the price of crude.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=176503)
Date: August 16, 2004 08:51 PM
Author: The Reaper !
Subject: Vangel LOOK again !
What ? "claims that you cannot support" ...are you kidding me ? Japan is a basket case , they have more debt than any country on the frickin planet . A whopping 10 trillion dollars in wealth has evaporated from their deflation alone since 1992 . Corporate balance sheets are burdened with debt levels that run at four times equity, compared with 1.5 times in the U.S. . Mitsubishi Motors alone has $15 billion in debt, four times its equity. There has been a 70% meltdown in property prices , The aggregate debt of bankrupt companies, is higher than the U.S. had during the Great Depression. Japan is in the worst debt trap that any country in the history of mankind has ever seen . Some say that their hidden , off balance sheet debt actually dwarfs their admitted debt . When asked why all of the debt is hidden , a Japanese finance minister replied , "we in the government don't want to upset the people" ! Imagine, if you can, an economic Hell in which the U.S. government was borrowing 40% of its annual budget, creating annual deficits of 900 billion dollars a year; where 65% of all tax revenues were gobbled up by interest payments on a mind-boggling $13 trillion public debt; and where there was no conductor in sight to stop this runaway debt train , welcome to Japan, where that Hell is reality. Dude , wake up and smell the coffee ! The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177040)
Date: August 17, 2004 09:29 AM
Author: marm
Subject: unwise predictions
Yet they continue to chug along. This is why most bears are and have underestimated our ability to prolong the inevitable crash. Judging by Japan, we can pump this thing up for quite a while yet.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177190)
Date: August 17, 2004 02:20 PM
Author: cherokee
Subject: japan's easy fix...
... just tell the people the old currency will be retired.... or some such trick. or that the japanese govt will buy gold at twice the current POG...
that'll fix the deflation.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177272)
Date: August 17, 2004 06:31 PM
Author: Vangel Vesovski
I never said that Japan was doing great, only that the US is in a worse position. In my opinion Japan is a basket case and its interference with the market has caused a period of weakness that has yet to be resolved. That said, Japan produces real goods and services that it exports to the rest of the world. After you subtract what they import you have a net surplus. That puts it on a firmer foundation than the one that the US is standing on.
In my opinion you have to compare the total debt to the size of the real economy, not the financial or accounting version of it. When you do that you find that the US is also in serious trouble because most of its economic growth and a large portion of its total output comes from the financial sector. But you know as well as I do that those earnings are not real and that your true output is a fraction of what is being reported. From the turn of the 20th Century to the beginning of the 1970s yours was a nation of great products that led the world in engineering and production. Your products were leading edge and of the highest quality. But that all changed in the 1980s and 1990s when you transformed the economy from one which produced real things to one that manipulated intangibles. But that process can only go for so long before reality sets and someone has to pay the tab. I think that day is much closer than many think.
And I would not mention the off balance sheet liabilities in Japan without looking for the same thing at home. As Enron showed, SPEs are more common than many imagine. Add to the SPEs the hundreds of trillions in derivatives concentrated in your financial sector and the trillions of questionable mortgages held by Fannie, Freddie and the rest of the players and you get a picture that is worse than the one in Japan. If you have the Fed selling dollars to purchase Yen that it uses to buy bonds from the BOJ than you can tell me how much worse Japan is doing but the reality shows the opposite. If Japan stops purchasing your bonds the FRN would tank and everyone would be down for the count. Some nations would recover quickly and stagger to their feet quickly enough but I do not think that the US would be among them.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177318)
Date: August 17, 2004 07:22 PM
Author: The Reaper !
Subject: Vangel ,Japan & Botswana
Vangel , wrong again ! You wrote and I quote , "From the turn of the 20th Century to the beginning of the 1970s yours was a nation of great products that led the world in engineering and production. Your products were leading edge and of the highest quality. But that all changed in the 1980s and 1990s when you transformed the economy from one which produced real things to one that manipulated intangibles. " ....Another myth from your Mises friends . The truth is my friend , in the U.S. the second quarter of 2003, real goods production was 39.2 percent of real GDP; the highest annual figure ever recorded was 40 percent in 2000. By contrast, in the "good old days" of the 1940s, 1950s and 1960s, the United States actually produced far fewer goods as a share of total output, reaching 35.5 percent in the midst of World War II. Looking at manufacturing alone, over the long term one finds it has also grown. In 2001, in inflation-adjusted terms it was 16.2 percent of GDP, which is higher than it was during the recession of 1991 (16 percent). Your high opinion of Asian workers is also mis-placed , in the U.S. workers produced an average of $71,600 in output (in 1999 dollars), followed in a not-so-close second by Belgium, where each worker produced $64,100. Japanese workers - renowned for their productivity - each produced just $51,600 and Korean workers produced even less: $34,600. .......Now more on JAPAN ! ......... It is not just the size of Japan's current debt that is worrisome , it's how fast it's growing. Government receipts totaled only $463 billion in 2000, while its expenditures were $830 billion. The $367 billion difference--a staggering 40% of the budget was borrowed, with the government issuing some 33 trillion yen of new bonds to fund the new debt. Deficit spending is now a mind numbing 9% of the entire GDP. Let's say Japan's leadership finally decided to get serious about facing their debt hangover. Just how big is it? VERY BIG !!!!! In fact, the nation's debts defy description. Virtually every layer of Japan's public and private institutions is larded with stupendous and largely under-reported debts. Despite the government's modest efforts at financial reform, grandiosely titled "the big bang," there is an enormous hoard of bad debt still hidden away in banks and insurance companies. Moody's analysts estimate this dead weight totals between 30% and 40% of GDP . The Hyogo Bank bankruptcy is fairly typical. When the bank went belly up in 1995, it left bad debts 25 times higher than its previously declared totals. That is Japan , and that is typical of all Asian countries . That my boy is the real " ASIAN MIRACLE " , or if you prefer BULLSHIT ! The Reaper !
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177331)
Date: August 17, 2004 08:50 PM
Author: Chris Manougian
Subject: Japan's "Support"
It's occurred to me that much of the problem that the global economy finds itself in now has been Japan's eagerness to "support" the USD. Make no mistake about it; Japan has not done this out of kindness. They have done it to support their industry – their industrial "policy".
Much of the blame for "synthetic" credit demand belongs to the major global economic powers that manipulate the fair value of their currencies in their ongoing (trade war) efforts to bolster there own ("synthetic") comparative advantage.
We can all blame Greenspan – calling him names like, "Serial Bubble Blower". But considering what he has to deal with – a government that can't stop blowing money, and what he's had to deal with – the devastating economic affects of 9/11, he's done the best that he could do. Funny, now that Greenspan is actually raising rates, he's being taken to task for "his timing". Just lovely. I can't believe the number of pundits that are now saying, "the wrong way; you're going the wrong way!" Even Steve Roach hopped on board this week to insinuate the same. Ridiculous. What fantasy dream world called "Perfect" do these people live in?
Maybe if Japan (and now China) didn't "support" the Dollar, natural economics would have begun to correct global trade imbalances long ago. Maybe we wouldn't find ourselves in the mess that we are in. There's plenty of blame to go around.
But even top-flight US economists don't want to talk about currency manipulation – that would kill their contacts and ties overseas. No, it's much, much, easier to criticize the US – no penalty for that. It's easy, and it's in vogue.
I really wish someone would tally up the damage done by the currency manipulations. I wonder if it's even possible. The yen should have appreciated a long, long, time ago.
But that's not the world we live in. We live in a "synthetic" global economy that is well disguised as "free". When we look back in a few years (if we can look back as rational human beings), I bet we're going to ask ourselves how we allowed it all to happen.
One thing I know is this: currency manipulation is corrupt economics. Period. Speaking figuratively, if you're not willing to stand on top of your soapbox and scream that, remaining criticisms are shallow.
But then again, maybe the US really likes the way it has all worked out. Even though we have gutted our own industry, inflation has been (synthetically) low! Actually, come to think of it, we have no one to blame but ourselves.
With the trade deficit numbers that have just come in, I wonder if we start to see our chickens coming home to roost in earnest. And then, I wonder if we see the politicians begin to make noise again – because that's all they really ever do. And then, of course, we'll get all of the "free trade" idiots to push for more of the status quo.
I also wonder how Japan's chronic synthetic devaluation of the yen has hurt Japan? How is China's peg hurting China? Don't ask any of the big-time economists. They're too busy shitting all over Greenspan.
Every day I get a little more out of vogue. Every day I become a little more anti-"Free Trade". Every day I like Pat Buchanan a little more than the day before.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177363)
Date: August 17, 2004 09:03 PM
Author: JB
Subject: We blame Greenspan because....
through his writings, before he was handed the helm of the Fed, he clearly demonstrated that he knew better. He knew what the problems were and where they would lead if the status-quo was left to operate as is. His motivations? Who knows. But through continuing to play the game, to lobby for the office and to remain silent about the inherit problems with fiat and fractional reserve banking, he and he alone will be left to shoulder the blame and now deserves every bit of criticism thrown his way.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177368)
Date: August 17, 2004 10:28 PM
Author: Chris Manougian
Subject: It's easy that way, isn't it?
It's easy to blame one man for everything, isn't it? Greenspan will give us easy closure, won't he?
he and he alone will be left to shoulder the blame
I have no doubt.
But, does Greenspan control what Congress spends? Does he set, negotiate, and implement our trade policy – which is what my post was really all about? All of that responsibility belongs to our politicians, and ultimately to us.
Many governors are mandated to balance their budgets – they are forced to live within their means. That's why state politics often times operates better than national politics. Both sides must cooperate to a far greater degree in order to balance their budgets. In MD and VA, you see this all the time. In VA, Republicans pushed for more taxes in the last session. In MD, Erhlich raised taxes (although I wasn't pleased with part of the reason he had to do so).
I'm not big on raising anyone's taxes. But on the national front, we spend, spend, spend, what we don't have, and we cut taxes. Greenspan to blame? Well, I guess he did support Bush's tax cuts on the heels of 9/11. But, the big problem is profligate spending. Isn't it our elected national representatives that are to blame? I would say that you could lay the vast majority of it at the feet of Congress and the Executive – whether it be excessive spending (or racking up debt), or exacting a trade policy that has failed the US.
Also, is Alan Greenspan responsible for taking no action on our runaway entitlement programs?
Again, … he and he alone will be left to shoulder the blame and now deserves every bit of criticism thrown his way. So, he should now be skewered for his "untimely" rate increases? No matter when he started to raise rates, critics would call him an idiot.
If memory serves me, our economy was headed south upon Bush's arrival. What began to manifest itself was the downside of the wonderful global economy – labor arbitrage or outsourcing. Was Greenspan responsible for that? A huge chunk of the deflationary pressures being exerted on the US is lack of jobs – the old "jobless recovery" issue. This, combined with predatory currency pricing by our lovely "supporters", is surely at front and center of this debate. How is Greenspan responsible for that – other than by his insistence on "free trade"?
Even though this is getting off the point of my post – Greenspan was a side issue, just for fun JB, how would you have handled the situation differently? When you answer the question, you can't assume a goldilocks scenario. You have to deal with the political situation that existed, and you have to deal with 9/11.
Shoot.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177396)
Date: August 17, 2004 11:04 PM
Author: JB
Subject: What would I have done?
I'd never would have lobbied for, or taken the job. I know what he knows and the problem is that short of a revolution, fractional reserve banking can't be stopped. Nor can one make the case for it to be given the difficulty in explaining what has happened in a manner which the public could understand. And if he had, and if he made it understandable and had been able to out maneuver the status-quo in doing so, he'd would bring the whole house of cards down for fiat globally. That's heady stuff, I'd leave it for someone else. The best that can be done is to delay the inevitable, but at what cost? I can understand how a true believing Keynesian or Monetarist would take the job, but not someone with Al's depth of knowledge as to the nature of fiat and FRB. While AL has had little choice in what he's done, I blame him for going along with the system and selling the unmanageable as if it is manageable.
Let me introduce you to Hypertiger
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177406)
Date: August 18, 2004 12:50 AM
Author: Chris
Manougian
JB, I wouldn't take that job if you gave me Vesovski's stack of gold bullion and energy issues. For one, it's the most thankless job on the planet. And it won't get any better.
I hear you on FRB. That Blueman article "Debt and Delusion" on Warburton's book just hammers home your point. I can't get it out of my mind. E is right. It's a tour de force.
Thanks for the link, I guess. That's all I need is another econ. message board to take up more of my time. My wife wants to kill me. She's Vietnamese, you know. She says, "Dien. You're Dien. Daily Reckoning. Daily Reckoning. That's all you do. You are crazy. What a waste of time. Dien." Dien means crazy.
Interestingly enough, when I went to Capitalstool.com, the first discussion was about Blueman's "Debt and Delusion".
E, if you're reading this, the article is certainly the best of MY year. It may be the best article I've ever read detailing how we got into this mess. I will not be able to shake it out of me. I've read it 4 times. Just terrific.
Post Addition: Interestingly enough, when I went to Capitalstool.com, the first discussion was about Blueman's "Debt and Delusion".
JB, you led the horse to water!
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177432)
Date: August 18, 2004 08:20 AM
Author: JB
Subject: Hypertiger's charts
Dig these charts
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=177461)
Date: August 11, 2004 11:03 AM
Author: Finster
Subject: Dollar Down?
The dollar down measured in what? If the dollar price of everything else is down, the dollar itself can't be.
Remember, the dollar price of something is merely the value of that something divided by the value of the dollar.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175069)
Date: August 12, 2004 12:06 AM
Author: the hobbit
Subject: stability
if everything falls at the same rate you have "stability"
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=175365)