The difference between the 70's and current cirucumstances is the absence of wage inflation. Without the wage inflation, a wage-price spiral cannot occur. Debt expansion has been tried and flamed out. Nobody is creditworthy enough to take on additional debt; those that are are sensible enough to understand forces are not status quo and ROI will probably not cover debt costs(at current). So they don't borrow. If monetary stimulus does not enter the economy it remains only an accounting entry. Ergo, money velocity stays flat or falls. You can have an overabundance of food, but if it rots on the trees, it makes no difference to the starving. Without wage inflation, no generalized inflation beyond a certain point. Consumption will just be curtailed, and that is disinflationary. You can't have your cake and eat it too.
One could simply view the US as a single debtor....and ask some simple questions....regarding income and debt.... 1) Nominal Income What is going to cause nominal income to rise ? The addition of enterprises that sell goods to the world.... ............................................................ The Obam Poly Cons current policy is to add debt....while decreasing viable and sustainable enterprise incomes....via increases in taxation and legal largess impediments.... Conclusion The current Obam Poly Con policies impose a guarantee of lower nominal income....while increasing debt.... Thus the Obamapolycons have basically guaranteed American economic failure.... .......................................................... What will change it ? 1) An increase in nominal income....and a reduction in debt.... How can this occur ? 1) Tax structure changes.... The current environment demands a consumption tax only....with a dramatic mandate on govt. size reduction.... ........................................................ Will this happen ? Not with the Obamapolycons.... ....................................................... So...then what ? There are are several marginalized countries whereby the politico pressures do not allow for required changes....the masses are always financially troubled but yet have the poly votes.... Thus the continual wallowing in a mired downward economic swamp.... ....................................................... The US needs REVOLUTION.... Otherwise.....how is it that the required changes are going to happen ? .................................................... Inflation/deflation Those countries that improve their nominal incomes will experience better living standards....and those that do not will experience lower living standards.... One country could have severe inflation while another could have deflation.... Assets that sell in a depreciating currency simply means a better deal for the appreciating currencies.... ie A similar NY apartment was many times the cost of a Buenos Aires apt. in 2002....after currency conversion.... China will capitalize on currency conversion by taking advantage of dual incentives.... Nominal income rising while currency strengthens....ie "dollar assets get cheaper"....why not buy XOM, GE, F, IBM, others etc......
My view -- inflation in consumer prices (driven by energy, etc.), and deflation in bond prices (hence, higher interest rates) and in assets that are highly correlated with bond prices (ie: houses, real estate more broadly). From 2000-present, oil prices have basically tripled. This did not show up in CPI on manufactured goods, because of 4 factors: a) Manufacturing firms were able to use financial engineering to create profitability where profitability would not have otherwise existed. In other words, these firms cooked the books (or played derivative games that amounted to the same). b) Outsourcing. Most of the easy pickings in outsourcing have largely occurred and are over with. c) R&D basically stopped, and labour costs were contained, especially amongst high-end labour (ie: engineers, computer people, etc.). d) Factories and industries essentially ran down their infrastructure and failed to properly provision for building new infrastructure, instead, passing on those savings to consumers. All three trends aren't sustainable in the long run, and there's lots of signs that they're winding down. In the computer industry especially, trends in VLSI and in manufacturing were able to reduce prices by reducing parts count, but now entire systems are implemented on a chip! In the airline industry, flights could be offered cheap because of financial engineering, games with leases, and the outsourcing/offshoring of maintenance. Existing fleets of airplanes also weren't renewed, and now the USA has one of the oldest fleets of airplanes anywhere in the world! Look, manufacturing and shipping around the world has basically shut down right now, and oil is still $70/barrel! Amazing, isn't it?? That means, when demand returns, oil will easily be $150/barrel, maybe even $200/barrel. Even when oil was $140/barrel last year, there was no evidence of hoarding or inventory builds, which are an essential element of speculation! How to play this? Short dollar, long gold producers, oil producers, manufacturers with good management (ie: not GE, GM, etc.), utilities. Don't buy real estate. Don't buy bonds. Don't buy retail stocks. If you want to study something, study engineering, not finance.
I'm sure you say that tongue-in-cheek, but I've had similar thoughts. What happens if it isn't about money anymore but about control - control of production, distribution, etc.... Got to be big to play in that game. I may not be able to adapt to that eorld easily.
My views are similar to those of Chris Martenson: http://www.zerohedge.com/article/gu...nd-clapping-what-deflationists-may-be-missing Further information on pages 6 and 7 of my journal: http://www.elitetrader.com/vb/showthread.php?s=&threadid=21451&perpage=6&pagenumber=6
m22au: Too many stats. Not enough intuition. Reagan & Thatcher reintroduced the world to the reality of how markets work. In a pure market world, which was their ideal, prices go in two directions: up and down. We are still living in that world. Mish has it right: credit contraction will outdo money printing. There simply aren't enough peanuts on the planet to feed the number of squirrels required to make the printing presses run at the rate they would have to to keep deflation at bay in the advanced economies. China and India are different, but that's because they will, if current trends continue, experience true prosperity, and in prosperity prices rise because production can't keep pace with demand. The developed world, of course, doesn't have this problem. For the developed world, deflation will rule, despite commodity inflation. How could that be? Insanely compressed margins is how. Don't buy GE, Ford, or anyone else producing lots of commodity consumer or b2b goods. Do buy - just as examples - Apple and Newmont Mining. Apple because their innovation keeps margins up, Newmont because they're in the commodity business for raw materials, rather than consumer goods. Between these two extremes, there will be lots of squeezing and screaming, until the massive labor forces of China and India are fully absorbed into the world market.
Deflation. Fed's money printing thus far is peanuts compared to the baby boomer's declining spending wave and looming debt defaults. These banks are so far underwater that 2 of the recent bank failures were under water >50%! The Illuminati is working diligently to keep this debt-based ponzi scheme of an economy running. Gov't subsidies (FHA bs 50% LTV loans, cash for clunkers, etc) have only pulled ahead forward demand. The deflationary crash that we will see in the beginning of the next decade will be monumental. Japan is the best case scenario. I believe the markets force the fed to raise, not the other way around. We will get another inflationary scare in the stuff stock (oil, coal, gas, timber etc) and a blow off top in gold and silver.
Gold is working toward the initial 1130 target. The next important target remains 1300 on the horizon. Then comes the moon shot! They will both come as sure as the sun rises. The USTreasury bubble is finally being recognized as the biggest bubble since US housing. It has no future upside, only downside. The USTreasury bubble constitutes a feeder system for Gold & Silver, alongside the Dollar Carry Trade. The financial networks offer humorous downplay of gold, as they continue in their failure to recognize the permanent condition of the broken USDollar, the broken USTreasurys, the broken US banks, the broken USGovt finances, and the broken US homeowner, and probably the broken US industry. They are paid by Wall Street firms in advertisement revenue, a vivid and failed monopoly. After a long period of dominance, it brought ruin. ____________________________________________________ Read between the lines. How can you ask about deflation? We are in a Deflationary move now. Watch the dollar and watch Gold and Oil. Wake up/ I feel for those who still think that this is a sustainable recovery. The news outa Euro Land, the IMF and the Currency Basket (To carry gold) to replace the dollar.... Think about why NYC just had the Empire State Building lite up with the Communist Countries Colors. If your not preparing for the worst with you financial holdings or with you "Employment" your a fool. If you not fleeing the BLUE STATEs who are bankrupt your even more of a fool.
i'm thinking all this credit crisis thing is no more than a large engeenered stop loss chase as too many jumped on the resources fairytale bandwagon. Weak have now gone, time for real bull market in inflation to start. See AUD for clues. AU prints money and helps zombie companies as anyone else. Clearly currency does well because of commodities. So.... to answer your question ==> inflation !!!! Thats what market says.