The entire deflation inflation debate is rather irrelevant if ment to bring clear answers concerning portfolio exposure. The biggest deflationary shitstorm ever and yet stocks rallied most in a century. From low levels sure but still... Let's be honest, if you are a retail trader or hedge fund manager and haven't owned at least one stock that has gone up 100% since 2008... you might want to consider looking for another hobby/job. And not even 200 charts pointing to massive deflation will change anything about that.
Faber has repeatedly said the USD will face the fate of Zimbabwe because of Bernanke. The *only* position that makes sense in that scenario is short treasuries and the dollar. If he is to have any credibility at all, he must be short both those markets. If he is not, then all his "predictions" are just so much hot air. Prediction with position = genuine call by a trader/speculator/investor. Prediction without position = hot air from a bullshitter.
GoC, If you feel Faber is a snake oil salesman with little understanding of the markets and a flawed trackrecord that's fine by me. I disagree but to each his own! Cheers.
I should have said George Bush is the next Hitler. The world just needs another Hitler to start World War 3.
Ed, as you may have noticed, I'm not much for conventional thinking here - and I lean towards the Austrian School. Yes, if you look at QTM, then inflation is monetary. And in a prior thread you mentioned hitting one target with two opposing arrows as a characterization of what I wrote. "The use of quantity of money as a target has not been a success... 'I'm not sure I would as of today push it as hard as I once did." - Milton Friedman As I said in my prior post - Economists, and Central Bankers in particular, have a linear, sterile view of the world. They are clueless, and when successful, disingenious about how they arrived at their "success." I'm looking at price inflation/deflation, as well as monetary inflation at the same time. I thought I was pretty clear. Assets in my scenario benefitted from monetary inflation, and tech progress contributed to price deflation. So yes, you can have both - you can have monetary inflation and price deflation and vice versa. If we used pre 1982 metrics, then both unemployment and inflation would look entirely different, and we would likely call what we are experiencing a depression - due to high, double digit unemployment. You seem to me to adhere to rules of economic theory (I guess a strict constructionist, black letter law type) - even when they have been politically manipulated, or changed to support a defunct theory. And my point in bringing up tech/productivity progress is to show how politicians and central bankers distort the economy by using these "convenient accidents of history." Will those prices, as you say, "revert to the mean?" Well, I remember once reading that as a percentage of one's salary, food costs these past 40 years are much lower than all of history. Farming was a brutal endeavor, but with the technological advances the past century and more significantly, the past 40 years... the world's population has skyrocketed. Interesting to note that central banking has also "thrived" in prominence during the era of technological progress and cheap, if not practically free energy. A few other points - unionization is pretty much dead today if compared to its state decades ago. Unions were a de facto transmission mechanism for inflation. That is not the case today. And also keep in mind the "exorbitant privilege" enjoyed by nations, particularly the US, whose currency is held in reserves by others. One can "export" their inflation as well. One could say that it is very difficult to hit a target if exogenous factors keep that target moving faster than the arrow. My conclusion remains. Central banking detrimentally distorts economies, gets credit where none is due, and is the source of the worst business cycles and economic dislocations in history, barring natural disasters. This 40 year old global fiat experiment will come to an end. By design or default, it will terminate. Hopefully by design. By default, to me, would mean the Keynesian Monetarists do not relinquish the steering wheel to a sound currency to the point of currency, and then economic catastrophe. Have they not hit enough icebergs? How much more damage can we sustain before the whole thing sinks? They are madmen clinging to catastrophic theories.
Misthos, I appreciate your response. We have a lot of common ground. I think the issue of distinguishing monetary inflation/deflation is important because it is a cornerstone of how the Fed manages monetary policy. If a central bank responds to growth as if it is inflation it will cause contraction and increase inflation. If a central bank treats deflation as inflation it will cause a depression. I acknowledge that technology has raised productivity in many key goods and so reduced their price over time and changed the structure of society in the process. Still, if you managed monetary policy according to such a non monetary driver of price change you could only create havoc.
Marc Faber: The Coming Economic Catastrophe We ain't seen nothin' yet, says Marc Faber at the Mises Circle on Austrian economics and finance http://www.lewrockwell.com/faber/faber67.1.html
When you consider the overall economy including food, medical costs, insurance, etc, we did not have any significant deflation in the overall US economy. The data shows very low inflation but no significant deflation. What we had was prices coming down in two bubble sectors, commodities and real estate as part of a financial meltdown. So it was just a normalization of prices in those sectors, as prices retreated to more reasonable values. We are nowhere near suffering significant and lasting deflation in the US economy. True deflation would be a "shitstorm" as you say, but don't expect it. It is far more likely that the US will experience inflation than deflation. Inflation and a weak dollar drives the market up, not down, and that is what we experienced since the March 2009 bottom. At the moment we are seeing some strength in the dollar, apparently due mainly to weakness in the EURO. Consequently, we see a weaker market for the time being. If you watch the dollar (DX) you will see that at least for now it has a strong negative correlation to the US market. (The correlation can be lost, of course, if for example, prices of commodities become driven by demand rather than a weak currency, as happened during the 1970's U.S. recession.) It is likely the high unemployment rate has largely been responsible for holding inflation in check in spite of "stimulus" spending. That's reasonable considering the large influence the consumer has on the economy. The employment picture looks as though it will improve only very slowly, so I suppose we will continue to have relatively low overall inflation for quite some time, but not deflation. The Fed and Treasury have more than enough arrows in their quiver to prevent deflation. That is what the stimulus spending and giveaways to the business sector are about -- cash for clunkers, rebates for new mortgages and appliances, tax credits for this and that, extended unemployment benefits, and on and on. The Central bank can not run out of money, but the government's credit rating can deteriorate, as can confidence in the dollar. Those are the real dangers of the current fiscal and monetary policies if continued for too long. Could the dollar collapse as did the pound in 1976 when Great Britian had to borrow from the IMF? It seems not too likely as long as the dollar can retain its status as the world's reserve currency. But if that status is lost, all bets are off. Could that happen? Most definitely if the jobs lost do not return, as some are speculating, and the underlying fundamentals of the economy get weaker once the stimulus money is gone. The Government can only keep the economy afloat with handouts for a finite period of time. Eventually either the jobs come back or we really do face a "shitstorm."
From The Roving Cavaliers of Credit This is not a fiat money system, it's a credit money system with a fiat money system as the tail. We keep looking at the tail, but it's being wagged by that Great Dane looking for a treat over there. I thought Ed Breen got it, but he doesn't. He turns out to be just another neoclassical economist who truly believes the Fed does something other than flap its gums and gather statistics. The latter function at least has a use. Anyone who thinks inflation is going to be a problem anytime soon is living in the last century. Simple question: when was the last time you got a raise or, if you're a business owner, successfully pushed through a price increase or managed to get a job from someone even though you weren't the lowest bidder? Can't remember, can you?
I pretty much agree .... would you go so far to say that the weakening of the Euro due to the credit crises is a knee-jerk reaction, and that once the shockwaves to the economy are sorted out, the fiat currency may strengthen vs. hard assets due to scarcity (credit contraction)?