ok - we are getting nowhere here. your argument for deflation going forward is that debt is going to contract. obviously the opposite should hold as well so you present examples of inflation during the boom times when indebtedness grew rapidly as: 1. corn. ever heard about the ethanol policies fuck up? 2. rice. this was largely asian phenomenon and guess why it happened. people became richer so they eat more. supply gets disrupted by bad monsoon seasons and bingo - supply/demand problem. note that on top of that the debt is not a big problem in asia (or at least not as bad as West) 3. gasoline. this is more tricky but the biggest reason why crude went to $147 was Fed's accommodative policy following the housing (and Bear Stearns) fiasco. Oil simply became an inflation hedge for too many people. so it was really a result of accomodative Fed's policy affecting assets, i.e. asset inflation. NOTHING TO DO WITH DEBT. in fact this is the great counterargument against theory of endogenous money to have privileged effect on price level. 4. houses. asset inflation channeled by cheap money worldwide and fucked up regulation. this one is the only one clearly connected to debt because the ownership is often gained via a mortgage. and sure houses have a potential for more declines as supply exceeds demand for extended period of liquidation and weeding out the "unworthy". the resulting credit crunch has effect on price levels as people adjust their balance sheet by temporarily reducing demand. back to the original topic. the bottom line is if you try to get out of problems by printing money instead of biting the bullet you ultimately get inflation because demand for goods will exceed supply. along the way you get plenty of asset inflation as well as people wake up and try to defend their wealth. don't rely on velocity to save the day...americans have completely different demography and consumer behaviour then e.g. Japan (which is often quoted as a counter-argument). don't get confused by the large ratio of debt to cash. debt is not driving the price level as much as cash does. what really matters is the disposable income (and this is being pumped up by low interest rate, government spending, cheques, tax rebates etc) vs supply (which is suppressed to say the least). we will see if we get a stagflation deja vu... money printing is only postponing the inevitable restructuring (of economy, debts, etc) by stealing from prudent people their savings - basically exactly what faber is saying btw. i certainly am his fan. at the end of the modern history we will all be monetarists. as milton friedman once said "inflation is always and everywhere a monetary phenomenon." (he meant overall price level - not the substitution related stuff related to supply/demand imbalance in a particular product) ouch - that was long - lets' see how many nonsense i spewed out....
Yes, we're getting nowhere. The ultimate proof of a theory is if it can accurately predict a result based on its assertions. As of now, as I noted, the US CPI is curling down. Martin Wolf notes, in his mainstream on-the-one-hand-on-the-other-hand sort of way, that deflation is still a risk. So, if this debt-deflation theory is correct, we should see a worldwide deflation, same as (in my humble opinion) we saw a worldwide inflation during the boom. I guess we could check back in a year to see what happens. We could use the US, Eurozone, and UK inflation figures, as that would still cover the majority of the world's economy, even though the center of economic gravity is clearly moving East.
agree despite 1 year may be still too short time for all that money to get through. i do not think we need to insist on particular figures - the outcome will be pretty obvious... gl
Up. Man, I sure hope Faber isnt right about the whole war thing. I'm not really that survival kind of guy. It would be nice to have some new Faber Material but these last months nobody gave him more then 10 minutes to express his views.
Faber was right about Novagold! As for the war thing. Unfortunately, I think it's unavoidable. At the end of the day, it's not about the money. It's about the resources and who gets what.