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Brian:
This chart
doesn’t look like deflation is a worry any time soon.
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Mike:
Read it through a system’s view and it’s
wired in… It depends on what you mean by deflation and
inflation.
If you are talking about monetary inflation or deflation, as I
am, I think you will see something much different in that
chart.
How much longer can one continue to pay higher prices with
lower income…
Demand will suffer…deflation will be the result…
Don’t let higher prices make you think that it’s all
inflation, price adjustments for a declining dollar, scarce
commodities…
But again, if you are looking forward, you will see that the
underlying system is unsustainable…
Demand will suffer…
Once demand reaches a tipping point, look out…
My bet is deflation before any real monetary inflation.
They are dumping money, almost from helicopters and demand
will continue to drop…
We’ll see what happens if they can’t restart demand…and the
government stops spending…
In inflation, you want to be in debt because prices on assets
(not what you are showing here, which are consumables) are
going up.
In deflation, you want to be in cash because prices on assets
are declining…
They say home prices have started increasing…and maybe so.
The rent, not foreclose program is stabilizing the system…
for now… But it’s the eye of the storm, IMHO.
The underlying structural dynamics are not favorable, although
the psychological games of BS are active and full out…
I think all durables, that I am seeing are either on sale, or
lower priced… Your chart is based on income and
expenses, not assets…
Deflation occurs in assets, and what you are seeing is a
clever game that may backfire, but might also work… I
have a lot of hope for that, but I’m not buying any land in
the USA, or buildings, or hurrying to buy durables because the
price might go up… or recommending anyone do the same…
because it’s a not inflation we have to worry about…
The proof is in the pudding…
And speaking of food, I put on some pants I haven’t worn in
years, go figure…deflation, I guess, hehe
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Brian:
Some notes from
my somewhat extreme friend Gary on this subject.
We actually
have both (inflation and deflation)
Asset
Deflation and Cost inflation.
The worst of both worlds.
You are
correct that extreme inflation (or hyperinflation) cannot
occur without wages rising.
The US is
hence stuck in a Stagflation – not dissimilar to Japan.
Only thing is Japan had (past tense) a trade surplus –
US has a huge trade deficit.
The Central
Planner have informed you of their game plan – print currency
(TARP, TALF, QE2, Operation Twist, QE3 or as we call it
QEInfinity etc.), supporting the banks, until it goes to zero.
Wonder
where the Financial Planners, and gurus, were the past ten
years – you know, when those pesky metals, Gold and Silver,
went up 500% and 760% respectively.
I believe I
sent you the piece on why we can’t have a Deflation unless we
are on a Gold standard (which may be coming).
It’s
impossible to know…
Gold works in both Deflation (protection) and
Hyperinflation.
Only thing I know is that they are printing money like crazy –
watering down your Orange Juice – the last thing you want to
hold is dollars.
Get hard assets.
Next year
is going to be a bad one… methinks.
We need the reset – to start again fresh.
Otherwise it is just kicking the debt can down the
road… ad nauseum.
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Mike:
This reads as if I wrote it…hehe
You all will notice my forecast was for stagflation in 2010
which is clear we have had, and deflation going forward.
I define inflation as money inflation, which means that there
is more money chasing after more goods…
BUT, I have also cautioned you, that if they refuse to put the
money in circulation, it doesn’t matter how much they print.
There are other issues too. Money expands organically.
As a reserve currency, we are not just
talking about putting money into circulation for the USA; we
are talking about an explosion in birth rate, which has
doubled the population within the past 30 years, maybe less.
If you look at monetary inflation, it has not kept pace,
globally and a reserve currency, this effect is completely
unaccounted for in the pundits and pontificators.
While possibly not a large factor, it is a factor just like we
see now, a weak attractor emerging in housing…
And yes, what we have is stagflation, and that is the worst of
all worlds, except deflation and that is my worry. If we
keep doing things to kill off demand, it will go from
stagflation we have had since 2009, into deflation, and
deflation is the absence of demand folks…
Our economy is run on demand, just under 70% of our GDP is
based on private consumption. My fear is a drop and
continuing drop in demand, which is a positive cycle…
I have researched the gentleman’s idea about gold and
deflation (and while gold can be a hedge against ‘flation),
gold itself is detached from demand…gold is a play for rich
people…et al, and has nothing whatsoever to do with
demand…
Quantity of demand and the quality of demand is my concern…
As noted, we do not have enough eastern demand to offset
western negative demand. Demographically we are out of
whack and within a long wave of demand, the next long wave
starts in around 2022 or so…
The only way for demand to go up would be for wages to
increase and worldwide wages are under pressure to drop…
We are in big trouble, as I stated before, any kind of jolt in
the economy to knock the underpinnings out, and we’ll have
capital flight just like in Europe now. Note that German
numbers were twice as bad as they thought. This is a
clear signal for demand…which is going to delever all
systems.
The key is this, if delevering continues, pressure on business
to fire people or renegotiate their wages and benefits is the
ONLY CARD left; there is no way to restart demand once you get
under this positive loop…
As this thing feeds on itself, a collapse wave in velocity of
money, wages, demand, consumption, all the things that we sell
each other every day is going to drop… All services,
anything not related directly and within one degree of the 4fs
is going down…
Liquor business is a leading indicator, watch it. In a
recession, it always increases… fyi…
The big kahuna here is demand…
It drives everything including speculation…and speculation
can turn ugly because there is as much money to be made — by
those in the know — going down, as those going up, and they
will do this… which feeds the positive loop…
Here’s the reason you do not want to get completely out of the
dollar: cash will be king… While it appears that the
dollar is losing a lot of value, as demand dries up, people
will run to safety…
Try eating your house…
Try paying property taxes without cash, they don’t pay
themselves.
All taxes will go up, indirectly if not directly. They
are skyrocketing now. You just don’t know it, and they
are called fees…
Airlines, banks, car dealers, real estate, everyone is tagging
on fees. government, municipalities, watch out, this is part
of the death spiral, and they will do anything to survive and
in doing so, they will add fuel to the fire…
The dollar is NOT my worry and it shouldn’t be yours unless
you are in top 1% and then, you should come to ph with your
money and I’ll show you how to buy beachfront real estate that
will make you wealthy for generations…
As to buying ANYTHING in the USA, UNLESS you are private
equity with no place to go with your money, don’t buy anything
(I know, what I just said aggravates the positive loop), but u
don’t have to worry about your dollars right now, it’s a moot
argument, unless you are living somewhere else, and then I
would NOT put money in dollars, Russian rubles are ok, I gave
herb a list of 10 currencies back in 2010, if he invested his
money in those, he has made great money on them…hehe, herb,
how you doing, hehe…
Here is the message for you:
Reduce consumption by 33%
Pay off debt, to save interest charges, UNLESS you have a low
cost mortgage, or long-term equipment and business that is
fundamentally sound. Otherwise, sell all extra stuff
now, and stash the cash…
Find a way to reduce your tax burden. Start small
business in an area you love, and build it slowly over time
with 10% of the 33% you are saving from consumption. You
will get back the 10% in tax savings, so you get cool little
business at no cost.
Do not invest in any business right now, unless you have firm,
guaranteed delivery contracts with money up front to protect
you. If this thing goes south, it will go there in such
a hurry that there is nothing you will be able to do…
Investing in the bottom (which is not here yet) will come, and
you can redeploy your cash… If you are in the stock
market long term, look at this slide on the Japanese stock
market and remember, they are funding their own deflation
right now, although that will end soon…which is why I say,
watch Japan…
These simple strategies will keep you out of trouble…
If you can borrow for kids college through the government or a
low-interest program, do not spend your cash. That is
good debt and you would be well-advised to use it… but don’t
borrow privately, as it’s high interest…
I am telling you, hunker down… sit on your eggs…until the
dust clears, unless you have money to risk. Then choose
what risks you want to take, but I see NO REAL signs that the
positive loop is not gaining steam and it can’t be stopped
until it runs out of fuel…
If people are afraid to consume, and they don’t, that is
fuel…
How many people can stop consuming and what will a large
percentage of people not consuming do to the economy…. a
service economy?
YIKES!
Just 5% will depression us, not alone what could happen…
While private equity may stabilize housing, that will do
nothing for consumption because people won’t use their houses
as ATM’s for a long, long, maybe never, time again like what
drove this thing…
While it seems fine, and all the happy talk is in abundance
and the statistics are very supportive of what we want to
see… and are looking for…
The time to be optimistic is now, but the time to be realistic
is also now…
Pessimism doesn’t do anyone any good. However optimism
mis-timed can be dastardly…
Mike
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