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Thursday, June 13, 2013

The miracle of Abenomics

If the credit-pumped Dow Jones hitting new highs is a sign of economic recovery, then what does it mean when the credit-pumped Nikkei collapses by one-fifth in three weeks?
  • JAPAN'S NIKKEI 225 FALLS 20% FROM MAY 22 HIGH
  • JAPAN'S TOPIX INDEX FALLS AS MUCH AS 5.1%
  • NIKKEI 225 FALLS 6%, EXTENDING LOSSES 
I'm sure Paul Krugman already has his usual explanation ready to hand.  Abe printed a lot of money, sure.  But he simply didn't print enough....

Meanwhile, my inflation/deflation debate opponent sends me the following admission by an international banker:  
"If you look at it historically, there has never been a period when the Fed has started to take back stimulus that has left the markets untouched.  And this time it is a bigger exercise. We have moved markets from 2009 to 2013 on stimulus and now we are trying to take a step into a world which is more driven by natural growth. That transition will not be easy." - Hans Peterson, global head of investment strategy at Swedish bank SEB.

Everything between 2009 and 2013 was "stimulus".  They flat out admit it... and you know people STILL won't listen to us.
 C'est la vie.  They were warned.

Labels:

88 Comments:

Blogger El Borak June 13, 2013 9:24 AM  

Even the Fed admits it: [the Fed cutting back its bond purchases] "...would importantly begin to lay the groundwork for a period when markets can prepare to function in a way that is far less dependent on central bank actions and allow them to resume their most essential roles of price discovery and resource allocation."
-- KC Fed President Esther George.

So as of right now, financial markets are not performing the roles of price discovery or resource allocation. All they are doing is putting new money in the proper pockets.

Blogger Nate June 13, 2013 9:25 AM  

There is just no way this makes it past 2015-2016.

Anonymous Roundtine June 13, 2013 9:36 AM  

The "market" is psychologically ready, but it could be months before the party starts (I bet on September). The bears are whipped, gold is garbage, the economy is recovering, all good news. All is well!

Gold was taken out and shot. For some reason the Nikkei likes to crash on Thursdays, 3 times in the past month. Pull up a chart of Brazil, blown through support and maybe on its way to 2009 lows. Aussie dollar clipped in May, and their PMI was in the 30s in March. Their PMI is more volatile than the US, but when the U.S. hits the low 40s its really bad, like 2008 bad. China's a slow motion train wreck, I picked up a brochure today on the street from a company selling 12% interest products. They loan to college grads and small companies......they are now scraping the bottom in search of the last sucker. Japanese elections are in July and German elections are in September.

Watch how the Democrats/liberals upset over the NSA spying talk about Obama, like the world is over. That's a small preview of the mood when the scales fall from the eyes and people realize the central bank is powerless and there's an empty suit in the White House.

Anonymous FUBAR Nation Ben June 13, 2013 9:44 AM  

Buy the f'in dip!!!

Blogger Nate June 13, 2013 10:03 AM  

post on "RACIS!!" ... 200 comments.

post on TERRIBLEECONOMICSHREIKINGDOOOOOM!!!!!!

5 comments.

typical.

Anonymous Anonymous June 13, 2013 10:06 AM  

I have published a review of Summa Elvetica on my blog. I enjoyed the book and am glad to see more books set in that world.

Blogger El Borak June 13, 2013 10:07 AM  

There is just no way this makes it past 2015-2016.

That's what I said about 2013. If 5 years ago you would have told me that we'd run trillion dollar plus deficits for 5 years in a row with zero interest rates, I'd have asked you to pass the j over. Yet here we are.

Not saying you're wrong. I'm just saying.

Anonymous ODG June 13, 2013 10:08 AM  

Nate, what's to say? We're screwed - we all agree. Just trying to figure out how I'm going to ride it out...

Anonymous allyn71 June 13, 2013 10:09 AM  

But Nate, ekonmics hard.

Anonymous dh June 13, 2013 10:14 AM  

VD, surely you are not saying that stock market is a correlation of a strong economy?

Both markets need to fall, to deflate the asset bubble.

Anonymous allyn71 June 13, 2013 10:20 AM  

"That's what I said about 2013. If 5 years ago you would have told me that we'd run trillion dollar plus deficits for 5 years in a row with zero interest rates, I'd have asked you to pass the j over. Yet here we are.

Not saying you're wrong. I'm just saying." - El Borak June 13, 2013 10:07 AM

Yeah, I think we all have a bit of that. Vox has admitted several times that he underestimated the ability of the FED to keep up the charade for this long. No way did I think in 2008 that they could keep this up this long and maintain social order.

Along the way I have come to the conclusion that normalcy bias means that we are going to ride this thing all the way down to 0. I have no idea when we will take the nose-dive but I don't think it can be avoided now.

At this point I am thinking more about the opportunities that rebuilding will allow than worrying about what I/we can do to prevent the destruction. The die has already been cast on that one and is too damn depressing to keep worrying about.

Anonymous Starbuck June 13, 2013 10:21 AM  

Gold is shot? No way, buy as much as you can get your hands on. If you can find any. Demand for gold is very high right now. Even though the prices are lower.

I personally think the very wealthy are grabbing all the gold they can. Because they are going to crash it.

Why crash it? To bring their political and financial agenda.

What is their agenda? I'm not totally sure. But I am pretty sure it involves world government. With them in control. Whoever them are. Seems to be a lot of useful idiots running around. Even wealthy ones.

Anonymous Peter Garstig June 13, 2013 10:27 AM  

That SEB guy statement is pure golden.

There is just no way this makes it past 2015-2016.

Sometimes, it's really really astonishing how long junkies live. I guess this stimulus driven stuff can take much longer than we think. There's a reason most people didn't die in Russia during the UdSSR, even though all the politics and economics pointed that way. People find a way around almost anything.

I was long the opinion that this can't last another year. Yet, it did. Now I won't be surprised that this Zombie economy might last another decade.

Blogger Nate June 13, 2013 10:27 AM  

"That's what I said about 2013. If 5 years ago you would have told me that we'd run trillion dollar plus deficits for 5 years in a row with zero interest rates, I'd have asked you to pass the j over. Yet here we are.

Not saying you're wrong. I'm just saying." - El Borak June 13, 2013 10:07 AM

The difference is in the debt to income ratio. Consider the amount of total government debt as it compares to tax revenue.

by 2015 - 2016 the cost of servicing that debt will take up so much of the income (tax revenue) that it simply will not be sustainable. The Fed is already the primary lender to the US government... which means we're effectively not borrowing any more at all... we're just printing money and pretending to have an economy... and all the while flushing our reserve status down the toilet.

The light is coming. The shadows to hide in grow smaller.

Sooner or later the world will realize the emperor has no clothes... and the dollar will simply stop being money.

Anonymous allyn71 June 13, 2013 10:28 AM  

Only gold that is shot is GLD paper.

1/10th ounces gold eagles are going for 40% over spot. Can you say "Decoupling". They took down the price of gold to hold up the fiat and to try and scare folks away from it. Problem is lots of folks just back up the truck whenever there is a dip.

There is gonna be some type of capital controls coming on PM's before to long. Even the Indian government is getting a bit cranky about the peasants getting to much of their metals.

Anonymous Stilicho June 13, 2013 10:29 AM  

There is just no way this makes it past 2015-2016.

On that we agree.

Anonymous Noah B. June 13, 2013 10:31 AM  

The Fed has been talking about an exit strategy for five years, but so far, all we've seen is talk. If the Fed were to actually stop ZIRP and QE, we would see interest rates rise substantially. This would have an enormously negative impact on government budgets and pretty much destroy the financial sector. Not that I'm against any of that, but it seems clear by now that the Fed lacks the resolve to any of this.

Continuing to create money from thin air, on the other hand, makes it look like the Fed is doing something to help the economy to the willfully ignorant masses. The resulting inflation may eat into banks' real profits, but at least the Fed's life support keeps the banks alive until that magical day arrives when natural growth, balanced budgets, and the unicorns all finally reappear.

Anonymous Stilicho June 13, 2013 10:32 AM  

post on "RACIS!!" ... 200 comments.

post on TERRIBLEECONOMICSHREIKINGDOOOOOM!!!!!!

5 comments.

typical.


"We few, we happy few..."
"Who stands with me this day, be he ever so inflationista..."

Anonymous Noah B. June 13, 2013 10:33 AM  

"by 2015 - 2016 the cost of servicing that debt will take up so much of the income (tax revenue) that it simply will not be sustainable."

Which is why the Fed can't stop printing money and let interest rates rise substantially.

Anonymous allyn71 June 13, 2013 10:34 AM  

"..and the dollar will simply stop being money" - allyn71 June 13, 2013 10:28 AM

How do you hyper-inflate that which is not used anymore?

That is the issue I have been waiting to be addressed in the long stalled debate.

If the credit crackup kills the dollar you can't have hyper-inflation because the dollars will be just gone. Can't hyper-inflate what isn't there.

Maybe the dead dollars will be like zombie's coming back from the grave to kill us all. More fact than fiction in that one.

Anonymous AlteredFate June 13, 2013 10:36 AM  

With the ignorance of math and politics that the average person displays, it makes it unsurprising that they would find zero interest (pun?) in the subject of economics.

Anonymous the bandit June 13, 2013 10:38 AM  

Somehow the terrible shrieking economic doom is less fun to point and laugh at.

Anonymous Stilicho June 13, 2013 10:40 AM  

Nate, I don't know if you saw this in the Z1 post ( I was a bit late to the party) so I'll re-post it here:

""As for the future, what if they threw a credit party and no one came..." - Stilicho June 09, 2013 8:04 PM "

This is what Vox fails to grasp. This leads to hyper inflation. Not deflation.


A few points from Keen:

1) Reserves are not necessary for lending. In fact, aggregate lending comes first, followed by creation of reserves to "support" it.

2) Credit growth requires a lender willing to make a loan to what he considers a credit-worthy borrower. It takes two to tango.

What we see from looking at the Z1's is that the Fed's money creation has significantly increased the banks' reserves, but commensurate lending has not followed. The money multiplier theory is not working as advertised. Second, the primary "credit-worthy" borrower who is actually increasing its borrowing is the federal gov't. To the extent this money is then spent into the economy, it will have some inflationary effect, ceteris paribus (see, e.g. bubbles in Treasuries and stocks fueled in part by banks' use of easy Fed money) However, this is a different animal than hyperinflation (as you know). Additionally, I know you consider the credit money created by re-lending loan proceeds in the fractional reserve banking system to be ephemeral because the whole chain is ultimately based on the original base money. Fair enough, but the problem is that this is just another example of leverage gone wild. The nature of such credit creation is that it is not all due at the same time, so this helps hide the leverage to some degree. If the chain breaks down and collapses due to a default, the whole thing can unwind rapidly as succeeding notes are called and we see credit deflation (and banksters jumping out of windows). In a just world, your model would make more sense (only actual money would matter), but, in our financial system, leveraged credit is the coin of the realm. If Nate borrowed money to buy a new cnc milling machine, he would have to give the lender a security interest in the property, a UCC lien would be filed, and no other reasonable lender would loan Nate money using that machine as collateral. In the financial system, assets are routinely rehypothecated, client assets are pledged as collateral for the fiduciary's debts, and no one seems to know who actually owns anything (the answer is that all your stuff are belong to GS and JPM). When this system suffers its inevitable breakdown, the Fed cannot replace the leveraged credit with base money as fast as it deteriorates. That is the deflationary scenario I foresee.

Anonymous allyn71 June 13, 2013 10:43 AM  

"With the ignorance of math and politics that the average person displays, it makes it unsurprising that they would find zero interest (pun?) in the subject of economics." - AlteredFate June 13, 2013 10:36 AM

This combined with this...


"post on "RACIS!!" ... 200 comments.

post on TERRIBLEECONOMICSHREIKINGDOOOOOM!!!!!!

5 comments.

typical." - Nate June 13, 2013 10:03 AM


Made me think of Sunny, AA and all the other millennial threads. I had an image of what one of their posts would look like explaining their position on inflation/deflation. I got severe mindhurt thinking about how valid it would be because they are valid despite how invalid it would be :-(

Blogger Daveon June 13, 2013 10:46 AM  

If only we could look at the market trends and see if this looked like a collapse or a correction after a period of rapid and unprecedented growth? Oh? We can? It's still 30%+ above where it was at the start of this policy? Japan's growth now at 4.1% annualized? Hmmm.... sky not falling? Gosh.

Anonymous harry12 June 13, 2013 10:48 AM  

Nate June 13, 2013 10:03 AM
post on "RACIS!!" ... 200 comments.

post on TERRIBLEECONOMICSHREIKINGDOOOOOM!!!!!!

5 comments.

typical.

______________

OK! Gives Wifey and me time to do some line dancing. ( Gotta do what's important, right? )


Anonymous bob k. mando June 13, 2013 10:48 AM  

dh June 13, 2013 10:14 AM
VD, surely you are not saying that stock market is a correlation of a strong economy?




you've been here long enough to know better than this.

the "Dow indicates the health of the economy" tards ( Jim Cramer and Paul Krugman are prime examples ) are all over the mainstream financial news orgs. Vox is pointing out THEIR stupidity and irrationality by directing attention to two nations with identical monetary policies ... who's stock markets are going in diametrically opposed directions.

the "Dow is economy" metric is thereby proven ridiculous and incoherent.

Anonymous VD June 13, 2013 10:49 AM  

I have published a review of Summa Elvetica on my blog.

Great, I'll link to it tomorrow once the rabbits stop hopping.

I had an image of what one of their posts would look like explaining their position on inflation/deflation.

(laughs) Now THAT I would like to see!

Anonymous Eric June 13, 2013 10:51 AM  

ODG et al,

I haven't heard much here about investment houses, bur they seem a pretty good inflation hedge esp with interest rates at 3.75%. It requires a decent chunk of cash but houses like gold are likely to retain real value. My two cents.

Anonymous allyn71 June 13, 2013 10:53 AM  

"If only we could look at the market trends and see if this looked like a collapse or a correction after a period of rapid and unprecedented growth? Oh? We can? It's still 30%+ above where it was at the start of this policy? Japan's growth now at 4.1% annualized? Hmmm.... sky not falling? Gosh." - Daveon June 13, 2013 10:46 AM


Take away the crack and see where the markets are.

I will grant you this, as long as the US has the biggest stick and the petrodollar they can probably keep the crack supply going. What happens when they can't anymore?

I mean it isn't like China and Russia are setting up trade agreements with everyone to use native currencies and ditch the dollar.

Just for kicks, can you tell me of any reserve currency that printed its way to prosperity?

Anonymous dh June 13, 2013 10:55 AM  

by 2015 - 2016 the cost of servicing that debt will take up so much of the income (tax revenue) that it simply will not be sustainable. The Fed is already the primary lender to the US government... which means we're effectively not borrowing any more at all... we're just printing money and pretending to have an economy... and all the while flushing our reserve status down the toilet.

The light is coming. The shadows to hide in grow smaller.

Sooner or later the world will realize the emperor has no clothes... and the dollar will simply stop being money.


But you aren't saying "sooner or later", you pegging it to a date right?

And there is more than one possible terminus, isn't there?

Blogger IM2L844 June 13, 2013 10:56 AM  

typical - Nate June 13, 2013 10:03 AM

That is exactly the right word! MPAI

Anonymous VD June 13, 2013 10:57 AM  

Hmmm.... sky not falling? Gosh.

I'd stick to trying to question my blog traffic, Daveon.

Anonymous brian June 13, 2013 10:58 AM  

The stock market is a video game any more. With the computers doing sub-millisecond trades based on tweets (AP flash crash, anyone?) the stock market doesn't actually represent ANYTHING.

The problem is that the media and the general public still think it does.

Anonymous Stilicho June 13, 2013 10:59 AM  


I had an image of what one of their posts would look like explaining their position on inflation/deflation.

(laughs) Now THAT I would like to see!


Nate actually provided us with an example. It went something like this:

"Austrian economics? I've actually been to Austria, so I have a very good understanding of their economy..."

Blogger TontoBubbaGoldstein June 13, 2013 11:00 AM  

Sometimes, it's really really astonishing how long junkies live. I guess this stimulus driven stuff can take much longer than we think. There's a reason most people didn't die in Russia during the UdSSR, even though all the politics and economics pointed that way. People find a way around almost anything.

I was long the opinion that this can't last another year. Yet, it did. Now I won't be surprised that this Zombie economy might last another decade.


Exactly.

In 1919, I wouldn't have given the USSR 5 years.

Yet it lasted 70 more.

And made it through WWII.

In fact, when the end came....it was surprising to most people, myself included.

Anonymous Stilicho June 13, 2013 11:12 AM  

I have my own federal stimulus proposal: 11 million undocumented Democrats X $1000 each (approx. cost of ticket to Mexico City) = $11 billion stimulus for airline industry and overnight reduction in unemployment rate for Americans. Even Krugman should love it. Throw in another billion annually for 10,000 border patrol agents to keep them from returning and let the stimulus roll! After all, those federal jobs are "good" jobs according to the liberals.

Anonymous Roundtine June 13, 2013 11:16 AM  

Only gold that is shot is GLD paper.

The drop signals the instability in paper assets (as the Nikkei, AUD and copper prices also show). The paper price of gold will keep falling until you can't find any physical gold. I believe Prechter's call for $400 gold may even turn out to be correct. Good luck buying any at $400 though.

Blogger El Borak June 13, 2013 11:20 AM  

The stock market is a video game any more.

Exactly correct. Just go to the CNBC site (if you can stand it) at any time and count the number of headlines with the word "play" in them.

I count 2 at present:
Cramer: 'Single Greatest' Housing Play
Playing the Jobs Number; Dollar Dump; June Swoon

which is actually a low number. It's not unusual to find three or even five different way to "play" the market at any given time. It's not remotely about investing money in actual or potentially profitable enterprises. The stock market is to the American with more than $10 to his name exactly what the Powerball is to the one with less than 10.

Anonymous ZhukovG June 13, 2013 11:29 AM  

Nate,

I agree with the logic behind your assessment of our economic demise. I wonder, however, if other economies go 'Tango Uniform' before us, will that grant the dollar a temporary stay of execution? If the dollar is viewed as the only port in the storm could we not continue past 2016?

Anonymous bob k. mando June 13, 2013 11:37 AM  

in a fiat currency universe, the last fiat currency standing is king.

at least, that seems to be the hope of the powers that be.

they're going to have to do something about general public ownership of silver and gold though ...


interesting consideration:
i've talked to a local coin dealer and he's uncomfortable dealing in cash transactions over $4000 dollars. he doesn't want to attract the attention of the IRS.

this makes buying quantities of gold problematic.

Anonymous Van Floosen June 13, 2013 11:46 AM  

"But I am pretty sure it involves world government. With them in control."


Seems they already are.

Anonymous Roundtine June 13, 2013 11:48 AM  

If you want to see what's going on with the Chinese banking system, you can look at SHIBOR rates. If you click on a rate it will bring up a chart and you can see 6 months prior. The overnight rate was 2% in May and recently hit 9%. U.S. dollar LIBOR overnight rates peaked at 7% in 2008.

Blogger James Dixon June 13, 2013 12:25 PM  

> Buy the f'in dip!!!

Well, yes. But you haven't seen any thing remotely resembling the real dip yet.

The last two drops were on the range of 50%. That's probably a minimum for the next one.

Anonymous DrTorch June 13, 2013 12:38 PM  

post on "RACIS!!" ... 200 comments.
post on TERRIBLEECONOMICSHREIKINGDOOOOOM!!!!!! 5 comments.
typical."


Many of us are surprised that things have stretched out this long. Wrong before, what's there to say now? Yes, something has to give, but exactly when...


I haven't heard much here about investment houses, bur they seem a pretty good inflation hedge esp with interest rates at 3.75%. It requires a decent chunk of cash but houses like gold are likely to retain real value. My two cents.

Yes, I've seen recent articles on this, actually investors paying cash for real estate, and have seen it in my local area. People don't trust the stock market and are looking for more secure investments.

Can't speak to the drop in Au, but land is definitely getting attention. As usual, it's pinching the middle class.

Anonymous Noah B. June 13, 2013 12:42 PM  

"When this system suffers its inevitable breakdown, the Fed cannot replace the leveraged credit with base money as fast as it deteriorates. That is the deflationary scenario I foresee."

But what fundamentally limits the Fed's ability to create new base money? Base money can be electronic as well as paper. The only limitations on the Fed are the political constraints present on any particular day and their available computer memory.

Sure, there's moral hazard in endlessly backstopping the financial sector's losses, but who's paying attention to morals anymore?

Blogger El Borak June 13, 2013 12:43 PM  

Besides, VD is now being boycotted by a Minneapolis-based writer whose latest novel is a fantasy about menopausal werewolves. That sort of humor is guaranteed to garner more comments than anything serious.

Blogger Daveon June 13, 2013 12:51 PM  

I'd stick to trying to question my blog traffic, Daveon.

I'm more interested with how you're measuring everybody else's blog traffic and reach so effectively Ted.

I see that Gold is down 20% on the last 6 months too. Hellofa investment. Hellofa.

Anonymous Daniel June 13, 2013 12:52 PM  

then what does it mean when the credit-pumped Nikkei collapses by one-fifth in three weeks?

Zombie: Send... more... paramedics.

Blogger James Dixon June 13, 2013 1:02 PM  

> I see that Gold is down 20% on the last 6 months too.

You do realize that six months is a very short time frame for investing, don't you?

Anonymous Stilicho June 13, 2013 1:25 PM  

> I see that Gold is down 20% on the last 6 months too.

You do realize that six months is a very short time frame for investing, don't you?


No more than he realizes that gold is still up over 400% from the time that recommendation was made or that he realizes Apple is down 40% since last fall. Vox needs a smarter class of anklebiter.

Blogger James Dixon June 13, 2013 1:30 PM  

> ...or that he realizes Apple is down 40% since last fall.

Yeah, we bought a few shares a couple of weeks ago. Then we found out about IOS 7. :(

Anonymous Azimus June 13, 2013 1:38 PM  

I'm with Zhukov - it's not that the Fed has no strategy, it's more of a last-man-standing strategy where all they have to do is outlast the competing currencies and then the dollar is king again, almost a financiers' World War 2 on paper where last time it was US factories that dominated and this time it is US currency. There's a lot of money out there that wants stability, and with a broken Euro, a political beachball for Yen and a RMB that is totally helpless without the dollar, where else will those resouces fly? I don't think it buys a few years for the dollar, it resurrects it. IMO.

Blogger Eric Wilson June 13, 2013 1:59 PM  

where else will those resources fly

PMs mainly bur other hard assets like real estate. Typically the rich are not rich because they can't see the writing on the wall.

Blogger Nate June 13, 2013 2:18 PM  

"But you aren't saying "sooner or later", you pegging it to a date right?

And there is more than one possible terminus, isn't there?"

I'm nailing it down to a time frame... not a specific date. If anyone tells you its going to go boom on one specific day that would be the one day I would guarantee it won't go boom on.

I say 2015-2016. The math says 2015... but I always allow for the superhuman ability to kick the can down the road plus varying spending habits and lenient / stupid bankers. That's why I push it back to possible 2016 sometime.

There is no magic... "this will happen and then boom!" moment in terms of structure.

What will happen... is people will simply stop using dollars for transactions. The people will stop assuming that their dollar will buy something tomorrow... so they will spend it today... and that hyper-velocity will explode into hyper-inflation.

Its why Keen is wrong. The crazy printing during hyper-inflation is not the cause of the collapse. Its a reaction to the hyper-velocity that caused the collapse.

I put up a MASSIVE post on this on my blog. It is in fact the last post in the debate.

Anonymous Stilicho June 13, 2013 2:28 PM  

Its a reaction to the hyper-velocity that caused the collapse.

Where is that hyper-velocity today?

Anonymous Inane Rambler June 13, 2013 2:35 PM  

I see that Gold is down 20% on the last 6 months too. Hellofa investment. Hellofa.

Gold isn't a stock, you ankle-biter. You buy it because you intend to hold onto it for a long ass time.

Of course no one should pick it up now if they are going to ditch it in a year, but who in the hell does that?

Blogger James Dixon June 13, 2013 2:47 PM  

> Of course no one should pick it up now if they are going to ditch it in a year, but who in the hell does that?

Speculators. And you can make good money if you can time it right, especially with options. But they buy paper, not the real thing. And I'm not one of them.

Anonymous Inane Rambler June 13, 2013 2:56 PM  

Speculators. And you can make good money if you can time it right, especially with options. But they buy paper, not the real thing. And I'm not one of them.

I was thinking of people who buy the real thing, but thanks for pointing out what I overlooked.

Blogger James Higham June 13, 2013 3:25 PM  

Jeckyll Island alive and well.

Anonymous LeeS June 13, 2013 3:43 PM  

Nate says inflation is coming, but Greece is experiencing deflation right now.
Who is right? I doubt I'm smart enough to know, but I'll listen and learn.
I hope Vox gets back to the debate soon.

Anonymous LeeS June 13, 2013 4:15 PM  

Nate says on his blog that prices are going up, quantities and package size down, proving inflation is here. But according to an admittedly quick google search, prices on things like milk,potatoes,bread,eggs,etc are up like 10 cents since 2008. Sugar is down.

Blogger James Dixon June 13, 2013 4:39 PM  

> But according to an admittedly quick google search, prices on things like milk,potatoes,bread,eggs,etc are up like 10 cents since 2008.

That doesn't match what I've seen in the grocery store. The prices I've seen are up a good 50% over the past 4 years.

Blogger Nate June 13, 2013 5:06 PM  

" But according to an admittedly quick google search, prices on things like milk,potatoes,bread,eggs,etc are up like 10 cents since 2008."

According to who?

The same people that tell you unemployment is 7%?

Blogger Nate June 13, 2013 5:08 PM  

"Where is that hyper-velocity today?"

It hasn't happened yet. This is very accute thing. Its not like something you can look around and say, "oh look its starting." It will happen over the course of literally 24 hours.

Everything will seem rather normal... then... boom.

It could even happen right in the middle of massive deflation.

Blogger Nate June 13, 2013 5:10 PM  

Basically the debate comes down to Vox telling you what is actually going on right now, and why and how it will fall apart eventually... if nothing enormously huge changes.

I am telling you that he is right but it doesn't matter because something enormously huge is going to change in 2015 or so.

Anonymous LeeS June 13, 2013 5:46 PM  

http://www.thepeoplehistory.com/pricebasket.html

Nate, this is supposedly a list of Walmart price changes since 2008. I don't have time to verify them now, but if they are true, it would seem to weaken your side and support Vox, yes, no?

Anonymous Azimus June 13, 2013 6:06 PM  

Eric Wilson June 13, 2013 1:59 PM where else will those resources fly

PMs mainly bur other hard assets like real estate. Typically the rich are not rich because they can't see the writing on the wall.


I read somewhere that the entire world's supply of mined & refined gold would fit into an 80'x80'x80' cube. I don't believe there's enough PM available for sale in the world (not to say more can't be mined) to convert the paper assets over. As for real estate - that would be something of a desperation move - it would take a very short memory to forget how volatile housing can be in the western world.

Typically, the rich do see the hand-writing on the wall. That allows them to liquidate assets at their peaks, sit on a pile of cash while the world crumbles, and buy back in when assets hit lows. This requires you have some ammo in your gun, i.e. cash. And the cash of choice will probably be the dollar. Or maybe Swiss Francs or Pound Sterling but I doubt there will be enough of either available and they are not the reserve currency, afterall.

Blogger Nate June 13, 2013 6:13 PM  

LeeS

What is happening in prices actually does effect my case in the debate at all. But that said... that website is fairly inept. Note the months the comparisons are being made. Prices vary seasonally. Comparing gas prices of feburary 09 to august of 2010 tells you literally nothing.

I can't fathom what would cross someone's mind to do it that way.

Anonymous Azimus June 13, 2013 6:15 PM  

James Dixon June 13, 2013 4:39 PM > But according to an admittedly quick google search, prices on things like milk,potatoes,bread,eggs,etc are up like 10 cents since 2008.

That doesn't match what I've seen in the grocery store. The prices I've seen are up a good 50% over the past 4 years.


Agreed on the price increases at groceries. Restaurant prices seem to be up about 20% though (it helps that I buy the same lunch once a week) Does that mirror the money supply increase or are there supply/demand pressures as well? Last year's harvest numbers were down, pretty much country-wide I believe, but that can't explain a jump that far. Are we also paying for new dumb@ss EPA/FDA regulations or something? Did they decide to pay farmers for more fallow fields? More/less ethanol?



Anonymous Azimus June 13, 2013 6:26 PM  

OT

Nate you were talking about copperheads the other day. If you ever get around to it, could you define a yankee for me? I'm from farther south than Vox but farther north than you... however it can't just be about geography. Growing up we were told yankees were East Coasties - anyone living above a line drawn NW to SE through Washington DC. Urban. Soft hands. Show off their wealth. Finger wagers.

That has been my working definition anyway. But I guess men of the south, if nothing else, have earned the right to give the true and correct definition of what a yankee is... so I'm curious.

Anonymous Noah B. June 13, 2013 6:31 PM  

It will happen over the course of literally 24 hours.

Everything will seem rather normal... then... boom.

That's how I see it happening too. Hell, we may go to bed one night thinking everything is fine and get up the next morning with chaos breaking out everywhere.

Agreed on the price increases at groceries.

The steady increase in demand through increased spending on food stamps is the likely culprit.

Anonymous LeeS June 13, 2013 6:42 PM  

Nate,
I totally agree there is no recovery. I agree bad things are coming. I probably do not have the intellectual horsepower to debate you. But when you make a bold claim about rapidly increasing grocery store prices, please give us a link. I can't remember what I paid for stuff 4 years ago. Eggs, bread and milk are not really seasonal items. If you don't have time to find reliable historical pricing, I will try to work on it over the next week.

Blogger Nate June 13, 2013 7:23 PM  

". But when you make a bold claim about rapidly increasing grocery store prices, please give us a link."

I fail to see how that is even a bold claim. Its just basic observation. I'm stunned that it isn't so obvious that anyone would even consider refuting it.

Blogger Nate June 13, 2013 7:26 PM  

leeS
Look at this way.. have you ever seen 20 pack of cokes before? When did that start? have you noticed cokes coming in 1 litre bottles all the sudden when it used to be 2 litres for near the same price?

Simple fact is they have hidden the inflation by reducing the amount of food the same price buys. At least they have where they could. Where they can't.. the prices are just obviously higher.

Finding definitive web sources for this isn't particularly easy though... as most sites either have an agenda or are simply grossly incompetent like the one you found.

Blogger James Dixon June 13, 2013 8:19 PM  

> Simple fact is they have hidden the inflation by reducing the amount of food the same price buys. At least they have where they could. Where they can't.. the prices are just obviously higher.

Exactly. Packaging sizes are down across the board. It helps that having lived through the 70's I've seen this before and know what to look for. When the package sizes are the same, the price has gone up. A 2L bottle of Pepsi used to cost $0.99 at Walmart. It's now $1.48. Like I said, pretty close to 50%. Meat is much worse, of course, but it's a lot easier to hide it by lowering quality.

Anonymous WaterBoy June 13, 2013 8:33 PM  

Azimus: "Growing up we were told yankees were East Coasties - anyone living above a line drawn NW to SE through Washington DC."

Well, if you listen to E.B. White:

To foreigners, a Yankee is an American.
To Americans, a Yankee is a Northerner.
To Northerners, a Yankee is an Easterner.
To Easterners, a Yankee is a New Englander.
To New Englanders, a Yankee is a Vermonter.
And in Vermont, a Yankee is somebody who eats pie for breakfast.


The definition you are looking for would more correctly fall under, I believe, "Damn Yankee".

:)

Blogger Eric Wilson June 13, 2013 9:07 PM  

Azimus,

That's why I fall on Nate's side of the debate, much as I respect VD. What happens when there is a BUNCH of paper money chasing a few safe physical assets? One needn't even know economic theory to answer that.

And indeed, cash is king. Always. Until it isn't. I always like to have cash on hand, but then other forms of money are useful as well for when people decode they don't want that cash.

Anonymous bob k. mando June 13, 2013 9:31 PM  

Nate June 13, 2013 7:26 PM
have you noticed cokes coming in 1 litre bottles all the sudden when it used to be 2 litres for near the same price?




that's a particularly poor example, Nate.

2 liter sizes of soft drink bottles have always been extravagantly cheaper than smaller packaging. i think its bizarre that people have no problem wandering into a convenience store and spending MORE on a 16oz bottle than they could be spending on a 2 liter ... when they're sitting right next to each other ... but it's been going on for decades at this point.

CVS currently has a sale on Coke 2L for 69 cents.
http://www.couponingtodisney.com/cvs-coca-cola-2-liters-0-69/

i was paying that ( or more ) 10+ years ago.

food prices in Buffalo Wild Wings have certainly gone up. and fast food sandwich prices ( Subway is finding more and more exceptions to the $5 foot long pricing ) are creeping up again.

Blogger Nate June 13, 2013 9:38 PM  

"I'm from farther south than Vox but farther north than you... however it can't just be about geography. Growing up we were told yankees were East Coasties - anyone living above a line drawn NW to SE through Washington DC. Urban. Soft hands. Show off their wealth. Finger wagers. "

That's not a bad definition. Yankee doesn't just mean "someone from the north". Think of it more like... "Someone that is from the Northeast... or northern Midwest that exhibits the standard yankee stereotypes."

You can't be a yankee if you are from the south... but you can be from the northeast and not be a yankee.

Blogger Nate June 13, 2013 9:39 PM  

"2 liter sizes of soft drink bottles have always been extravagantly cheaper than smaller packaging. "

We're talking about two different things. I had to look it up. Turns out its 1.5 litres of coke. So it looks just like a small 2 liter. You don't see them in convenience store coolers. You see them with the 2 liters in the grocery store.

Anonymous bob k. mando June 13, 2013 10:02 PM  

Nate June 13, 2013 9:39 PM
Turns out its 1.5 litres of coke. So it looks just like a small 2 liter. You don't see them in convenience store coolers. You see them with the 2 liters in the grocery store.



yes but SO LONG AS THE 2L IS STILL AVAILABLE the 'smaller' packaging argument doesn't hold any water for soft drinks.

2L used to be priced regularly at ~$1.30 and i would stock up when they went to ~79 cents per.

they are now ~$1.58 and going on sale for 69 cents per.

all in all, i'd call that definite DEFLATION given that i was doing my shopping 15 years ago. however, i'll stipulate to 'no change' due to intervening inflation and leave it at that.


there are plenty of other definitive examples ( 1/2 gal of ice cream no longer being 1/2 gallon is a prime example ) showing inflation, use those. soft drinks don't serve your purpose of illustrating commodity inflation. rather, they demonstrate the stupidity of retail buyers.

the question is, does the acknowledged inflation in retail prices outweigh the price deflation that has occurred in housing and other fields?

Blogger Eric Wilson June 13, 2013 10:10 PM  

Ahhh. A better example is how OJ is sold now. (Memorabilia, heh. But I digress.) it used to come in half gallon containers, or 64 oz. Now it comes in (stupid) metric 1.75 L containers, which are 59 oz. Yet we pay the same. Sugar comes in 4 lb. bags instead of 5 lb. These are definitive.

Anonymous Roundtine June 14, 2013 1:51 AM  

I follow the Billion Price Project for a CPI number.

Anonymous Stilicho June 14, 2013 9:12 AM  

You're all talking about inflation (price inflation specifically as an indicator). That is a different animal than hyper-inflation (the rapid loss of confidence in a currency that causes the hyper-velocity mentioned above as everyone tries to exchange currency for things of value to avoid further losses that would occur by holding the devaluing currency). The dollar will become relatively more valuable if credit deflates because the assets and goods previously purchased with that 55 trillion in credit will only be available to be purchased by the much smaller currency supply. Currently, we have dollars and credit bidding on those assets and goods. A drastic decrease in the amount of credit available to bid will lead to more purchasing power in the dollars and remaining credit. Gold may suffer an initial drop, but will remain the best store of wealth because it is resuming its role, not just as money, but as the money against which all other monies are measured.

This will be an extremely disruptive process and the reaction of the powers that be to it will also be extreme. After massive credit deflation, then I expect to see hyper-inflation as the electronic printing presses are geared up and emergency legislation is passed (think TARP on steroids plus the Fed forcing $ on banks) to flood the banking system with dollars and also requiring that those dollars be used to create credit as well as massive government borrowing and spending in a desperate attempt to stimulate. In other words, we'll see intervention on an exponentially greater scale in order to "solve" the problems created by...intervention.

Anonymous Jabari June 14, 2013 2:12 PM  

Agreed on the price increases at groceries. Restaurant prices seem to be up about 20% though (it helps that I buy the same lunch once a week)...
Are you counting the "Grocery Shrink Ray" effect into this?

Not only are prices up, but quantity is down as well. Take Subway as an example:
Most of what used to be $5 is now $6 (or $7), but on top of that they don't put as much meat on as they used to (a couple slices less, across the board) and they've gotten REALLY stingy with the veggies. Like, stupidly stingy with the veggies.

Anonymous bob k. mando June 14, 2013 11:05 PM  

i prefer not to gift Subway with my trade since they've started with the queer implied ads several years ago.

besides, at this point, Subway is the McDonalds of sub shops. the food quality is significantly better almost anywhere else you would care to go.

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