Comments on: Make Sure You Get This One Right http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html Mon, 23 Nov 2009 02:08:55 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: joebhed http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49968 joebhed Mon, 06 Jul 2009 01:21:17 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49968 Debt-deflation.<br />Illiquidity.<br />Insolvency.<br /><br />The economy.<br />The financial system.<br />The monetary system.<br /><br />When the monetary system is insolvent, the financial system becomes illiquid and there is debt-deflation in the economy.<br /><br />The focus on illiquidity and debt-deflation is misplaced.<br />Focus on the debt-money system.<br /><br />The only way to correct the illiquidity is to create more debts because in the debt-money system, ALL money MUST be created as a DEBT.<br />Liquidity is not possible when the people are not willing to take on any more debt and a debt-money system does not work in reverse.<br />Can a fallacious, unsustainable <br />monetary system be insolvent?<br />http://www.financialsense.com/fsu/editorials/2005/1212b.html<br /><br />There is a pro-cyclical syndrome at play that goes far beyond the debt-deflation spiral depicted in this article.<br /><br />Cascading cross-defaults is what you don't want to hear.<br />BNut, who is working on an exit strategy? Debt-deflation.
Illiquidity.
Insolvency.

The economy.
The financial system.
The monetary system.

When the monetary system is insolvent, the financial system becomes illiquid and there is debt-deflation in the economy.

The focus on illiquidity and debt-deflation is misplaced.
Focus on the debt-money system.

The only way to correct the illiquidity is to create more debts because in the debt-money system, ALL money MUST be created as a DEBT.
Liquidity is not possible when the people are not willing to take on any more debt and a debt-money system does not work in reverse.
Can a fallacious, unsustainable
monetary system be insolvent?
http://www.financialsense.com/fsu/editorials/2005/1212b.html

There is a pro-cyclical syndrome at play that goes far beyond the debt-deflation spiral depicted in this article.

Cascading cross-defaults is what you don't want to hear.
BNut, who is working on an exit strategy?

]]> By: Sivaram Velauthapillai http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49962 Sivaram Velauthapillai Sun, 05 Jul 2009 23:02:29 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49962 Brick: <i>"Looking at the deflationary spiral diagram it seems to me that falling prices might not exactly be relevant. What is relevant is more probably falling margins and this implies that you can have a deflationary spiral where import prices rise and internal prices tend to stagnate leading to a mild price inflationary environment in a wider deflationary spiral. Compartflation as FTAlphaville puts occurs."</i><br /><br />I'm not familiar with what FT Alphaville said (any link?) but when has this ever happened in real life?<br /><br />I see a lot of people arguing seemingly contradictory things, such as calling for very high inflation of commodities while the whole economy is facing deflation, but has this happened in the past?<br /><br />I'm just a newbie so maybe someone can refute my view but... Outside of war, I haven't seen any periods consisting of sizeable deflation which also saw big increases in commodity prices. Apart from 1990's Japan and the Great Depression, we had many periods of deflation in the 1800's and early 1900's (deflation is common under the gold or silver standards). My impression is that commodities, as well as assets such as stocks, fell during those deflationary periods. Brick: "Looking at the deflationary spiral diagram it seems to me that falling prices might not exactly be relevant. What is relevant is more probably falling margins and this implies that you can have a deflationary spiral where import prices rise and internal prices tend to stagnate leading to a mild price inflationary environment in a wider deflationary spiral. Compartflation as FTAlphaville puts occurs."

I'm not familiar with what FT Alphaville said (any link?) but when has this ever happened in real life?

I see a lot of people arguing seemingly contradictory things, such as calling for very high inflation of commodities while the whole economy is facing deflation, but has this happened in the past?

I'm just a newbie so maybe someone can refute my view but… Outside of war, I haven't seen any periods consisting of sizeable deflation which also saw big increases in commodity prices. Apart from 1990's Japan and the Great Depression, we had many periods of deflation in the 1800's and early 1900's (deflation is common under the gold or silver standards). My impression is that commodities, as well as assets such as stocks, fell during those deflationary periods.

]]> By: Sivaram Velauthapillai http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49961 Sivaram Velauthapillai Sun, 05 Jul 2009 22:53:31 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49961 Aki: <i>"Immigration drives wages down... that is deflation and it adds to employment."</i><br /><br />Immigration can be deflationary for wages but, speaking as a non-economist, it is not clear to me that it is deflationary for the economy.<br /><br />Even if immigration drives down wages--this is still questionable given how, for example, American wages rose in the late 40's and 50's even though there was strong immigration (particularly from Italy and the like)--the extra bodies may provide additional demand. They may also improve productivity but it all depends on the details.<br /><br />In contrast, if we had net emigration or declining population, overall demand will likely decline even if wages don't. I suspect that declining demand is a far more powerful deflationary force than the decline in wages from any immigration (part of the reason, obviously, is because immigration is only a small portion of the total labour.) Aki: "Immigration drives wages down… that is deflation and it adds to employment."

Immigration can be deflationary for wages but, speaking as a non-economist, it is not clear to me that it is deflationary for the economy.

Even if immigration drives down wages–this is still questionable given how, for example, American wages rose in the late 40's and 50's even though there was strong immigration (particularly from Italy and the like)–the extra bodies may provide additional demand. They may also improve productivity but it all depends on the details.

In contrast, if we had net emigration or declining population, overall demand will likely decline even if wages don't. I suspect that declining demand is a far more powerful deflationary force than the decline in wages from any immigration (part of the reason, obviously, is because immigration is only a small portion of the total labour.)

]]> By: rs http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49950 rs Sun, 05 Jul 2009 18:39:16 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49950 Dear kackermann:<br />having pondered your infinite regress riddle - unless this is a trick question - I believe the answer is :<br />Until the chili sauce runs out. Dear kackermann:
having pondered your infinite regress riddle – unless this is a trick question – I believe the answer is :
Until the chili sauce runs out.

]]> By: kackermann http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49926 kackermann Sun, 05 Jul 2009 12:34:59 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49926 @rs - are you having fun?<br /><br />Here is something for you to ponder:<br /><br />The lobster is canibalistic. The lobster can also detatch a limb to evade a predator. It will regenerate that limb.<br /><br />So the question is, how long can the lobster live via autocanibalism? Certainly it can't continue to eat itself forever. @rs – are you having fun?

Here is something for you to ponder:

The lobster is canibalistic. The lobster can also detatch a limb to evade a predator. It will regenerate that limb.

So the question is, how long can the lobster live via autocanibalism? Certainly it can't continue to eat itself forever.

]]> By: RTD http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49924 RTD Sun, 05 Jul 2009 11:20:52 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49924 I've been warning about "commodities-only inflation" for awhile. The price of raw materials rise but corporations have too much capacity and too little pricing power to raise the prices of finished goods, while the labor market remains soft so wages remain stagnant or fall. This is ruinous for individuals as well as for all firms not involved in extracting and selling raw materials.<br /><br />Jensen's post adds to that by pointing out that not only can commodities inflation coexist with general deflation, it can make the general deflation worse by drawing away disposable income.<br /><br />--RueTheDay I've been warning about "commodities-only inflation" for awhile. The price of raw materials rise but corporations have too much capacity and too little pricing power to raise the prices of finished goods, while the labor market remains soft so wages remain stagnant or fall. This is ruinous for individuals as well as for all firms not involved in extracting and selling raw materials.

Jensen's post adds to that by pointing out that not only can commodities inflation coexist with general deflation, it can make the general deflation worse by drawing away disposable income.

–RueTheDay

]]> By: rs http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49923 rs Sun, 05 Jul 2009 10:55:53 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49923 Final thoughts on this entirely hypothetical scenario of system breakdown:<br /><br />Harsh new laws are passed on "prfiteering" and the unpatriotic hoarders of wealth. With huge popular support all patriotic citizens and their children have to do 2 years of social service.<br />Oh - you say you just want to get out- maybe start a new life in a nice south american village? Maybe if you have an uncle or brother-in-law with good connections - he can get you the increasingly valuable Exit Visa.<br /><br />meanwhile economists are barred from using incendiary terms like inflation and deflation that impede the progress of the great leap forward. Final thoughts on this entirely hypothetical scenario of system breakdown:

Harsh new laws are passed on "prfiteering" and the unpatriotic hoarders of wealth. With huge popular support all patriotic citizens and their children have to do 2 years of social service.
Oh – you say you just want to get out- maybe start a new life in a nice south american village? Maybe if you have an uncle or brother-in-law with good connections – he can get you the increasingly valuable Exit Visa.

meanwhile economists are barred from using incendiary terms like inflation and deflation that impede the progress of the great leap forward.

]]> By: Brick http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49921 Brick Sun, 05 Jul 2009 10:34:17 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49921 Looking at the deflationary spiral diagram it seems to me that falling prices might not exactly be relevant. What is relevant is more probably falling margins and this implies that you can have a deflationary spiral where import prices rise and internal prices tend to stagnate leading to a mild price inflationary environment in a wider deflationary spiral. Compartflation as FTAlphaville puts occurs.<br />There is a another reason to expect prices to continue to rise and as explained in white paper “Toxic equity trading order flow on Wall Street” by Arnuk and Saluzzi displayed recently on zerohedge. This hints that recent innovations in the ETF world especially linked to commodities mean that quant trading programs can break the link between fundamentals of demand and prices for both the upside and downside. Lack of regulation and recent innovations in derivative based ETF’s and ETF’s in treasuries and the dollar will lead significantly increased volatility in commodties, currencies and interest rates. The result will be wild swings from deflation to stagflation as the elasticity in the wage price relationship is stretched first one way and then another as wall street searches for the short term rewards. Looking at the deflationary spiral diagram it seems to me that falling prices might not exactly be relevant. What is relevant is more probably falling margins and this implies that you can have a deflationary spiral where import prices rise and internal prices tend to stagnate leading to a mild price inflationary environment in a wider deflationary spiral. Compartflation as FTAlphaville puts occurs.
There is a another reason to expect prices to continue to rise and as explained in white paper “Toxic equity trading order flow on Wall Street” by Arnuk and Saluzzi displayed recently on zerohedge. This hints that recent innovations in the ETF world especially linked to commodities mean that quant trading programs can break the link between fundamentals of demand and prices for both the upside and downside. Lack of regulation and recent innovations in derivative based ETF’s and ETF’s in treasuries and the dollar will lead significantly increased volatility in commodties, currencies and interest rates. The result will be wild swings from deflation to stagflation as the elasticity in the wage price relationship is stretched first one way and then another as wall street searches for the short term rewards.

]]> By: rs http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49920 rs Sun, 05 Jul 2009 10:29:31 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49920 I just cant seem to stop!!<br /><br />The govt embarks on big ambitious projects: end povert, stop global warming, change the axis of rotation of the earth etc etc.<br />basic infrastructure decays further even though the govt is spending huge sums to fix it - workers are overheard saying " They pretend to pay us, we pretend to work"<br />The "official" prices of food, energy etc are fixed by law at low affordable prices. However unless you have "connections" forget about getting that gas line to your house fixed.<br /><br />Inflation or Deflation?<br /><br />Mary had a little rat, a horny little runt, and every time that Mary bent down the rat ran up .....<br /><br />Prose or Poetry? I just cant seem to stop!!

The govt embarks on big ambitious projects: end povert, stop global warming, change the axis of rotation of the earth etc etc.
basic infrastructure decays further even though the govt is spending huge sums to fix it – workers are overheard saying " They pretend to pay us, we pretend to work"
The "official" prices of food, energy etc are fixed by law at low affordable prices. However unless you have "connections" forget about getting that gas line to your house fixed.

Inflation or Deflation?

Mary had a little rat, a horny little runt, and every time that Mary bent down the rat ran up …..

Prose or Poetry?

]]> By: rs http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right.html#comment-49918 rs Sun, 05 Jul 2009 09:54:08 +0000 http://www.nakedcapitalism.com/2009/07/make-sure-you-get-this-one-right/#comment-49918 To Continue on system breakdown symptoms:<br /><br />The most sought after stable jobs become the govt jobs. having 'connections" become more important than having "money". People with connections are able to get their kids into good colleges and find them good paying govt jobs. Money - well just does't talk anymore. people with accumiulated wealth can't do much with it except gradually lose it to devaluations and taxes.<br /><br />Is a situation like this Inflation or Deflation? To Continue on system breakdown symptoms:

The most sought after stable jobs become the govt jobs. having 'connections" become more important than having "money". People with connections are able to get their kids into good colleges and find them good paying govt jobs. Money – well just does't talk anymore. people with accumiulated wealth can't do much with it except gradually lose it to devaluations and taxes.

Is a situation like this Inflation or Deflation?

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