rigorousintuition.ca

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So, the government kind of just nationalized the financial sector, at any rate took on its debt with plenty of room to use its assets as collateral.

You'd think that guarantees US government insolvency, foreign flight from T-bills, ultimately monetization of US government obligations, a dollar crash, and thus strong drivers toward hyperinflation. Possibly, commodity pricing in euros to follow.

Meanwhile, the shell game with the real money has ended up with the richest few holding it, as expected. They don't want hyperinflation.

In the real world, most people will be crushed under debt, unemployment will rise, consumer demand will fall, thus demand for commodities also. Investment in production will decline. Asset prices, such as on real estate, will continue to decline. This points to deflation.

At the same time, the government's also taking on trillions (in nominal value) of assets, to dispose of in as-yet unspecified fashion, but with the tendency and intent pointing to reprivatization, some kind of trillion-dollar fire sale. Who's going to get what, and why?

But meanwhile it owns all this new shit, not just the obligations, in an extremely unstable situation. It has potential politically for being forced to deploy the assets in some fashion to rescue at least some part of what will be a very angry middle class. (This is one reason I can see for preferring the Democrats in the election, by the way.)

The financials being taken over also have vast entanglements, debt as well as assets, around the world. I don't get the quadrillion-dollar world of derivatives, any more than they do.

And then there is the government's aggressive stance to the variable panoply of enemy states around the world, as well as to the ostensibly allied EU and Asian power blocs. Not just the potential for wars, but the potential use of the now-legitimated expropriation strategy against designated enemies.

And there is an enormous potential for a drive to scapegoat perps (real or imagined) for the disaster, which is going to be considered a disaster no matter how it shakes out. I can see the setting up of a selective guillotine phase (starting with low-level short sellers, of course, not robber barons).

Plus, the empire has lost its military grip on territory in the periphery, as Latin America and probably the Middle East will prove.

So what's going to happen now? Inflation? Deflation?

And the media says experts keep calling this the worst that's happened since the Great Depression. Yet, unemployment is still relatively low, inflation is low. The number of banks that have gone under are still quite low compared to the recession of the early eighties (although, I realize, that could be because there have been so many mergers into bigger and bigger banks that we have no clue how many banks we're really talking about compared to original numbers) The greatest majority of the middle class is pretty much unaffected....at this point. So the only people this has been really bad for at this point were the people in the last year or two who were dumb enough to buy over-priced homes, the rich who weren't in on the scheme, and investors, regardless of their class, who still have jobs and homes but whose portfolios have been impacted. But it does begin to look like the Great Depression, where it took years for the effects to be felt by the majority of the middle and lower classes.

Inflation is NOT low. The CPI is a lie deliberately designed to cover up the truth.

The official CPI doesn't include food or fuel or housing.

You know, those little things called "necessities".

If you look at the real cost of living, real inflation, it's very very bad right now.

I think it' going to get really bad. All the historical precedents for this kind of thing usually involve out-of-control inflation being a result.

Think Argentina.

http://en.wikipedia.org/wiki/Argentine_ ... (1999-2002)

The parallels are breathtaking.

Bernanke has already said what his plan is, and he is carrying it out as we speak:

Bernanke wrote:Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Overall pressure has been deflationary in the extreme, but that can change fast, and will as trillions of dollars of debt is monetized and payed off with printed notes.

The end of entitlements is also very near.

The whole thing is a textbook example of "privatize the gains, socialize the costs".

These "bold" government moves to bail out the crooks and assume a boatload of bad debt will result in a staggering and debilitating financial blow for ordinary people and local & state governments.

We will pay for this mess, beginning this April and continuing on for many tax seasons to come.

The Third-Worldization of the US has surged forward with these events. The rich have their dedicated staffs of accountants and lawyers to see them through to safer havens; we have only our own wits and whatever resources are left to us when this economic riot ends.

Hard days ahead. For ordinary folk I mean.

JackRiddler wrote:.
So what's going to happen now? Inflation? Deflation?

Both, obviously.

My guess is continued price inflation (goods, services) possibly even hyperinflation considering how many dollars are being "printed," and continued asset deflation (housing obviously). But frankly, the whole system is so incredibly convoluted and manipulated, that how things actually play out seems to be a tough call. Regardless of the specifics, the middle class is toast.

If you haven't watched the Democracy Now! interview, I highly recommend it. Here's the thread:

http://www.rigorousintuition.ca/board/v ... hp?t=20383

The official CPI doesn't include food or fuel or housing.

I don't know what you consider the inflation rate to be today, but in 1980 it hit 13.5%, and interest rates reached over 21% in '82. And don't forget--housing values are going down. Well, except here in this area. I think corn prices are keeping real estate values up, even residential.

ninakat wrote:If you haven't watched the Democracy Now! interview, I highly recommend it.

I personally thank you for your recommendation, because the upside of the downside is that Nomi Prins is teh major hotness. And if there's one thing that financial disaster analysis needs most, it is that. If I'm gonna not understand wtf is going on while the world grinds to an inexorable finish, I wanna do that while checking out a hottie. Even if it means also dealing with the joy of Amy.

I don't know what you consider the inflation rate to be today, but in 1980 it hit 13.5%, and interest rates reached over 21% in '82.

Yes, I'm quite aware of that, having lived through it, but that is exactly WHY they changed the way they configure the CPI.

It's bad press, having the inflation rate by that high.

So they simply changed the way they figure the CPI.

The real CPI right now is probably at least in that range. What is it for you?

I've seen food prices double, and gas prices more than double, and my rent has done nothing but gone up. With the rent control, as it is in my community, I can't even afford to move now, because an equivalent place to that which I now rent is DOUBLE what it was when I moved in in 2001.

Inflation is terrible right now. They're just lying about it.

chiggerbit wrote:
And the media says experts keep calling this the worst that's happened since the Great Depression. Yet, unemployment is still relatively low, inflation is low.

That's a temporary matter. The GD crash was in 1929, the depression hit fully in 1931. Today is faster. It will happen in '09.

The number of banks that have gone under are still quite low compared to the recession of the early eighties (although, I realize, that could be because there have been so many mergers into bigger and bigger banks that we have no clue how many banks we're really talking about compared to original numbers)

Bigger banks, as you say. We may see the failures at an end for a while, because they just dispensed with the step-by-step process and preemptively bailed out the whole thing. Then again, watch what happens on the weekends, like this one with WaMu. Maybe the bailout will have become so astronomical by next week that it will fail on first try?

Nordic wrote:
Inflation is NOT low. The CPI is a lie deliberately designed to cover up the truth.

The official CPI doesn't include food or fuel or housing.

You know, those little things called "necessities".

If you look at the real cost of living, real inflation, it's very very bad right now.

I think it' going to get really bad. All the historical precedents for this kind of thing usually involve out-of-control inflation being a result.

Point well taken. That's been true for many years now. But we're talking bad cost-of-living inflation as opposed to hyperinflation. Like, 10 dollars to the euro, $30 for a gallon of gas.

Think Argentina.

http://en.wikipedia.org/wiki/Argentine_ ... (1999-2002)

The parallels are breathtaking.

But Argentina was business as usual. If the US held the same place in the world economy, Argentina would have happened here already in 2002, I figure. The US however is the global power, the dollar is the global currency, its economy provides the lion's share of world demand and has been used as the investment vehicle of first and last resort. The world didn't hold pesos, but it does hold dollars. The incentives for the rest of the world are enormous in both directions; to try to sustain and rescue the US, and to find a way the hell out.

barracuda

Bernanke has already said what his plan is, and he is carrying it out as we speak:

Monetization of the Himalayas of debt, yes.

Overall pressure has been deflationary in the extreme, but that can change fast, and will as trillions of dollars of debt is monetized and payed off with printed notes.

And then what will those whose credits are redeemed in that fashion do with that? Buy groceries and gas? Reinvest it in suddenly wonderful US assets? Hold on to it and pray no one notices there are suddenly four or five times more dollars in circulation than before?

The end of entitlements is also very near.

Yes and maybe no. Risky. They've spent 30 years talking about the imminent Social Security insolvency (in, um, 2042 or something) as a prelude to the inevitable crash of the real Ponzi scheme, the investment economy. Hard to imagine, given a depression, how this flies in anything but a full military-police state, which is not the sure number many of us have thought, despite decades of preparing the apparatus. Question: Will US troops shoot at the people? (Unfortunately, we have a partial answer: National Guard will shoot black people, no question.) I suppose question 2 also arises: Will US people ever rise up in the first place? What would it take? I think Social Security would be the break point.

sfnate wrote:
The whole thing is a textbook example of "privatize the gains, socialize the costs".

These "bold" government moves to bail out the crooks and assume a boatload of bad debt will result in a staggering and debilitating financial blow for ordinary people and local & state governments.

We will pay for this mess, beginning this April and continuing on for many tax seasons to come.

The Third-Worldization of the US has surged forward with these events. The rich have their dedicated staffs of accountants and lawyers to see them through to safer havens; we have only our own wits and whatever resources are left to us when this economic riot ends.

Hard days ahead. For ordinary folk I mean.

Oh yes, that's all true.

isachar wrote:Both, obviously.

Heh. As ninakat says. Take it away.

ninakat wrote:
My guess is continued price inflation (goods, services) possibly even hyperinflation considering how many dollars are being "printed," and continued asset deflation (housing obviously). But frankly, the whole system is so incredibly convoluted and manipulated, that how things actually play out seems to be a tough call. Regardless of the specifics, the middle class is toast.

If you haven't watched the Democracy Now! interview, I highly recommend it. Here's the thread:

http://www.rigorousintuition.ca/board/v ... hp?t=20383

Will do!

chiggerbit wrote:
Quote:
The official CPI doesn't include food or fuel or housing.


I don't know what you consider the inflation rate to be today, but in 1980 it hit 13.5%, and interest rates reached over 21% in '82. And don't forget--housing values are going down. Well, except here in this area. I think corn prices are keeping real estate values up, even residential.

Inflation's been faked since around that time, or even earlier. They separated food and fuel from "core inflation," which is supposed to be some kind of unfolding revelation of the sacred capitalist truth that thanks to technology everything always gets more valuable and lower priced. One technique is the "hedonic deflator," which takes the real numbers for some sectors (in dollars) and reduces them on the basis that, well, your computer is faster now, so you're paying less per bit or something. (I call it the Megahertz Bonus.) It has the effect of lowering inflation, and thus also fakes GDP. GDP in turn has at least 15% imputed income, like crediting you for rent you don't pay because you own a house. This is all nonsense, as it has nothing to do with real dollar amounts going around.

Everyone read this if you have not:

http://harpers.org/archive/2008/05/0082023

Kevin Phillips wrote:Numbers racket:
Why the economy is worse than we know

By Kevin P. Phillips

Kevin Phillips’s new book, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, is published Viking.

Almost four decades have passed since the United States scrapped its last currency ties to precious metals. Our copper and nickel coinage still retains some metallic value, but not nearly enough for the purpose of currency tampering—the historic temptation of inflation-plagued or otherwise wayward governments, including, at times, our own. Instead, since the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.

Go to link and read it!

My question still hasn't been answered.

I know fuck-all.

Where's Nathan28, the deflation guy?

JackRiddler wrote:My question still hasn't been answered.

Your question was answered, by ninakat and myself. Perhaps you disagree, and that's fine as no one knows the answer with absolute certainty

"Both" is my answer.

Inflation is simply a surplus of money which is paper script printed by Mr. Bernanke in his basement. That we have, and are getting more of in spades. A trillion or so more over the last 24 - 48 hours, in fact, or almost equal to one year output of the entire US economy.

Deflation is occuring now because the ponzi scheme has ended and asset values are crashing, despite the new flood of money. Yet the FED is still pumping dollars furiously into the economy.

Ignoring the lag factor (all this cash has to slosh around inside the banks, some goes offshore where its impact on US inflation is diluted somewhat) for it to reach Main Street, this signals stagflation which is declining or stagnant asset values concurrent with inflation.

Ask the Japanese about it. They had it for 12 - 15 years. The US will be lucky to escape with as mild a version as infected Japan.

I don't get the AIG bailout. Is it a done deal, has officially received Congress' approval yet?

Great article brought to my attention by isachar in another thread. The last segment (below) bears repeating in this thread since it's all about the inflation/deflation controversy. Warning: Extremely disturbing financial imagery.

PANIC, CONSOLIDATE, GAME OVER
Jim Willie CB
September 18, 2008

(...)

THE USELESS INFLATION VS DEFLATION DEBATE

My greatest impatience is shown for those who attempt to argue whether inflation or deflation is winning, and where we stand. Such pursuits of chasing one’s tail serves to illuminate nothing and to waste time. We have both, will continue to have both, as both intensify. The key is for monetary inflation to enter the mainstream, which is underway finally. One can benefit little from putting the unique crisis into convenient cans for purposes of organization. This is not simple, and people should not attempt to simplify the ongoing collapse of the Great American Experiment in Counterfeit Monetary Systems. To be sure, we have gone past a tipping point. The move to flood the monetary pools of phony money beyond Wall Street is the big event. To be sure, the bankruptcies and deep insolvent events are accelerating. To be sure, the desperation for attempted mergers is palpable. To be sure, central bank activity with lending, swapping, and even accepting stock equity as collateral is a sign of total absence of any safeguard toward respect of moral hazard.

Looking for inflation vs deflation labels when the failure and default of USTBonds and receivership occur TOTALLY MISSES WHAT IS GOING ON. This is a death event for the US finances, US banking system, USEconomy structure, and USTreasurys, all rolled together like a gigantic vortex hurricane. Looking for (in) vs (de)flation in this environment is like observing color schemes on walking dead as they attempt to merge at a ceremony. They are of DEAD PARTIES ATTEMPTING TO SHARE COUNTER-PARTY RISK. Looking for (in) vs (de)flation when dead partners are marrying is like DECIDING WHETHER A HONEYMOON SHOULD TAKE PLACE IN THE CARIBBEAN OR FRENCH COAST. They both go to the recycling cemetery instead. The place to be now is in gold and silver, preferably silver since central banks own none and because silver has strong industrial demand. Besides, a silver default of sorts has been in effect for several months.

It is with pleasure to attend again the upcoming Cambridge House conference in Toronto on October 4 and 5. Thankfully, my Frequent Flyer miles were used to cover the airfare from Costa Rica, where the rainy season is coming close to an end. POR FIN! Is that inflationary or deflationary? With absolute certainty, one can say WHO CARES?

Buy gold, buy silver, do NOT use borrowed money or leverage, and rest comfortably at night, since it cannot be taken from you. Then patiently wait for gravity to work, for night to follow day, for evil to be unmasked, for foreign creditors to arrive with hatchets.

Nordic wrote:Inflation is NOT low. The CPI is a lie deliberately designed to cover up the truth.

The official CPI doesn't include food or fuel or housing.

You know, those little things called "necessities".

If you look at the real cost of living, real inflation, it's very very bad right now.

I think it' going to get really bad. All the historical precedents for this kind of thing usually involve out-of-control inflation being a result.

Think Argentina.

http://en.wikipedia.org/wiki/Argentine_ ... (1999-2002)

The parallels are breathtaking.

Yes.