The road to hyperinflation
Today The market for discretionary goods is very large and volatile. There are certainly many things people can do without, but spending will never go to nothing. The performance of the market is irrelevant to our need for food and shelter. People may frequent restaurants less often and moderate their living conditions, but they will eat something, wear something and live somewhere. Homes will be heated, electricity will flow, cell phones will transmit and some form of transportation will still be required. As unemployment grows people will flock to reasonably priced entertainment. Prices may adjust as usage is moderated but these things will never go away. Should the government try to stabilize house prices?
What if the government was actually able to create some magic program to target the bulk of its money printing effort towards the residential real estate market and suddenly inventories started to drop and house prices stabilized, would it even matter? The stock market would probably rally, the airwaves would probably be filled with people forecasting the next long bull market, every government official would credit his brilliant economic policy, but would it last? The coming raid of Canada’s treasury
The developments in Canada these past few days are outrageous. I believe we may be about to witness the wholesale fleecing of a nation’s wealth by stealth coup, in a first world democracy. The unholy alliance of liberals, socialists and separatists with no aim other than to empty the treasury by flooding the country will billions of dollars, to be paid by future generations (with their freedom?). Max Keiser – The Original Death of the Dollar
The Great Depression with Amity Shlaes
FDR didn’t save capitalism from itself. Is the delusion of hope and Obamanomics worthwhile?
Many people are pleased with the election of Obama, but I have observed that most of the blindly hopeful are also blindly clueless as to the true nature of the various crises afflicting the United States. My question I suppose is whether it matters — can psychology alone cure these problems? An alternative scenario: inflation AND deflation
All my predictions and calculations assume governments will intervene to re-inflate the credit bubble. My conclusion was that their efforts would ultimately be in vain as the excess currency loses its ability to generate real economic expansion in the developed nations, instead, it simply causes a plague of inflation that could threaten the viability of the entire currency system. Perhaps governments eventually return to a responsible course and a bottom is reached, perhaps they don’t. Why Americans will suffer more
The problem facing everyone is a loss of American demand. Americans don’t earn enough income, they have no savings and foreigners are refusing to lend them any more money. Americans are losing equity in their homes, their stocks and their pension funds. When Americans stop spending on domestic or foreign trinkets and automobiles, companies have the option to export those items somewhere else. When Americans stop spending on services, the companies close their doors. The majority of Americans work in the service sector. This is not the 1970′s, this is not the lost decade in Japan. When Americans stop spending and the service sector shuts down, unemployment will rise dramatically as the downward spiral is re-enforced. Ceteris Paribus
I understand their logic – historic credit growth contraction will lead to deflationary pressures in the economy – but credit growth just barely went negative for the first time recently and was followed by an intense intervention from governments around the world. There is absolutely no evidence yet of any deflation, all the money supply figures are growing. That doesn’t mean it can’t happen, but given the events of the past few days in many capital cities I find it unlikely. The inflationist argument was always dependent on such intervention and now that circumstances have changed in their favor, deflationists must adjust their analysis. Why I won’t sell despite the carnage
When economies collapse, the people don’t spontaneously combust and neither do their stuff. When trillions of dollars worth of paper fantasy money has evaporated, only the farms, mines, oil wells and factories that produce consumer staples will remain. Those are the places you want to keep your money and those are the things you want to buy when the price is right. We are approaching that point today, commodities can not drop below their cost of production for very long and that floor should also extend to stock prices. When you go to buy some shoes, are you upset when the price drops? Of course not, when you are a buyer you want the price as low as possible. I am not looking to retire in the next 6 months so I couldn’t care less what the market thinks these things are worth today, all I care is that the companies in which I invest and their industries survive. What I care about is profit — will these companies generate positive cash flow in an inflationary environment. The ones that make it through this mess will grow in market share and prosper. Let me make this clear, I won’t sell BECAUSE there is carnage. Update: Many people in my office who don’t invest are today discussing the crash. That’s a very bullish sign. |
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