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. Price deflation thought experiment
If a house is purchased for $1 million using debt and the house value subsequently drops by 50% the dollars that were created and spent into circulation are not affected. In fact, the same $1 million can now buy two homes. In other words, relative to the value of stuff, money has become abundant, not scarce. There are way more dollars than stuff to buy with those dollars. Is that not the precise definition of inflation? It’s no different than selling $500,000 homes then doubling the money supply. The only caveat of course is the excess money in both cases is not required to be spent on housing. So we can have vicious price deflation for real estate and vicious price inflation for everything else, with no contradiction, with no new loans (for a while). Deflation and price deflation are two different animals. Thoughts? Zeitgeist: Addendum and The Venus Project hoax
View the Zeitgeist film at the bottom of this post. The Venus Project assumes there can be an abundance of everything. That is simply not true. Technology can make many things abundant and the film discusses energy in great detail, but that is hardly everything. Human demand is limitless, it’s simply not possible for 6 billion people to each live in a 5000 square foot mansion with attached private beach on the Florida coast. We live in a finite world and I am simply not convinced that even the base assumption proselytized by this film is realistic. In fact, it appears to be terribly flawed and reminiscent of discredited communist rhetoric. Marc Faber is wrong
I have a ton of respect for him, I read all his reports with great interest, his track record is as solid as they come, but I think on this issue he is wrong. Who, either Americans or foreigners, will feel the most pain as a result of our current global economic upheaval? 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. “The bailout is bullshit, you broke it, you buy it”
Is this another contrived crisis?
I have been talking about the collapsing US economy for years (before this blog existed) but the way in which Paulson and Bernanke are trying to pass this bailout bill has caused me even greater concern. After years of saying the credit crisis was contained and no big deal, all of a sudden they want to ram through Congress in a matter of days near dictatorial powers for the executive branch? The power to spend unlimited amounts of money with no oversight? They admit the bill was written months ago, so why the haste? As obvious as the pending collapse was to see, the repulsive scent of fraud and corruption is obvious to smell. Did they really believe they could handle the situation, or is this actually proceeding exactly according to plan? There is something we’re not being told about their true objectives. I don’t trust it for a second. |
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