In/Deflation Debate Summed Up

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[quote author="awgee" date=1254192655]Sorry, but I am unsure of how to embed video here.

So, in order to see a video on the future of the dollar,

go to <a href="http://www.cotohousingblog.com/?p=5164">Coto Housing Blog - The Future of the Dollar</a></blockquote>


Call me crazy, but I don't think our ability/inability to borrow money to buy crap and bid up house prices makes much of a difference in this game anymore.
 
<a href="http://www.marketwatch.com/story/japanese-prices-set-record-decline-in-august-2009-09-28">Japanese prices set record decline</a>



The weirdest thing about my trip to Japan last year was that all the prices were around where they were the first time I visited Japan 15 years ago. I'm so used to the US where people always talk about how cheap things were when they were young that to see a deflationary economy in action is pretty shocking.
 
It's coming...someday...like 1994 all over again



<a href="http://finance.yahoo.com/news/Officials-Fed-will-need-to-apf-1511169380.html?x=0">Fed will raise rates quickly</a>



Officials: Fed will need to boost rates quickly

Officials: Fed will need to move quickly when time comes to boost rates, battle inflation



WASHINGTON (AP) -- To prevent inflation from taking off, the Federal Reserve will need to start boosting interest rates quickly and aggressively once the economy is back on firmer footing, Fed officials warned Tuesday.
 
Ron Hera

Hera Research



<em>"It appears that both inflation and deflation are occurring at the same time; that the US gross domestic product and consumer spending are declining while stock prices are rising; that government spending is rising while tax revenues are falling; that consumers are deleveraging and that the flow of credit has slowed while the total of debts and liabilities in the US economy continues to rise; that the US dollar is falling while price inflation remains nominal; that interest rates are near zero for banks but rising for consumers. The seemingly contradictory facts indicate economic distortions and therefore developing systemic instabilities. What ties all of the economic data together is the US dollar. Rather than considering what impact unsustainable economic distortions might eventually have on the US dollar, could the developing systemic instabilities instead be the symptoms of a currency crisis already in progress?"</em>



When you are ready to open your mind instead of being stuck in a preconceived and wrong thinking either/or situation, click on <a href="http://www.heraresearch.com/home.html">Hera Research</a> and then click on the article titled, "Faces of Death: The US Dollar in Crisis".
 
[quote author="awgee" date=1255462401]Ron Hera

Hera Research



<em>"It appears that both inflation and deflation are occurring at the same time; that the US gross domestic product and consumer spending are declining while stock prices are rising; that government spending is rising while tax revenues are falling; that consumers are deleveraging and that the flow of credit has slowed while the total of debts and liabilities in the US economy continues to rise; that the US dollar is falling while price inflation remains nominal; that interest rates are near zero for banks but rising for consumers. The seemingly contradictory facts indicate economic distortions and therefore developing systemic instabilities. What ties all of the economic data together is the US dollar. Rather than considering what impact unsustainable economic distortions might eventually have on the US dollar, could the developing systemic instabilities instead be the symptoms of a currency crisis already in progress?"</em>



When you are ready to open your mind instead of being stuck in a preconceived and wrong thinking either/or situation, click on <a href="http://www.heraresearch.com/home.html">Hera Research</a> and then click on the article titled, "Faces of Death: The US Dollar in Crisis".</blockquote>


Inflationary depression. If the only variable was bank lending, yes to deflation. We have opposing forces and the x factor is: which variable will overpower the others. I'd rather hedge against inflation because the gov/t champions sustained inflation, owes a lot of money, and despises deflation. If you can't beat em join em.



BTW, No_Vas out of curiosity, where do you place your bets if you had a 5 or 10 year time horizon?
 
[quote author="awgee" date=1255462401]When you are ready to open your mind instead of being stuck in a preconceived and wrong thinking either/or situation, click on <a href="http://www.heraresearch.com/home.html">Hera Research</a> and then click on the article titled, "<span style="color: red;"><strong>Faces of Death</strong></span>: The US Dollar in Crisis".</blockquote>


...and I thought "Dead Banks Walking" was a jolting title!
 
[quote author="matt138" date=1255513553]BTW, No_Vas out of curiosity, where do you place your bets if you had a 5 or 10 year time horizon?</blockquote>


I have been spending an inordinate amount of time on this topic lately.



RE is still overpriced, and radically overpriced when viewed on the increasing interest rate environment we will see in 2-3 years, so that?s out.



I think the US currency continues to debase. Ordinarily that will be deadly for Walmart, and good for somebody like Caterpillar, but when you realize There is a ton of oversupply for anything you might want to buy relative to demand (worldwide) so that?s out.



Equities are using .com style valuations and hype (I have no idea where the hedge fund money driving this market is coming from, but it ain?t from me and investors like me).



Treasuries are in a bubble. And there?s a bunch of debt out there, but I?m what I?m not worried about is the Fed. I?m worried about the US Business and Consumer. And that funny green line (that only took off when they got treated like they were responsible and upstanding, and they aren't).



<img src="http://blogs.reuters.com/rolfe-winkler/files/2009/09/public-and-private-debt-burden.jpg" alt="" />



I think gold and a few other tradable comoditities are riding a high-frequency trading juiced wave and have few fundamentals to fall back on because it?s only select markets of select sectors that are taking off.



In short I hate almost everything ? except for maybe bonds for utilities and pipelines and power infrastructure in regulated utilities and a high quality consumer related staples that people have to have.



Sitting in cash sucks but that?s what I?m going to do because I hate it the least out of all choices.
 
[quote author="no_vaseline" date=1255641633][quote author="matt138" date=1255513553]BTW, No_Vas out of curiosity, where do you place your bets if you had a 5 or 10 year time horizon?</blockquote>


I have been spending an inordinate amount of time on this topic lately.



RE is still overpriced, and radically overpriced when viewed on the increasing interest rate environment we will see in 2-3 years, so that?s out.



I think the US currency continues to debase. Ordinarily that will be deadly for Walmart, and good for somebody like Caterpillar, but when you realize There is a ton of oversupply for anything you might want to buy relative to demand (worldwide) so that?s out.



Equities are using .com style valuations and hype (I have no idea where the hedge fund money driving this market is coming from, but it ain?t from me and investors like me).



Treasuries are in a bubble. And there?s a bunch of debt out there, but I?m what I?m not worried about is the Fed. I?m worried about the US Business and Consumer. And that funny green line (that only took off when they got treated like they were responsible and upstanding, and they aren't).



I think gold and a few other tradable comoditities are riding a high-frequency trading juiced wave and have few fundamentals to fall back on because it?s only select markets of select sectors that are taking off.



In short I hate almost everything ? except for maybe bonds for utilities and pipelines and power infrastructure in regulated utilities and a high quality consumer related staples that people have to have.



Sitting in cash sucks but that?s what I?m going to do because I hate it the least out of all choices.</blockquote>


You aren't the only one sitting on cash for lack of a better option. And really, I think it's the smart option for right now. That being said, whenever these sorts of crisis end there is always one investment that (with 20/20 hindsight) turned out to be the obvious place to put money. So, I am in cash but I am looking for the not-so-obvious play.
 
About 10yrs ago Dow at 10k,



<strong>Gold at $280/ounce

Oil at $15/barrel</strong>



Today Dow at 10k again,



<strong>Gold at $1050/ounce

Oil at $75/barrel</strong>





Our govt and wall street did a good job destorying the dollar over the long run and create inflation. We are in a deflationary environment for now, but inflation will come back in a much stronger way.
 
Krugman makes a blog post today "<a href="http://krugman.blogs.nytimes.com/2009/10/15/jim-rogers-makes-my-head-hurt/">Jim Rodgers makes my head hurt."</a> Let me continue to pile on where PK leaves off.



<a href="http://moneynews.newsmax.com/streettalk/rogers_food_prices/2009/05/13/213898.html">http://moneynews.newsmax.com/streettalk/rogers_food_prices/2009/05/13/213898.html</a>



Note the date:



<blockquote>Wednesday, May 13, 2009 12:21 PM



By: Dan Weil Article Font Size







Renowned investor Jim Rogers says that the rally in stocks and the dollar will soon end, thanks to the Federal Reserve?s massive easing policy.





?I?m not buying shares anywhere,? he tells Bloomberg TV.





?I?m not selling short yet. But?if it keeps going like this, I?ll have to start selling short eventually. I don?t see the stock market as a great place to be in the next two to three years, maybe even the next decade.?





As for the dollar, ?we?re going to have a currency crisis probably this fall or the fall of 2010,? Rogers says.





?It?s been building up for a long time. We?ve had a huge rally in the dollar, an artificial rally. ?



The U.S. dollar is a very flawed currency.?





Bonds also are overvalued, he says.





And where does Rogers see investment opportunities? Commodities, as he has argued for months.





?The only place I know where the fundamentals are getting better is raw materials,? he explains.





<strong>?We?re going to have serious food shortages. ? Prices are going to go through the roof.? </strong>





Whether the economy rebounds or not, ?commodities are going to lead it,? Rogers says.





?Commodities are still the best place to be because supply is declining, and governments are printing huge amounts of money.?





</blockquote>


Um, Jim...



<a href="http://seekingalpha.com/article/156475-agricultural-commodities-in-the-face-of-deflation">http://seekingalpha.com/article/156475-agricultural-commodities-in-the-face-of-deflation</a>



<blockquote>How will this global economic crisis affect agriculture, especially here in the U.S.?



First, this current market rally is psychologically masking some major underlying fundamental problems and mathematics which have been ignored but have not gone away. This is causing irrational optimism for the time being, as compared to where we will most likely find ourselves soon, and especially a few years from now. If and when the market corrects, we will most likely see more of those deflationary positive feedback loops everywhere, including agriculture.



<strong>Commodity prices have been heading down for about a year now to a level averaging about 25% lower. For agricultural commodities, this is exacerbated by strong production numbers this year</strong>, especially of corn, wheat and soybeans. But it is also related to less export demand. If the dollar strengthens, which it could with renewed deflationary fears, expect even fewer exports.

</blockquote>


Hey Jim, where's that shortage? Where's the currency crisis? Look at the chart Panda posted. That's debasing - not a crisis! So you'd think Jim would be changing his tune, right? NO - he's still selling his book!



<a href="http://file.mk.co.kr/knowledge/WKF/091014_1340_RecoveryAhead_Vista.pdf">http://file.mk.co.kr/knowledge/WKF/091014_1340_RecoveryAhead_Vista.pdf</a>



<blockquote>Q: What is the outlook for the commodities market?

A: Rogers said the outlook is getting better and the fundamentals are getting better. He contrasted commodities with other industries, such as the automobile industry. This is primarily because that is where a shortage has developed and we will continue to see growth in commodities <strong>during the coming food shock</strong>.</blockquote>


Let me be blunt: Jim Rodgers doesn't know his ass from a hole in the ground. He's trying to say if prices go to the moon on "pent up demand", as a grower, I won't be able to ramp up production to meet it?



His basis seems to be the same as all the Goldbugs and Inflation Hawks I come across.



That said, you shouldn't blindly follow me either. I'm sure I got the fundamentals right but I got a long track record of being crushed by the market despite knowing what's really going on. As the Dow passes 10,000 a second time, I find myself in the same position I was the first time - in cash. I'd say I was sleeping well at night, but that would be a lie, but at least I'm not awake worried about my investment money.
 
I've still to get an answer from either side: why can't you have both deflation of prices domestically and inflation of the currency? In other words, demand destruction reduces prices temporarily while an increase in the money supply begins devaluing of the currency that results in (hyper)inflation. If that demand destruction pushes agricultural prices down far enough, farms WILL go bankrupt and <em>if</em> that phenomenon is widespread, we could easily have higher commodity prices as supply suddenly shrinks. Toss in a drought or two and shortages aren't hard to imagine.



As a grower, how many growing seasons can you eat a loss before you're out of business and your land is non-productive?
 
Novas, per your PM request. Here is the 5 year chart of the dollar. It doesn't look good.



<img src="http://i34.tinypic.com/3496g7q.jpg" alt="" />
 
Krugman writes well and argues well.

But he hasn't made s__t investing.

Rogers may not know his ass from a hole in the ground, but he has made and will continue to make a lot more money than any here who think that they do know their ass from a hole in the ground.

If I need an article written, I will go to Krugman.

If I wanna make money, I will go with Rogers.
 
[quote author="Nude" date=1255685128]I've still to get an answer from either side: why can't you have both deflation of prices domestically and inflation of the currency?</blockquote>


Because you can't. It's not possible.



<blockquote>In other words, demand destruction reduces prices temporarily while an increase in the money supply begins devaluing of the currency that results in (hyper)inflation. If that demand destruction pushes agricultural prices down far enough, farms WILL go bankrupt and <em>if</em> that phenomenon is widespread, we could easily have higher commodity prices as supply suddenly shrinks.</blockquote>


Does bankrupcy poison farmland?



Prices go to hell and growers take production off to balance demand. Prices recover. Growers plant more. Production returns. There is a butt load of excess capacity on the sidelines waiting for a price. Farm commidities are NEVER going to spike unless "the big one" breaks out. Gold won't be useful at that point.



My dad's uncle famously said one time "Don't worry, if there is a shortage in the world of something, we California Growers will find a way to outproduce the world demand in no more than two years." He was kidding around, but he's not wrong.



<blockquote>Toss in a drought or two and shortages aren't hard to imagine.</blockquote>


Farmers are price takers, not market makers. This is the first lesson you learn growing up on a farm. If you lower prices far enough, your operation will go busto - but there's always a low cost producer. If you are the low cost producer, you aren't the one going out.



Also, there's plenty of water out there. There just isn't any <em>cheap water</em> anymore.



<blockquote>As a grower, how many growing seasons can you eat a loss before you're out of business and your land is non-productive?</blockquote>


How deep is your pile of money to eat through? Are you smart enough to not load the gun this go around? If you don't have much leverage and have enough to live on, shut down for a season. If your highly leveraged, well, sorry for your luck.
 
[quote author="awgee" date=1255686847]Krugman writes well and argues well.

But he hasn't made s__t investing.

Rogers may not know his ass from a hole in the ground, but he has made and will continue to make a lot more money than any here who think that they do know their ass from a hole in the ground.

If I need an article written, I will go to Krugman.

If I wanna make money, I will go with Rogers.</blockquote>


This isn't a writing assignment. This is about talking your book.



Where is this currency crisis?



Where is the food shortage?



<a href="http://nue.okstate.edu/World_Food.htm">http://nue.okstate.edu/World_Food.htm</a>



<blockquote>Grain Source Cal/kg Production, Mt, 2004 Total Calories

Wheat grain, 3394 624,093,306 2.11802E+15

Cornmeal, whole 3625 705,293,226 2.55682E+15

Rice, white 1219 608,496,284 7.41497E+14

Soybeans 1734 206,409,525 3.57837E+14

Potatoes 1092 328,865,936 3.59195E+14

Total 6.13336E+15

World Population 6,670,000,000

/ 6.7 billion / 365

<strong>Calories per person/day from grain 2519 </strong>

</blockquote>


If the price gets good, somebody call me ASAP so I can go on CNBC and tell Jim I can BRING IT and he can go sell his book somewhere else. The only thing stopping me is world prices and an excessively strong US currency.



Debasing! BRING IT.



Or are you saying being lucky and bullshitting your book is good and knowing your ass from a hole in the ground is bad?
 
[quote author="awgee" date=1255693917]I am saying that money talks and b______t walks.</blockquote>


And all I'm saying is I gave cites that Rogers is all bullshit - in his own words. Where is he walking to?



He's walking to the bank because he's talking his own book. My family has been farming a lot longer than Rogers has been around, and we will be a long time after he's gone. If I listened to him over the past year I'd be broke. Don't let luck (trading) get confused with skill (knowing WTF you're talking about).
 
[quote author="PANDA" date=1255686465]Novas, per your PM request. Here is the 5 year chart of the dollar. It doesn't look good.



<img src="http://i34.tinypic.com/3496g7q.jpg" alt="" /></blockquote>


I quote this, thanks to panda, because it shows a technical tipping point... that is interrupted by humans, and shows the dollar approaching the $75 mark, but not breaching it. As long as the resistance holds above $75, then the dollar could rally... and anyone against that could get hit hard. However, if... it breaks through $75 it could be painful, but it still might rally. All in all... I think it will trade in the $75-$80 range for a while. But... if it breaks through $75 and holds there, and even breaks through the all-time lows of less than $73... then hold on to your pants, because your pants, along with the dollar, will be dropping faster than the panties of a sorority girl at SC.



Just my ?2, and while it has been worth it some times... there are many times where I have been wrong.
 
<blockquote>"The rebuilt American economy must be more export-oriented and less consumption-oriented, more environmentally oriented and less fossil-energy-oriented, more bio- and software-engineering-oriented and less financial-engineering-oriented, more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population. - Larry Summers</blockquote>


<a href="http://www.whitehouse.gov/the_press_office/Excerpts-from-Remarks-by-Lawrence-H-Summers-to-the-Peterson-Institute/">http://www.whitehouse.gov/the_press_office/Excerpts-from-Remarks-by-Lawrence-H-Summers-to-the-Peterson-Institute/</a>



Here are the stated goals of the Obama administration. They are walking the walk and talking the talk, unlike Mr. Rogers.



We all agree the Chinese have kept their currency artificially low (the assumption is to stimulate imports to the US), and they have taken the trade surplus proceeds and piled them into US debt backed securities. This allowed the world to be awash in cheap debt and we consumed a lot of it. How do we reconcile this fact with the stated goals of the US Government? How do you equalize the field without starting a trade war?



As the dollar weakens, it encourages US exports, and that means US jobs (eventually).

As the dollar weakens, it discourages foreign imports, and that means less demand for foreign production (oil included).



In short, we are rebasing our currency around domestic production and value added mfg. jobs - not financial service jobs or real estate jobs. In my opinion, this is 25 years too late. We gave the world a huge cost advantage in production (and the jobs that come with it) in exchange for cheap Asian goods (and the Wal Mart jobs that come with them).



Again, why is ending the practice of using the US as the dumping grounds for the worlds finished goods a bad thing? The easiest and cleanest mechanism to do so is to debase the currency. It also negates the trade surplus that has funded the Chinese purchase of US dollar backed securities ? and it explains why they have been buying less of them since they have a smaller surplus to offset.
 
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