In/Deflation Debate Summed Up

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<em>"Waiting to prepare for a currency crisis until one sees evidence of a currency crises is like waiting to hear the bullet before arming oneself for a gunfight."</em>



Awgee
 
[quote author="no_vaseline" date=1255695205][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).</blockquote>


So rogers has been lucky the last 50 years?

If that is what luck is, I would rather be lucky, (make money), than know what I am talking about. My congratulations to all those who know what they are talking about. I will just keep making money.
 
We aren't the only market for consumption. As the sun sets on us, the sun rises for others. As imports get more expensive for us, we demand less. Businessmen will sell them elsewhere and to themselves.



I don't know if the Rodgers' "I'm a terrible market timer and simple investor" schtick is an act or what. No_VAs makes the numbers argument and I can't argue with that.



The big question is: The US market get poorer and demands less. Producers will get richer, come roaring back sooner and demand more. Does net demand increase?



Rogers is betting that it does and he will probably have higher returns than all of us.
 
Rodgers is talking his book. I have no idea what his trading stragety looks like. He is spewing outright lies and nonsense.



Awgee is patting him on the back, as long as he gets the trade right. Ohkay...



<a href="http://www.cnbc.com/id/33337927">http://www.cnbc.com/id/33337927</a>



<em>Fed Can't Wait Too Long for Policy Shift: Volcker</em>



<blockquote>The enormous amounts of liquidity pumped into the U.S. financial system by the Federal Reserve are not inflationary "at the moment" but will become so at some point, Paul Volcker, the former Fed chairman and a White House adviser, said on Thursday.



Volcker, now an economic adviser to President Barack Obama, said it was difficult, but necessary, to start draining the billions of dollars in liquidity even while unemployment rates remained high as the U.S. battles out of recession.



"You have to act against what seems like common sense. If you wait, it's too late," Volcker said while answering questions after a speech on financial markets at Harvard University's Kennedy School of Government. </blockquote>


Except, it's not that simple. Here is the crux of the problem:



<blockquote>"We have to regain our ability to produce goods. Moving money around does not necessarily provide dinner on the table," Volcker said. "You can't run an economy where the financial sector is making 40 percent of the profits." </blockquote>


That means we will continue to debase the currency to regain parity with other nations, and it likely means that the Fed won't be able to raise interest rates anytime soon. The Fed will have to drain the pool using other tools, most likely repos.
 
[quote author="matt138" date=1255753229]Worldwide, is there more excess capacity than developing countries' pent up demand?



Can this be quantified?</blockquote>


Sure, but it would be quite the undertaking. You know what the worlds capacity to produce calories is. You know what the offtake is. And you know how much extra capacity is currently not being utilized because economics don't pan out.



But it's also academic. Food comodity prices are falling not rising. That tells you right there demand is dropping if supply is constant. Considering that supply is coming off line and prices are dropping...the facts are stacked squarely against Jim Rodgers line of crap.
 
[quote author="awgee" date=1255766227]I just asked my wife and she said, "Anybody who thinks that food prices are dropping is a raving loon."</blockquote>


I do the grocery shopping in our house, awgee. Prices spiked more than a year ago but have been dropping lower ever since, with both vegetable and meat prices falling the fastest and the lowest and I have the receipts to prove it.



I may be a raving loon, but I'm not imagining things.
 
[quote author="Nude" date=1255769846][quote author="awgee" date=1255766227]I just asked my wife and she said, "Anybody who thinks that food prices are dropping is a raving loon."</blockquote>


I do the grocery shopping in our house, awgee. Prices spiked more than a year ago but have been dropping lower ever since, with both vegetable and meat prices falling the fastest and the lowest and I have the receipts to prove it.



I may be a raving loon, but I'm not imagining things.</blockquote>


That's cool. At least you admit to being a raving loon. I will join you on that count, but for different reasons.
 
[quote author="awgee" date=1255766227]I just asked my wife and she said, "Anybody who thinks that food prices are dropping is a raving loon."</blockquote>


Your wifes preception run counter to my observations on my "Got Milk" thread. I'm the all data guy, remember?



Also, as pointed out in the "Got Milk" thread, store prices aren't remotely relative to what the grower recieves or what gets traded on exchanges.



<a href="http://www.irvinehousingblog.com/forums/viewthread/4488/">Go read this.</a>



And graphical proof:



Wheat:



<img src="http://www.mongabay.com/images/commodities/charts/short-term-data/wheat_hrw.jpg" alt="" />



Beef:



<img src="http://www.mongabay.com/images/commodities/charts/short-term-data/beef.jpg" alt="" />



Oranges:



<img src="http://www.mongabay.com/images/commodities/charts/short-term-data/oranges.jpg" alt="" />



Rice:



<img src="http://www.mongabay.com/images/commodities/charts/short-term-data/rice_thaiA1.jpg" alt="" />



Mind you, this is all in US dollars, so if consider the monster dollar devaluation we're seeing...
 
I have a question that i want to ask. Text books and B-School has taught me that during deflationary periods interest rates will do down and up during inflationary periods. In real life, is it possible that interest rates will start surging while we are still in a deflationary enviroment. If so, in what circumstance would be this be possible?
 
Panda,



You're asking if interest rates can go up while we're still in deflation.



I don't have an answer, but here are some questions that may help:



The Fed seems to have made it clear it will not raise rates for awhile. However, seems to me they have also made it clear once they unwind, they will unwind quickly.



Do you think that's accurate?



If they unwind, do you think that means raising interest rates?



What happens if they think the time is right, but we are still in deflation?



It also seems clear there is a large money supply tied up in a small number of large financial institutions while the man on the street sees deflation. Is it possible for inflation to exist at one economic level while deflation exists at another? If so, which level will The Fed be monitoring for a turning point in monetary policy?
 
[quote author="PANDA" date=1255936168]I have a question that i want to ask. Text books and B-School has taught me that during deflationary periods interest rates will do down and up during inflationary periods. In real life, is it possible that interest rates will start surging while we are still in a deflationary enviroment. If so, in what circumstance would be this be possible?</blockquote>


If demand for treasuries declines due to the dollar's stellar reputation.



Panda, I think they forgot to do the "up during inflationary periods" and we still made it to economic contraction. Keynesianism should manipulate rates to smooth out booms and busts. Instead, its rock bottom rates on the way up and down. Until they raise rates, we are pretending.



"John Maynard Keynes, 1st Baron Keynes, CB (pronounced /?ke?nz/) (5 June 1883 ? 21 April 1946) was a British economist whose ideas have been a central influence on modern macroeconomics, both in theory and practice. He advocated interventionist government policy, by which governments would use fiscal and monetary measures to mitigate the adverse effects of business cycles, economic recessions, and depressions."



This is the crap they teach college kids. Let's replace "mitigate" with "MAGNIFY" and wikipedia would be correct.
 
Matt and Waiting,



One scenario i can see where interest rates can rise during a deflationary environment is if the bond market starts to crash. This is something that I have never seen in my finance text books. How likely is this scenario to play out in the next 1-2 years?
 
[quote author="PANDA" date=1256019882]Matt and Waiting,



One scenario i can see where interest rates can rise during a deflationary environment is if the bond market starts to crash. This is something that I have never seen in my finance text books. How likely is this scenario to play out in the next 1-2 years?</blockquote>


100%
 
[quote author="PANDA" date=1256019882]Matt and Waiting,



One scenario i can see where interest rates can rise during a deflationary environment is if the bond market starts to crash. This is something that I have never seen in my finance text books. How likely is this scenario to play out in the next 1-2 years?</blockquote>


It took me one month to come up with an answer - people have different countries to choose from when they lend money to a government. Why would I lend money to a government with horrible fundamentals? because my financial advisor tells me its conservative? that guy is an idiot



And what does that gov/t have to do to entice me to lend them money? Crash their RE and stock market? I think not. Try offering me a higher return.



But I believe the crackpots...
 
[quote author="no_vaseline" date=1255730413]<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.</blockquote>


NO_VAS you just made a complete argument for things costing a lot more here in the US. I knew you'd come around!



If your neighbor borrowed a bunch of your money and got a huge pay cut at work, would you lend him more money to make payments on the money he initially borrowed? Sure you would, it's a win-win. And so will China, forever
 
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