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<blockquote data-quote="CaryP" data-source="post: 24535" data-attributes="member: 34"><p><strong>Re: World Finance Watch</strong></p><p></p><p><div class='quotetop'>QUOTE(\"Zoomerz\")</div></p><p></p><p>Zoomz,</p><p></p><p>Your understanding is pretty good. One small, but significant piece of the puzzle is that inflation is driven by expanding debt/credit and money supply. Too many dollars chasing a limited amount of goods results in higher prices. As China and India came on line with all the money they're accumulating from their record trade supluses with the US, they are building infrastructure. The infrastructure and its construction require oil and its products. The US has not reduced its energy demands, so you have a demand squeeze on a tapped out supply. That's what's driving oil prices higher - a debt and liquidity bubble enabled by the Fed, and fostered by our "borrow, spend, and consume" economy. And yes, petroleum based goods and services (what isn't these days) are feeling the pinch of higher oil prices. But excess and expanding liquidity and debt fuel inflation, just as contracting debt and money supply drive deflation. Higher prices during inflationary periods are the syptom of the phenomenon, just as falling prices are the symptom during deflationary periods.</p><p></p><p>A lot of words to say what I said, but inflation and deflation are some of the most misunderstood economic phenomenon around. It's always about the supply of debt and money. The Fed is gonna have to take the rap for this one when it blows. And I agree, we're probably in for some short term inflation, which will be followed by a deflationary depression. Timing is the only unknown on this one. Bond yields will go higher, as bondholders (mostly foreigners) get out of dollar denominated assets. This should accelerate as people begin waking up to the fact that the US can't pay off the $7+ trillion of debt it has now, plus the $50 trillion or so of unfunded Soc. Sec. and Medicare liabilities. </p><p></p><p>Another misunderstood phenomenon of economics is the cycle of inflation / deflation, or how they rotate from one to another. We were in a period of "disinflation" in most of the 80's and 90's. This is when the rate of inflation decelerates (from about 13% in 81 to about 2% in 2002). It's still positive, but the rate diminishes and generally triggers "deflation" fears. This is what happened when the Fed kept talking about an "unwelcome decrease in the rate of inflation" instead of just saying "we're concerned about deflation." So they put on the most massive monetary stimulus ever seen on the planet to keep the US from falling into deflation. Or so they thought. What they did was play the "reflation" trade, which is typical, by flooding the world with liquidity and encouraging debt. Instead of warding off deflation, they've fed it. They just made the downside pain much bigger over the last few years.</p><p></p><p>So we see spikes in the prices of things we need, and falling prices in the things we want. Things we need that have spiked: medical care, insurance, education costs, energy, raw materials, etc. Things we want that have fallen in price: electronics, computers, textiles and assorted gee gaws from China, broad band, autos, etc. So you see both effects of the reflation trade and the underlying deflation which has yet to manifest itself so that everyone will see it. The reflation trade has manifested itself in a series of "bubbles" mainly in financial assets (stocks, bonds, etc.) and hard assets (real estate, precious metals, and commodities). Problem is all bubbles pop. Their popping will herald in the BIG BAD Deflation that, as you say, will make the 30's look like everyone won the Millionaire game show.</p><p></p><p>I've copied a link to a chart, The Cycle of Deflation from Comstock Partners, Inc. in case you want to see where we are. We're on the downside of the top slope at about the "devaluation" to "competitive devaluation" level. We've also seen the beginnings of "protectionism and tariffs."</p><p></p><p><a href="http://www.comstockfunds.com/files/NLPP00000%5C234.gif" target="_blank">http://www.comstockfunds.com/files/NLPP00000%5C234.gif</a></p><p></p><p>Sorry for the long assed post. Just some rambling on a Thursday.</p><p></p><p>Cary</p><p></p><p>P.S. Oh, yeah. Almost forgot. Snow was only following up Greenspan's commentary from the day before about limiting Fannie and Freddie's portfolios. A few weeks ago, Greenspan suggested that Congress force Fannie and Freddie to reduce their mortgage portfolios (now totalling about $1.7 trillion) to about $200 billion. Talk about deflation. You remove $1.5 trillion from the mortgage market, and there'll be blood in the streets. Yeeha, maybe the bankers do want to push us into a depression. All the real estate and businesses that could acquired for pennies on the dollar must be tempting. Both Snow and Greenspan have been warning Congress not to ever guarantee Fannie or Freddie or any of the GSE's (govt. sponsored enterprise) debt. Too dangerous. Everybody acts like the GSE's have the "indirect" backing of the "full faith and credit" of the US govt. Truth is there's nothing backing these firms directly or indirectly. Maybe that's why the European Central Bank instructed all their member banks to get out of all GSE debt in 2003. These bankers can smell a mortally wounded animal from a mile away.</p></blockquote><p></p>
[QUOTE="CaryP, post: 24535, member: 34"] [b]Re: World Finance Watch[/b] <div class='quotetop'>QUOTE(\"Zoomerz\")</div> Zoomz, Your understanding is pretty good. One small, but significant piece of the puzzle is that inflation is driven by expanding debt/credit and money supply. Too many dollars chasing a limited amount of goods results in higher prices. As China and India came on line with all the money they're accumulating from their record trade supluses with the US, they are building infrastructure. The infrastructure and its construction require oil and its products. The US has not reduced its energy demands, so you have a demand squeeze on a tapped out supply. That's what's driving oil prices higher - a debt and liquidity bubble enabled by the Fed, and fostered by our "borrow, spend, and consume" economy. And yes, petroleum based goods and services (what isn't these days) are feeling the pinch of higher oil prices. But excess and expanding liquidity and debt fuel inflation, just as contracting debt and money supply drive deflation. Higher prices during inflationary periods are the syptom of the phenomenon, just as falling prices are the symptom during deflationary periods. A lot of words to say what I said, but inflation and deflation are some of the most misunderstood economic phenomenon around. It's always about the supply of debt and money. The Fed is gonna have to take the rap for this one when it blows. And I agree, we're probably in for some short term inflation, which will be followed by a deflationary depression. Timing is the only unknown on this one. Bond yields will go higher, as bondholders (mostly foreigners) get out of dollar denominated assets. This should accelerate as people begin waking up to the fact that the US can't pay off the $7+ trillion of debt it has now, plus the $50 trillion or so of unfunded Soc. Sec. and Medicare liabilities. Another misunderstood phenomenon of economics is the cycle of inflation / deflation, or how they rotate from one to another. We were in a period of "disinflation" in most of the 80's and 90's. This is when the rate of inflation decelerates (from about 13% in 81 to about 2% in 2002). It's still positive, but the rate diminishes and generally triggers "deflation" fears. This is what happened when the Fed kept talking about an "unwelcome decrease in the rate of inflation" instead of just saying "we're concerned about deflation." So they put on the most massive monetary stimulus ever seen on the planet to keep the US from falling into deflation. Or so they thought. What they did was play the "reflation" trade, which is typical, by flooding the world with liquidity and encouraging debt. Instead of warding off deflation, they've fed it. They just made the downside pain much bigger over the last few years. So we see spikes in the prices of things we need, and falling prices in the things we want. Things we need that have spiked: medical care, insurance, education costs, energy, raw materials, etc. Things we want that have fallen in price: electronics, computers, textiles and assorted gee gaws from China, broad band, autos, etc. So you see both effects of the reflation trade and the underlying deflation which has yet to manifest itself so that everyone will see it. The reflation trade has manifested itself in a series of "bubbles" mainly in financial assets (stocks, bonds, etc.) and hard assets (real estate, precious metals, and commodities). Problem is all bubbles pop. Their popping will herald in the BIG BAD Deflation that, as you say, will make the 30's look like everyone won the Millionaire game show. I've copied a link to a chart, The Cycle of Deflation from Comstock Partners, Inc. in case you want to see where we are. We're on the downside of the top slope at about the "devaluation" to "competitive devaluation" level. We've also seen the beginnings of "protectionism and tariffs." [url=http://www.comstockfunds.com/files/NLPP00000%5C234.gif]http://www.comstockfunds.com/files/NLPP00000%5C234.gif[/url] Sorry for the long assed post. Just some rambling on a Thursday. Cary P.S. Oh, yeah. Almost forgot. Snow was only following up Greenspan's commentary from the day before about limiting Fannie and Freddie's portfolios. A few weeks ago, Greenspan suggested that Congress force Fannie and Freddie to reduce their mortgage portfolios (now totalling about $1.7 trillion) to about $200 billion. Talk about deflation. You remove $1.5 trillion from the mortgage market, and there'll be blood in the streets. Yeeha, maybe the bankers do want to push us into a depression. All the real estate and businesses that could acquired for pennies on the dollar must be tempting. Both Snow and Greenspan have been warning Congress not to ever guarantee Fannie or Freddie or any of the GSE's (govt. sponsored enterprise) debt. Too dangerous. Everybody acts like the GSE's have the "indirect" backing of the "full faith and credit" of the US govt. Truth is there's nothing backing these firms directly or indirectly. Maybe that's why the European Central Bank instructed all their member banks to get out of all GSE debt in 2003. These bankers can smell a mortally wounded animal from a mile away. [/QUOTE]
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