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Collapse of M3 Spells Deflation

By: Rick Ackerman, Rick's Picks

-- Posted Wednesday, 20 August 2008 | Digg This ArticleDigg It! | Source:

Rick’s Picks

Wednesday, August 20, 2008

“Phenomenally accurate forecasts”


There was good news yesterday for all those who mistakenly think inflation is worth worrying about: The U.S. money supply experienced its sharpest contraction in modern history. For the rest of us, this can only spell one thing: ruinous D-E-F-L-A-T-I-O-N. The money supply story was reported yesterday by Ambrose Evans-Pritchard, the London Telegraph’s man-on-the-scene in America.  The news is likely to have been reported by the U.S. media as well, although we couldn’t find it anywhere else, even on Google’s business page.


Not surprisingly, Google led the section with the by-now smelly red herring about how wholesale prices jumped in July, putting still more “pressure” on the Fed to “decide” whether it should raise interest rates. We’ve been predicting for quite some time that a rate hike was not in the cards, since, even though the Fed talks relentlessly about inflation in order to distract us, Bernanke & Co. recognize full well that deflation – the manifestly uncontrollable force that has been swallowing up the housing and banking sectors – poses a far greater threat to the economy and the financial system than any mere price inflation could.


Velocity Holds Key


Now, with the news that M3, the “broad” money supply, collapsed by $50 billion in July, we predict that the inflation story is about to go out of style. After all, how much inflation can we have if, instead of credit dollars flooding the system, they are now spiraling down the drain? Money velocity has been falling as well, and although this goes hand in hand with a deflationary contraction of the money supply, don’t hold your breath waiting to hear more about it from Brokaw et al. Money velocity is one of those topics, along with campaign finance reform, that tends to make viewers’ eyes glaze over, and that’s why such data are likely to remain shrouded in mystery, other than among economists. However, the cyclical ups and downs of money velocity are important nonetheless because they tell us how eager lenders and borrowers are to do business. When confidence is high, borrowers borrow like there is literally no tomorrow, and lenders find ways to put each newly deposited dollar aggressively to work, multiplying it across a daisy-chain of debt derivatives. But let the action cool for too long, as it already has, and confidence in credit begins to spiral downward. This is reflected in falling money velocity, which obviously cannot coexist for long with inflation. Indeed, they cannot co-exist at all, since, in financial terms, one is the equivalent of an irresistible object; the other, of an immovable force.


Until deflation has come to dominate not just the housing and financial sectors, but the entire economy, we expect inflation-watchers to remain deaf, dumb and blind to reality, transfixed by whatever facts mislead. They will say, “Deflation?? Have you put a kid through college lately?”  Funny they should ask, since we are quite certain that colleges, along with state and local government, are about to become drastic cost/price-cutters.  Given that student loans have become virtually unobtainable, what choice do the schools have? Most students must borrow, sometimes heavily, to make college “affordable,” so the schools will either have to reduce tuition or draw down their endowments to fill seats. As for state and local government, their tax revenues are drying up faster than equatorial mud holes after a cloudburst. Public sector employment, a hitherto intractable engine of inflation, therefore cannot avoid a downsizing so drastic that even the Commerce Department’s patriotic statisticians won’t be able to conceal mushrooming unemployment ahead of the election. 





Fall Seminar September 10-11


Would you like to learn how to forecast price swings and trends as accurately as gurus who do it for a living?  If you think learning such skills is beyond you, then you haven’t visited the Rick’s Picks chat room lately. More and more graduates of the online, six-hour Hidden Pivot Seminar can be found there each day, comparing notes, trading confidently and forecasting with the skill and accuracy of the professional tape-watcher.  But don’t take our word for it. Drop by sometime and ask a seminar graduate yourself. You can get a one-day pass by clicking here.  Because seats for the class are limited, if you would like to sign up now, click here, and then on the “Upcoming” tab to register;  or here  if you would like more information as well as a detailed description of the Hidden Pivot Method and a free Hidden Pivot calculator (our latest model, designed for beginners). 




Winning Essays


In conjunction with the upcoming seminar, we’ll soon be announcing the winners of the Rick’s Picks essay competition on the topic “How to Save America.” Over the next few weeks, the best of the more than 50 essays that were submitted will be published here. Top prize is a full scholarship to the Hidden Pivot Seminar and online tutorials, with numerous other prizes to be awarded.  





Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. 

-- Posted Wednesday, 20 August 2008 | Digg This Article | Source:


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