-- Posted Wednesday, 7 October 2009 | Digg This Article
| | Source: GoldSeek.com
Rick’s Picks
Wednesday, October 7, 2009
“Phenomenally accurate forecasts”
On the Rick’s Picks web site yesterday, we featured a link to Mish Shedlock’s latest, lovely essay concerning deflation. We thought we could avoid getting drawn into the debate ourselves, but it was not to be: the topic touched off quite a firestorm in the forum that began with this introductory note on the home page:
“We stopped ‘debating’ the inflationists a while back simply because their arguments had become too bloody stupid to endure. Obviously, they have not been playing with a full deck, since they continue to obsess over the absolutely useless textbook definition of deflation – ‘a decrease in the money supply.’ Rather than have you become confused by all the drivel…concerning the money supply, which virtually no one [really] understands, we would rather that you see deflation for what it is [in our lives]: an increase in the real burden of debt.
“One of my ablest comrades-in-arms has been Mish Shedlock, a deflationist with more patience than I when it comes to dealing with the factually challenged. In his latest commentary, Mish mostly agrees with some points concerning deflation made by David Rosenberg, an economist who has earned our respect. Click here to access the article.”
Drudgery
We admit that it has become drudgery to parry the inflationists’ tired, old non-arguments. We’ve been writing about the subject since the mid-1990s, when there was no one to argue with. Back then, deflationists lay beyond the economic pale, and only two guys that we can recall even used the word: Ashby Bladen, a permabear who wrote for Forbes; and Bill Helming, an agricultural forecaster who was worried about Third World debt. We not only used the ’D’ word at every opportunity, we asserted – in Barron’s and in the regular column we freelanced to the Sunday San Francisco Examiner – that deflation was absolutely unavoidable.
In 1999, two years after the collapse of the Thai baht, we were joined on the still-lunatic fringe by a couple of others. But it would be another seven years before the word “deflation” made it into a headline in the New York Times. Respectability at last.
But evidently not the fawning, universal appreciation we might have hoped for. Consider this post by “Ben” in the Rick’s Picks forum yesterday:
“Rick, you keep asking where are quadrillion dollar houses --as if that insulting and sarcastic comment lends any kind of support to your deflation theory. I would expect more of you. Obviously a lack of quadrillion dollar homes does not prove anything except the fact that the dollar has not yet been annihilated. And I don’t think anybody here believes a dollar is not worth picking up off the street, even if there are differences of opinion on whether and how soon we will see such a situation in the future.
“The Austrian economists put forward the concept that inflation is a monetary phenomenon. If inflation is measured by money printing we definitely have it. And if we look at the twelve trillion dollar non-GAAP U.S. debt, which is in addition to tens of trillions in unfunded liabilities, we will have lots of inflation in the future. What has stemmed most of this inflation from showing up as a rise in prices is probably the fact that for the past half a century, countries and people all over the world accumulated U.S. dollars as if they were gold. When this fallacy is realized, floods of dollars may flood into circulation from all over the world as the U.S. government does its own printing to cover its suffocating expenses.
“Back to the house analogy…I know in my area houses have gone up 2000% since 1980. While they may be no quadrillion, I see [sic?] plenty of inflation in houses.”
My response:
If you think I was trying to insult you, Ben, then you still don’t get it. You need to deal with the concept of a quadrillion dollar house, because that’s what it will take to pull 60 million (and growing) homeowners from the deflationary mire. Or do you perhaps believe the government can create just enough “controlled” inflation to float underwater mortgages to the surface without accidentally goosing prices into the ionosphere? With $13 trillion worth of taxpayer skin in the game already and no housing inflation in sight, some would argue that much bigger numbers are called for. And I suspect they’re right.
With all due respect, there is not enough substance in your post to warrant an argument. For instance, you say that “If inflation is measured by money printing we definitely have it.” Is that an argument? A statement of fact? Do you — does any inflationist? — even understand what “printing press money” is? Do the mountains of digital bailout dollars that the banks have socked away in Treasury paper count as “printing press money”? And if so, how will those digital dollars cause inflation? (Above, you flatly assert that debt itself will bring about inflation. Is this a lapse in syntax, or were you simply hoping no one would notice the mile-long gap in your argument?) And, will the banks make mortgage loans in an inflating market when they are not even willing to do so now, at the supposed rock bottom? In fact, bank lending is still contracting, and sharply. What do you foresee reversing this trend?
Where’s the Collateral?
Meanwhile, how many times do I need to repeat here that the only way to actualize all of the supposed printing press money is to get people to borrow it. (But what would they use for collateral? Their already over-hocked homes?). Or like most economists, do you perhaps think The Government can conquer deflation via massive deficit spending? If so, are you certain that Keynesian heroics will suffice to overcome the drag of a liquidity trap that has been suffocating the economy for nearly three years? I’d have thought the answer was too obvious by now to avoid. And would you -- or Jim Rodgers, or Marc Faber, or for that matter any of the other grandees of inflationism -- like to take on Antal Fekete's deflationist argument concerning the marginal productivity of debt? Of course not, since it is miles beyond the reach of “the-Fed-won't-let-it-happen” drivel.
And what about all of those hoarded dollars around the world that you mentioned? In fact, compared to a financial asset deflation aggregating into the many hundreds of trillions of dollars, the total number of physical dollars in vaults and mattresses barely registers on the scale. And so what if the price of houses in your area has risen by “2000 percent”? What on earth has that to do with today’s housing prices, or with the failure of unprecedented stimulus attempts to lift residential values more than an iota?
Nothing you guys have thrown at the wall has stuck. Have you anything to say besides, “Sooner or later, all of that printing press money is going to cause inflation.”? Please start by telling us why all of that printing press money has caused zero inflation so far. At the moment, with asset values (other than psychotically energized stocks), wages and bank lending contracting, the burden of proof most surely does not lie with the deflationists.
***
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 © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Wednesday, 7 October 2009 | Digg This Article | Source: GoldSeek.com
