Thursday, 03 February 2011 09:36

Currency Crisis! Inflation! Sovereign Defaults! Bahhhh... Who Are 'Ya Gonna Believe, The Government Or Your Lyin' Eyes?

There has been much discussion on the topic of inflation, deflation and hyperinflation. I, personally, am in the stagflation camp - basically the worst of both worlds. The evidence is plain to see to my virgin eyes: real asset prices are dropping through the floor (for four years now) while input prices (fuel, energy, supplies, commodities), food and the general cost to live (I have to phrase it differently since our government doesn't believe that this is true of the cost of

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living) is going up.

It truly amazes me that the everyday guy and gal can be convinced that inflation is tamed as the things that they need to survive - food, warmth, clothing - cost them more month by month. I remember when I made the opposite argument in residential and commercial real estate three years ago. Ben Bernanke said "green shoots", yet real assets sat stagnant and empty. Reference Who are ya gonna believe, the pundits or your lying eyes?

Jim Roger, besides being a rather colorful figure,  has been correct on his commodities call over the last couple of years and he has been sounding the currency crisis and inflation call as of late. If anything, I give credit where it is due. I can't disagree with him on the currency front. This is what he had to say on CNBC regarding Social Unrest and Currencies:

More social and political turmoil is likely in the future so commodities prices will continue rising, renowned investor Jim Rogers, CEO of Rogers Holdings, told CNBC Thursday....  "I don't own very many equities," Rogers, who co-founded the Quantum Fund with billionaire George Soros in the 1970s, said in an interview. "I don't know what's going to happen but I expect more currencies turmoil, more social unrest, more governments collapsing so I invest more in currencies and commodes than stock," he added.
Rogers said he has had long positions in commodities for 12 years and has warned repeatedly that food prices will "go through the roof."
Shortages of food products are likely to last for a long time and create more upheaval and the ranks of farmers around the world have diminished, he said, adding that for some soft commodities it will take years to increase the stock.
"You don't just snap your fingers and have palm oil, all this takes time," Rogers said.

In June of 2009, he had a very similar stance, and he was correct (of course he had this stance for a while as well). These guys below put together a cogent argument.

The National Inflation Association guys have put together a relatively well produced video channel that appears to have an agenda, but also has many, many valid points on the topic. The phrase du jour... "The Keynsian solution to economic slowdown is to keep the bubble going". Ain't that the truth?

What is not mentioned in the interesting video below is that food inflation in US supermarkets is concealed by deceptive packaging. One way to surreptitiously raise the price on a box of serial is to put less cereal in the box and sell the box for the same price. This happens more than many suspect, particularly since most consumers don't bother to even glance past the pretty colors that illustrate the brand.

I have made an FX trend model available for all to download. Its 10 mb, containing a lot of data, but you'll definitely get your money's worth. The model is available here: BoomBustBlog Complimentary FX Index model

Related inflationary reading:

Inflation Cartoons From The BoomBustBog Constituency

The Spectre of Stagflation is STILL Raising Its Ugly Head!

Continuing the Deflation/Inflation/Stagflation/Depression/Recession Rant…

All Throughout Last Year and During the Inflation/Deflation Camp Debates, I Warned of the Risks of Stagflation. Did I Have a Point? Let’s Look at the Numbers Behind the Numbers…

BoomBustBlog China Focus: Inflation?

BoomBustBlog China Focus: Interest Rates

Chubble (The Unmistakeable, Yet Thoroughly Argued Chinese Bubble), Unemployed/Deleveraging Shopaholics Pushing Retail Stocks & Other News

Last modified on Thursday, 08 September 2011 09:54


  • Comment Link nyse Wednesday, 09 February 2011 12:45 posted by nyse

    Highly inappropriate and disrespectful, IMO.

  • Comment Link nyse Wednesday, 09 February 2011 12:45 posted by nyse

    Interesting paper here:
    “Why Credit Deflation Is More Likely than Mass Inflation: An Austrian Overview of the Inflation Versus Deflation Debate”

  • Comment Link christian Saturday, 05 February 2011 07:13 posted by christian

    I am a student ,and I like your wife ,she is so beautiful that I want to do she.

  • Comment Link John Saturday, 05 February 2011 07:07 posted by John

    I like your blog.And I think your blog is my best friends.

  • Comment Link fedwatcher Friday, 04 February 2011 02:47 posted by fedwatcher

    We see Price Inflation in the mist of "classical deflation", thus "Stagflation". The Fed has only one real mission and is to save its owners which are the banks. Unfortunately the rest of us are made to pay for the bankers errors.

  • Comment Link john Thursday, 03 February 2011 23:39 posted by john

    Increasing min wage or printing and giving money are not the answer. The allocation of capital has been badly assigned. Fed had to save the system, but maybe they should have ring fenced the worst banks and split real banking and speculation into to different charters.

    Most capital should then have been allocated directly into the economy with a project of massive infrastructure works, roads. Bridges, high speed rail network, high tech cable upgrade across the USA. Taking the disaster and making it an opportunity, preparing for the future while help the people pay off the debt and restructering the laws on how much mortgage debt people can take in the future.

    Plus unemployment benefits should never be giving for no work, if the gov is going give money for nothing then increase the amount and say you have to clean this neighborhood for it or similar. With this policy you will need admin, organizers, mangers etc to make it all work, creating more jobs.

    Capital needs allocating to the areas that need it most right now.

    anyway that has not happen and now BB is telling congress is worried about bond vigilanties, wow!! The world really is crazy right now

  • Comment Link Andrew Macpherson Thursday, 03 February 2011 22:19 posted by Andrew Macpherson

    Great set of troubling vids, but all the news these days seems just as troubling. Seem we are all waiting for Humpty to take his big fall, but what do we do then, how do we best position ourselves for life after the fall Reggie?

  • Comment Link pie_row Thursday, 03 February 2011 20:02 posted by pie_row

    You've said that it will take 5~7 Years to clear the existing backlog of forclosed and delinquint housing. During that time we will have a downward pressure on housing. Japan is 20 years into their collapsing bubble and not done yet. Yes uping minimum wage a lot will be hard on small businesses, so would most of the other things that are posible outcomes of the current situation. We are going to have ... pick one. With upping the minimum wage you can take a stab at surviving and coming up with a plan. Hyperinflation with the worlds reserve curency?

  • Comment Link Reggie Middleton Thursday, 03 February 2011 14:36 posted by Reggie Middleton

    @pie row
    So,myou raise prices and your customers don't buy your product, particularly if you are in an elastic industry or sell highly discretionary items. Then you go out o f business.

    If you have your workers out in 40 hours to get paid 20 then you have effectively cut wages 50 percent! Suppose your workers don't want ot slave for 50 cents on the dollar, but your competitors can afford to pay a little more. Competitors he would be big business. Your plan would put small business America out of business!

    Raising prices does not guarantee they will be paid. You can let housing find. A bottom on it's one and get results within months, if not faster.

  • Comment Link pie_row Thursday, 03 February 2011 14:06 posted by pie_row

    Your assertion that arbitrarily raising wages will not raise real wages is not true in the long term. What do you do if your wages are more than your revenue? You raise prices. Short term you can get into cost cutting measures like having your workers put in 40 hrs and pay them for 20. Long term real wages will come up. Wal-Mart will have to raise wages. They are the low wage leader. Their prices will have to go up to cover the higher wages. This will mean that long term prices will come up to cover the higher minimum wage. So here is the Big Q? Is letting the housing bubble popping on its own faster than raising minimum wage? Or is raising minimum wage faster than letting nature run its course?

  • Comment Link Reggie Middleton Thursday, 03 February 2011 12:16 posted by Reggie Middleton

    If you have deflation with inflated prices, you have stagflation, not deflation. Arbitrarily raising minimum wage will not create higher real wages because you will dampen growth and lessmpeople will be hired.

    Think about it. You have a small biz with revs of 300k per year. You have three employees at 25k per year. They are just pulling their weight at that level. All of a sudden, the gov decidesnto quadruple your labor expenses without a commensurate increase in output, revenue or profits. Now, your 75k of labor costs ar more thanyour actual revenue. What do
    you do? At best you fire two employees and try to make a go with less labor, or you fire all three and go into the gray labor, off the books market, starving the government of payroll taxes. If you don't do any of these then you'll be out of business in a matter of months.

  • Comment Link Pie_Row Thursday, 03 February 2011 12:14 posted by Pie_Row

    It achieve equilibrium faster print a bunch of money and give it to everyone. That will stimulate demand at the same time as labor costs go up. The fed was been targeting 5% unemployment for a long time. This gets you asset inflation with out wage inflation. Time to pay the piper. Socialism? Practiccalism!! Least amount of pain for everyone.

  • Comment Link Reggie Middleton Thursday, 03 February 2011 12:04 posted by Reggie Middleton

    I agree, at least in part. Simply raising employment costs reduces employment until equilibrium is achieved. This actually hurts employment.
    What the government is currently doing is tryingnto move the goal posts closer to ache ice equilibrium through zero and neg. Interest rates. this should never be more than a temporary fix, yet we have been under this umbrella for nearly four years now.
    The key is to increase the leverage for business to make more money, and this expand and compete for resources, which will effectively drive up the cost of labor organically. The fashion that pie row suggests is more socialism than capitalism, no offense meant there. Then again, the Feds zirp policy is the same for the FIRE sector.
    Many will probably ask what's the difference between increasing leverage for business and zirp. Well zirp is not working and does not benefit small business, the largest employment source, nearly as much as large business. What is needed is a drop in the barriers to entry for small business, less burden from government borne expenses, or at least a very graded, scaled expense.

    Notice how the offshore nations generate business from foreign entities, they make it easy to do business. A small portion of the trillions that went into saving the still insolvent banking system could have jumostarted three new industries in the US, and we would have had change left over.

  • Comment Link Pie_Row Thursday, 03 February 2011 12:00 posted by Pie_Row

    A 4X on minimum wage would up it to about the average wage. That would give about 1/2 of the working people out there a raise. How many would loose their jobs? At the top end of the bump those people are worth close to what the new wage would be. At the bottom end they would not be worth the new wage, until inflation does its thing. M3 is contracting. That is deflation. Economic growth comes with inflation. The fed is printing money as fats as it can and they are talking about QE3. Too much debt and not enough income. The asset bubble has to come down or income has to come up to support the inflated asset prices. Upping minimum wage should give the feds printing press traction. It is just spinning its weals currently.

  • Comment Link C0ncerned Citizen Thursday, 03 February 2011 11:42 posted by C0ncerned Citizen

    You are making the false assumption that if you raise the minimum wage by 4x, that the people working for minimum wage currently will keep their jobs. One could argue that these people do not produce a value that is 4x the current rate, and would thus be eliminated from the employed, thus increasing the cost of unemployement. I disagree that "upping the minimum wage will help their lot". I think it would greatly hurt their living conditions, as well as society as a whole.
    The government needs to reduce costs on business, whether this comes from reduced regulation or reduced taxes or both.

  • Comment Link Pie_Row Thursday, 03 February 2011 11:21 posted by Pie_Row

    M3 is contracting. The rate of change is in the direction of expansion but it is contracting. The fed's printing press is pushing consumables higher. It is not pushing M3 higher. With M3 coming down we get no jobs. With higher consumable prices we are being hard on the poor. Higher consumable prices means less money spent in the rest of the economy. This brings with it economic contraction. The people on the bottom are getting the screws put to them. Upping minimum wage will help their lot. M3 is levered on income. Upping minimum wage will give more income to lever. My gut feeling is that we need about a 4X on minimum wage to get M3 expanding sustainable.

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