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The Coming Inflation Threat: The Worst Of Both Worlds

Expect falling asset inflation, but rising cost inflation
Thursday, October 25, 2018, 12:48 PM

Inflation is a funny thing: we feel it virtually every day, but we’re told it doesn’t exist—the official inflation rate is around 2.5% over the past few years, a little higher when energy prices are going up and a little lower when energy prices are going down.

Historically, 2.5% is about as low as inflation gets in a mass-consumption economy like the U.S. that depends on the constant expansion of credit.

But even 2.5% annually can add up if wages are stagnant. According to the Bureau of Labor Statistics (BLS), what cost $1 in January 2009 now costs $1.19. https://www.bls.gov/data/inflation_calculator.htm

That 19% decline in the purchasing power of dollars is tolerable as long as wages go up by 20% over the same period, but for many American households, wages haven’t kept pace with official inflation. 

While the nominal hourly wages keep rising, adjusted for inflation, wages have stagnated for decades.  Here’s a chart based on BLS data that shows median weekly earnings adjusted for official inflation rose $6 a week after five years of decline:

But stagnant wages are only part of the inflation picture: official inflation under-represents real-world inflation on several counts.

First, the weightings of the components in the Consumer Price Index (CPI) are suspect.  Many commentators have explored this issue, but the main point is the severe underweighting of expenses such as healthcare, which is only 8.67% of the CPI but over 18% of the U.S. Gross Domestic Product (GDP).

Second, the “big ticket” components—rent/housing, healthcare and higher education—are under-reported for those who have to pay the unsubsidized cost.  The CPI reflects minor cost decreases in tradable commodity goods such as TVs and clothing that are small parts of the family budget, while minimizing enormous expenses such as college tuition and healthcare that can cost $20,000 annually or more.

Third, by lumping the entire nation into one basket, the CPI ignores the reality that the inflation rate experienced by the protected class whose big-ticket expenses are subsidized by the government or employers is far lower than the rate experienced by the unprotected class that pays full freight. While the protected class complains about healthcare visit co-pays rising from $20 to $40, the unprotected class is getting hit with monthly increases of hundreds of dollars or co-pays in the thousands of dollars.

Fourth, there are significant regional differences which the CPI doesn’t reflect: inflation in coastal areas is running white-hot compared to lower-cost regions.

The Chapwood Index attempts to measure apples-to-apples real-world expenses, and as you can see, the Index estimates real inflation is above 10% for many American households.

It’s hard to believe 2.5% inflation includes the soaring costs of goods such as insulin:

Or student loan payments:

Then there’s the mystery of how the Federal Reserve can create trillions of dollars of new currency and governments and banks can issue trillions of dollars in newly borrowed money—private, corporate and sovereign—can flood into the economy without generating higher official inflation.

Here’s a chart of all credit outstanding in the U.S.: $70 trillion, up $40 trillion since 2000 and up $15 trillion since 2009:

The answer of course is most of that new money has flowed into assets, pushing the valuations of assets such as stocks, high-yield (junk) bonds and real estate to the moon.

This vast inflation of asset prices has pushed household net worth to the moon, too, but...

..the problem is, the wealth isn’t distributed very evenly. The gains have flowed mostly to the top .1% and to a lesser degree to the top 5%:

Unsurprisingly, this asset inflation has greatly enriched those who were already rich, i.e. the owners of the assets which have soared in value.

The fly in the ointment is the real economy hasn’t expanded at the same rate as debt; the ratio of debt to GDP now far exceeds the extremes of the Roaring 20s that set up the collapse of both debt and the asset prices that depended on new debt to fuel demand for overpriced assets.

The enormous expansion of debt and the resulting asset inflation are global phenomena:

Three secular trends have driven asset inflation and moderate deflation of commoditized goods and services:

  1. Globalization, a.k.a. global capital moving around the globe, reaping the gains of labor, credit, environmental and tax arbitrage: move from high-cost, high-tax, environmentally regulated locales to low-tax, low-labor costs and environmentally lax locales and skim all the profits.
  2. Declining interest rates.  Increasing production overseas and stock buybacks have been encouraged by central banks’ maintaining super-low interest rates and easy lending liquidity. Both have pushed corporate profits much higher.
  3. Financialization, i.e. low interest rates, ample liquidity, expanding leverage, the commoditization of previously low-risk financial instruments such as home mortgages, expansion of credit-default swaps and other derivatives and the generalized belief that risk can be eliminated by counterparty contracts.

All three of these secular trends are reversing: globalization is under assault on multiple fronts, as people are starting to question globalization’s role in increasing inequality, environment damage and the hollowing out of domestic economies and the middle class.

A decade of financial repression to keep interest rates near zero is slowly being “normalized” by central banks, enabling rates to rise.  As the overhang of bad debt and the rising risk of defaults start being priced into the bond and debt markets, the pressure on rates will only increase as higher risks demand higher compensation via higher yields.

Furthermore, all the trillions in existing debt will be rolled over at much higher rates going forward, squeezing the revenues of all borrowers, governments, corporations and households alike.

Financialization is following an S-Curve of diminishing returns: all the speculative games that have boosted assets to the moon are running out of steam or faltering.

This is visible in the divergence of GDP (the real-world economy) and household net worth (speculative debt-fueled asset bubbles) mentioned above:

So what happens to inflation as the trends that kept real-world inflation officially low and boosted asset inflation to unprecedented heights all reverse?

The obvious conclusion is asset valuations re-correlate to the trend line of the real-world economy, which is another way saying they drop a lot in a global repricing of risk and the impact of secularly rising interest rates.

That will put the kibosh on the much-vaunted wealth effect that supposedly boosted the animal spirits of borrowing and spending (and speculating) that has fueled the “recovery” of the past decade.

As the global economy spirals into recession, central banks will panic (as usual) and attempt to spark flagging consumption by lowering interest rates and governments will increase deficit spending (i.e. government borrowing) to boost household incomes and corporate revenues.

But unlike last time, these policies may not reflate asset bubbles that have popped, or suppress real-world inflation. Rather, they may fail to boost asset inflation and succeed in boosting real-world inflation while wages continue stagnating and household net worth craters.

Simply put, the world has changed, and the unintended consequences of the past decade’s policies cannot be stuffed back in the bottle. The easy years of watching index funds and other assets rise like clockwork because central banks willed it are over.

In Part 2: Get Ready For "QE For The People" we detail the likeliest next steps in this story in which, under the guise of "progressive fairness", the next phase of money printing will transmit free money directly into the populace's pockets.

What's not to like about that? Well, for starters, it won't create any true prosperity, it will send cost inflation skyrocketing, and it will further subjugate the populace to the cartels running our economy and political system. But the masses will cheer for it anyways. So get ready.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access

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20 Comments

nedyne's picture
nedyne
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Great Depression

The article says, "the ratio of debt to GDP now far exceeds the extremes of the Roaring 20s that set up the collapse of both debt and the asset prices that depended on new debt to fuel demand for overpriced assets."

I don't think the Roaring 20s saw such "extremes" in debt/GDP. As far as I know, and as far as it seems from looking at the chart, the extreme came during the Great Depression (after the crash), mainly because of the cratering of GDP (the denominator in debt/GDP), so it doesn't seem that "extremes" in debt/GDP were a *cause* of the Great Depression. 

charleshughsmith's picture
charleshughsmith
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cause of Great Depression

The causes of the Great Depression are still a matter of discussion/controversy, a useful indicator of the complexity of the modern credit-economy.  My general sense is that mass consumer credit and stock margin debt were relatively new phenomena in the 1920s and so credit *on a relative basis* expanded mightily. Enough of this credit went into marginal assets such as stocks and farmland that was only productive in short-lived eras of ample rainfall that when leverage had to be reduced and liquidity tightened, the collateral was only worth a fraction of the debt.

I read somewhere that some of the debt accumulated in the Roaring 20s wasn't written down until the early 1950s.  In other words, authorities kept the debt on the books, much as Japan  has done since 1990, institutionalizing stagnation.

 

Uncletommy's picture
Uncletommy
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Let's give the S-curve a little push

https://www.bbc.com/news/world-us-canada-45930206

davefairtex's picture
davefairtex
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great depression cause

Depressions are caused by collapses in confidence due to losses of wealth.

Stock market crashes cause recessions, while bond market crashes cause depressions, because of the relative amounts of money/wealth that get destroyed in each event.

Both events destroy wealth, which causes a collapse in confidence, but a bond maket crash destroys a lot more wealth than a stock market crash because the bond market is about 3 times as large, so the impact on confidence is more extreme.

Deflation is caused by a collapse in confidence.  If a bunch of your wealth gets destroyed by a crash, that will really impact your confidence - you won't borrow money, you won't take risk, you will hunker down and wait for the storm to pass, however long that takes.  If this effect is widespread - that creates a depression.  Money supply shrinks, which tosses people out of work, confidence collapses further, rinse, repeat.

Maybe think of it this way.  If your high-beta stocks go to zero, that's not great - that happened in 2001.  Your gambling winnings were wiped out.  That led to a recession.  If your A-rated bonds get defaulted on, that's much worse.  That happened in 2008, and 1931.  Your retirement plan got chopped in half.   And if your bank dies and takes your deposits with you - that's even worse.  Your ability to pay your mortgage and/or your monthly grocery bill is now gone.  You are now on the street.  That happened in 1933.

treebeard's picture
treebeard
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Most important first step

Loss of confidence comes at the end of a long series of ugly events, I would suggest. Certainly loss of confidence could be the trigger, but I would be hard pressed to agree that it was the cause of a/the depression.

Would "confidence" today solve the problems of energy depletion, climate chaos, resource depletion, corruption, economic inequaltiy, etc.  Isn't that the game the Fed is playing now in their reality optional theories and policies?

I would suggest that confidence can only be lost when it is first misplaced, when the "financial" picture that people believe (have confidence in) is no longer in conformance with reality.  Certainly today we know that the financial "data" we are presently with is no longer in comportment with reality, from inflation, to unemployment, availability of resources, and strength of the economy. And on and on and on.  So confidence has already been misplaced, so there is now the possibility that it can be lost when reality intrudes.  It's that wil-e-coyote moment, when you believed that (either from being actively deluded by others, or a process of self delusion) you were on solid ground, when you're not.

If I had to give a cause to depressions and recessions for that matter, it's exploitation. When whole classes of people become obsessed material acumulation, at the expense of everything else.  Whether it's the working and immigrant classes during the 20's or about just about everything now.  Taking, taking and taking without ever giving anything back.  At some point reality has to intrude and give humanity a dope slap. This is self destructive behavior, seems to be a lesson we have a hard time learning.  Rinse and repeat indeed.

davefairtex's picture
davefairtex
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human factors

Well, to date, we haven't been faced with resource limits in our economics, so - to date - depressions have been about wealth destruction.

People suffer shocks; loss of stock value, loss of savings, loss of jobs.  Suddenly they are on the street.  This beats their confidence with a stick.  All the stuff they thought they had is now gone.  And they see this happen to a lot of their friends too.

What money they have left, they hoard.  They don't borrow.  (Borrow = a way to lose your house when you can't pay it back - after you've lost your job.)

So while the trigger of the downturn probably was too much debt that couldn't be paid back, the reason why depressions stick around so long is strictly the human element.  Once the debt has been defaulted on, its lack of confidence from humans that keeps the depression in place.  After suffering such a shock, people become very risk averse, so money velocity falls through the floor.  Nobody starts businesses, nobody takes any risk at all.  This sticks around for years.  Its a massive change in mind-set.  Before the depression, sky was the limit.  Afterwards - it is about fear of failure, the fear of losing it all once more.

And that's because of the loss of confidence.

I saw it in my grandmother.  She was still dutifully saving wrapping paper, 40 years after the depression had ended. 

The shock and shattered confidence from the 1933 event was massive.  It lasted decades.  Economically, technically, everything was "fixed" by 1934, but it was really decades before the people themselves recovered.

And it turns out, people and their wishes and desires are the economy.

treebeard's picture
treebeard
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Shortages

Human beings are very good at living beyond their means, and using debt to steal from (exploit) the future.  Which then requires a period of living below your means.  That has always been possible, regardless of where we have been in the resource story.  Exploitation of one small group of a society at large created the damand destruction that collapsed society in the great depression.  But  we paper over the real story with a lot of economic jargon to make ourselves feel better about the whole situation.

The first really big energy wars, (aren't all wars about resources), WW1 and WW2, when the world shifted from coal to oil, were about securing resources that would lead the winner to dominate the world.  Those wars were won by and the american empire was built on oil.  We won that war and ruled the world as a result of it.  By not admitting what happened, we look for ways to explain away the raw ugliness of it all.

The worst thing about reality denial is that it prevents society fromm adopting in real time to changing conditions, as we are vigorously doing now, most people anyway.  And the next crises, that we are in the midst of creating now is all about resource depletion and our inablity to deal with it real time.  Seems like we have run out of human beings to exploit, so we are going at the planet full tilt.  Same story, different actors.

davefairtex's picture
davefairtex
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resource wars

From the US perspective, WW1 and WW2 were not about resource limits.  The US was self-sufficient in both oil and coal during both periods.

As a result, the depression wasn't about living beyond our natural resource means per se.  Not the way we think about it today in terms of peak oil, etc.  The depression was a more or less a credit event, from what I can gather.

Part of the cause of the depression is that there was a huge overhang of debt from WW1, owed to the US, from Europe.  Once the economy turned down worldwide in 1929, all that debt became structurally unpayable, and so most of the European sovereigns defaulted on it once things got really bad.

Supposedly, the default of Credit Anstalt (owned by the Rothchilds) in Austria in 1931 was the catalyst for the bond & deposit wealth destruction phase.  "If the Rothchilds are going down, that means we are really hosed."  The resulting loss of confidence in banking caused contagion across Europe's banking system, and that resulted in a widespread loss of deposits, and subsequently, defaults on the sovereign debt.

https://en.wikipedia.org/wiki/Creditanstalt

I'd have to check the timelines to see when the major European countries defaulted on their war debts to see what led and what followed.

 

brushhog's picture
brushhog
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Why we have "recessions" not "depressions"

The old saying goes "a recession is when your neighbor loses his job, a depression is when you lose your job". The truth is that the two terms dont really have universally agreed upon definitions. A recession is sometimes defined as "2 or more quarters of negative GDP". A depression is sometimes considered as a drop in GDP of more than 10%.

The reason we dont see depressions, and are unlikely to see one, is that our economy is structured much differently than it was in the 1930's. Our modern economy is a debt based floating fiat system where government spending is 20% of GDP. In the 1930's we had sound money, a gold standard, which acted as a stable measure and store of value. As prices fell, people held cash as a store of wealth. This lead to a tighter supply of money and asset values fell against the dollar [deflationary spiral ].

In a floating fiat system, the dollar can be conjured through debt creation and flood the market with new money, this masks falling asset values as dollar values are falling WITH assets. This prevents a run out of assets and into dollars [deflationary spiral ]. The price we pay for this is an increasing national debt as the new dollars are borrowed into existence.

The other big difference is that government spending represents a LARGE portion of GDP. So, during a recession, government increases it's spending [ again with borrowed money ] and this masks the drop in GDP. From 08 to about 2014 government spending as a % of GDP rose to 25%. So we were offically "out of the recession" as soon as GDP went positive...but where did the growth come from? It was borrowed against the future by the government and spent out into the economy. It was not "produced", the bill is still sitting there, having more than doubled the national debt and weighing down future growth, sucking up revenues, and making future prospects for real growth more dire.

davefairtex's picture
davefairtex
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recessions vs depressions

brushhog-

While I agree with your government spending thesis, I think its secondary.  I believe the widespread bank collapses (which utterly destroyed middle class savings in whole regions) that happened prior to FDIC was - most likely - a critical cause of depression.

When your bank fails, your savings is just gone.  Unless you had it under the mattress, you were totally screwed. 

Common-people savings loss just doesn't happen anymore.  FDIC was a new thing in the 30s, and while it has its issues, I believe it has prevented a depression from happening since the 1930s because middle class savings have been protected from bank runs.

See, we only lost the gold standard in 1971.  We were on the gold standard from 1930-1970, and we had a fairly restrained government spending situation from 1945 - 1960, which given the frequency that depressions happened in the old days, would have been more than enough time for one to have happened.

I claim its FDIC that has prevented depression - and that's because it has protected middle class savings from bank failure.  And that, just by itself, has protected confidence.  "The little people" (which comprise most of the economy) are no longer worried about losing rent & food money if their bank happens to go tits up - an event which used to happen very frequently back in the day.

I'm still on the side of human factors: confidence.

 

brushhog's picture
brushhog
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depression recession

Dave, who funds the FDIC...and with WHAT?

Just a point of disagreement about the gold standard, the gold standard was changed to the bretton woods system which vaguely tied dollars to gold but still allowed alot more "fiat" activity. It was not a real gold standard which is what we had prior to the depression. And today, we dont even have THAT. So the government's ability to create debt and fiat isnt constrained in the least.

I dont think the FDIC played much of a role in keeping the 08 crisis from turing into a full blown depression. The bank bailouts kept the banks going, and that was paid for by debt. The FDIC was never used because the banks were kept solvent. Had we been on a true gold standard, the ability to do that would have been greatly hampered. Banks with bad debt would have been wiped out, depositors would have lost money. BUT the bad debt would have been wiped out, people not associated with those banks would not have been touched, and the economy could have cleared away the dead wood and come back. Now that bad debt and that pain is still there, on the balance sheet. Nothing has been resolved. Instead, we have a 21 trillion dollar debt which is growing exponentially and will eventually { if something else doesnt get us first } collapse the dollar. Then, not only will people associated with reckless banks lose their money...but EVERYONE will lose their money. All they did was collectivize the pain, bundle it into a can, and kick it down the road a little way.

cmartenson's picture
cmartenson
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The Center vs The Periphery
brushhog wrote:

Dave, who funds the FDIC...and with WHAT?

Just a point of disagreement about the gold standard, the gold standard was changed to the bretton woods system which vaguely tied dollars to gold but still allowed alot more "fiat" activity. It was not a real gold standard which is what we had prior to the depression. And today, we dont even have THAT. So the government's ability to create debt and fiat isnt constrained in the least.

I dont think the FDIC played much of a role in keeping the 08 crisis from turing into a full blown depression. The bank bailouts kept the banks going, and that was paid for by debt. The FDIC was never used because the banks were kept solvent. 

Depression vs recession is a fascinating topic, and one that deserves to be fleshed out in greater detail, so I am really enjoying this.

One thing I'd like to add to the conversation is the difference between the peripheryand the core.

I would submit that the periphery has seen major depressions erupt, even without massive bank failures so I think that bank failures alone cannot account for the depression events.

It’s really in the mindset of the people.

Let’s look at two modern examples, each on the opposite end of the spectrum.

Inflationary Collapse

Venezuela is undergoing a massive inflationary collapse.  I’m not aware of a lot of bank failures, except in the sense that you cannot get any useful currency out of your bank.  All you can get are plummeting bolivars, no euros of dollars.

People are starving and steadily losing weight.  Crime is rampant.  Venezuelans (that can) are flooding over borders to escape it all.

On a dollar basis the GDP is collapsing and in full capital "D" Depression.

This was all caused by really dumb government spending that was “financed” with printing.

Deflationary collapse

Greece is still in the grips of a deflationary collapse.  There were a small rash of bank failures in 2015, but nothing like what was seen in the US in the 1920’s. 

These were largely the by-product of the troika playing hardball and showing the new Greek leadership what happens when you disappoint them and don’t toe the line.  The Greek stock market and banks were closed for roughly a week in June 2015.

But agreements were reached, the banks and markets reopened, and the Greeks have been crushed ever since:

They are only now barely “recovering” but will certainly be double-crushed when the next downturn arrives. 

Those Greeks that could left in droves, especially the young and the talented. 

Summary

At the periphery I cannot find much evidence to support the idea that depressions are the result of either inflation or deflation.  It is both.  Collapse can happen in either direction.  In one direction you save up your cash, out of the banking system.  In the other you spend it as fast as you can on anything of real value. 

The core has other tools available to it that the periphery does not but I would submit that those tools only prolong the inevitable, they do not prevent it.  Also, when the inevitable arrives, it’s likely to be far more damaging due to all the pent-up imbalances suddenly resolving themselves.

Like, what happens to the US that has built up this colossal debt superstructure when its shale oil peaks out and it is now in heavy competition with the rest of the world for diminishing exports?

The US current account balance will simply explode and the world will tolerate that or the US will implode as it will have a huge machine but an insufficient amount of oil to run it on. 

Either way it does not seem sustainable or wise to continue with BAU, but here we are doing exactly that.

 

davefairtex's picture
davefairtex
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depression causes

In Greece, they definitely are experiencing a depression, but the causes are combination of factors: first, the Greek banking system did collapse - they restricted withdrawals from that system to very small cash withdrawals, so while you "had money in the bank", you couldn't get it.  Perhaps that has ever so slightly less confidence impact than simply destroying the money through immediate failure, but when the money is unavailable, confidence is definitely hit quite hard.  Second, the central authority continued the depression artificially,  by requiring the local government to impose very heavy taxes on the people, requiring government surpluses essentially forever - which systematically removes money from the economy in exactly the same way deflation does, but in this case, since it is imposed by the outside, there is no end for the deflationary event.  The system is not allowed to recover.  That has a combination of both money supply as well as confidence-hosing effects. 

In the same way that a 5% increase in loans will cause inflation over time, a 3% government surplus, run over the course of decades, will end up shrinking the economy and the money supply in sort of a mirror image.  I would venture to say that the Greek experience couldn't have happened to a normal sovereign - except perhaps someone defeated in war and required to pay tribute.

Greece still has confidence in the Euro.  They are hoarding Euros. They don't have any confidence in the future, however - or in their politicians, or in the banking system that decided at one point to only let them get at 50 euros a day.  In Venezuela, there is no confidence in the bolivar, so they are spending bolivars as rapidly as possible.  In both cases there was a loss of confidence - just in different areas.

Going back to the FDIC: the FDIC is backed by the full faith and credit of the US government.  You may argue if this could actually make everyone whole if there was a massive banking system collapse.  Let's see.  SAVINGS (a FRED timeseries) is about 9 trillion dollars.  Let's imagine that half of that goes bad.

Here's how you fix it.  FDIC takes over all the bad banks and their assets, collects the loans, packages them up (slapping on them a "guaranteed by the government" label), then sells them to the Fed, who hands the cash to FDIC. The Fed drops the loan bundles into a special account at the Fed, and as time passes, it slowly writes them off as it earns interest from the rest of its portfolio.  FDIC pays back the depositors with the new cash it got from the Fed.  That's just 4.5 trillion, which the Fed has shown it has no problem doing.  It did that during 2008.  So...

Problem solved.

Regardless of this end-of-times scenario, in most normal times, having the full faith and credit of the US government behind small deposit insurance has resulted in no losses to small depositors since the 1930s.  Arguably, this faith in the system has ensured that there are many fewer bank runs than there were previously.  Its a virtuous cycle.

As a result, I maintain that the FDIC has kept the US depression free since the 1930s by acting to increase confidence in small deposits - both by actually reimbursing small depositors, and by avoiding a whole bunch of bank runs that never happened because of the confidence that FDIC would at some point ride to the rescue.

On the surface, it might seem surprising that a generally corrupt system would actually protect the little guy in this way, but I think the top 0.1% figured out that if you periodically swipe the little guy's deposits during a downturn, at some point things get really bad in a hurry, and they can stay that way for a long time, due to the loss in confidence this causes.  During such times Communism can form, so if you think about it pragmatically, the FDIC is really just "anti-communism" insurance for the elites.  Its a small price to pay to remain on top, and if done properly, one that is paid by the banking system itself, at least it has been for two generations, until 2008.

 

Hotrod's picture
Hotrod
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On the surface, it might seem

On the surface, it might seem surprising that a generally corrupt system would actually protect the little guy in this way, but I think the top 0.1% figured out that if you periodically swipe the little guy's deposits during a downturn, at some point things get really bad in a hurry, and they can stay that way for a long time, due to the loss in confidence this causes.  During such times Communism can form, so if you think about it pragmatically, the FDIC is really just "anti-communism" insurance for the elites.  Its a small price to pay to remain on top, and if done properly, one that is paid by the banking system itself, at least it has been for two generations, until 2008.

IOW  Peanuts to keep the monkeys happy, as my Dad was fond of saying.

brushhog's picture
brushhog
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center vs periphery

Chris, in the example you gave about Venezuela's depression you are showing venezuela's gdp in DOLLAR terms to display their falling GDP. This is kind of simlar to the US's depression as it was on full display when compared to it's gold backed currency back in the 1930's.

Now if it were to happen today....what could you compare the US's gdp in terms of? You would not see the falling GDP  As the reserve currency with no gold standard I dont see how you could arrive at the truth without referrencing only peripheral data. The rest of the world would rush to devalue their currencies to stay on par with the dollar. So there would be no constant to measure it against. You could say "depression" but in terms of WHAT?

Maybe prices fall if they dont print enough, maybe they rise if they print a little too much...maybe they stay more or less stable in dollar terms. Maybe government spending rises to 30%...40%...50% to mask falling gdp. Maybe they rework the calculations again to give gdp a boost. Nothing is real or constant so price discovery is impossible. Thats why, IMO they will never say "depression", unless its' some political move to knock the administration.

My opinion, this doesnt end until the ability to raise debt ends. When the national debt is so large that the interest outstripes all other spending and carrying the debt is such a burden that no new debt can possibly be added because the revenues simply will not allow it...THEN all the pain that we avoided by piling it on top of the debt, having festerd and grown for years, will finally come down on all our heads....even those of us who lived responsibly and frugally.

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aggrivated
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Posts: 572
Reality and financialization

Available energy runs the real economy. Financilization spins off the narrative that the energy is there and will be in the future. Art Berman says the oil industry is going through a retirement party. Nobody is saying this is a true narrative, so the financilization/debt bubble keeps on expanding. If the 'Saudia Arabia will be bankrupt by 2025' prediction comes true, if the news gets out that there are lots of layoffs in the US oil industry (which is supposed to be booming) and the narrarive of 'don't worry about the energy' starts to crumble, then the confidence/financialization bubble will pop. All the hope and confidence for the future that supports the debt will collape with it. That's when the bond market will collapse and the long slow process of rebuilding confidence will begin again. None of us can predict how that will unfold.

My read on history is that WW I bankrupted the coal economy of Europe. The Great Depression intervined as the energy narrative from coal confidence to oil confidence was written. WW II was the last convulsions of a dying coal economy challenged by a technologically advanced and economically suppressed Germany. The USA stepped in with its superior oil reserves and won the day, setting the stage for how the new oil based economy would function. Germany may have lost the war, but their grasp of technological expertise has led them to be the powerhouse of the EU. I personally think we are at the cusp of the next war or hopefully just a depression. Will another war follow? Who and what will challenge the existing narrative? These are the big questions.

Some think it is AI. I'm not sure that will progress much further without an expanding energy supply. Population collapse is a very likely prospect.

I'm sorry if the 30,000 ft view seems naive, but that is how this member sees the overall landscape.

With that in mind, my hope is based on 'Think locally, act locally.' That's where our real influence lies.

AKGrannyWGrit's picture
AKGrannyWGrit
Status: Gold Member (Offline)
Joined: Feb 6 2011
Posts: 496
Think About It

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2256
Lynette Zang - Pattern Shift

I really like listening to Lynette Zang.  I'm not a charts person, but would be interested in hearing from those here who are on Lynette's technical analysis of a pattern shift in this video, THE BOTTOM FELL OUT: Market Support Just Crumbled (posted 4 days ago). It sounds important; is it?

We’ve been watching quite a few pattern shifts over the last year or so. These were warning us that a market breakdown was in the works. Over the last few weeks, it’s become more apparent as most stock market indexes are below the beginning of the year levels. We got that warning on October 3rd when interest rates broke out to the upside and now US stock markets have broken to the downside. But it’s not just that they’re lower than they were at the beginning of the year, they’ve broken below the 200-day moving average, a key technical level that has not been pervasively breached since 2016. For me, this is an ominous sign.

Hat-tip to John Rubino's site, DollarCollapse.com, where he listed this video with the "Top Ten Videos — October 29".

Sparky1's picture
Sparky1
Status: Member (Offline)
Joined: Jul 21 2016
Posts: 13
Fall Of Empires: Rome vs USA (Hidden Secrets Of Money Ep 9)

My apologies if this has already been posted, but in case you missed it: 

Excellent new educational video from Mike Maloney (goldsilver.com), Episode 9, "Fall of Empires:  Rome vs. USA" in the "Hidden Secrets of Money" series, which just premiered a few hours ago on 10/29/18.

Mike links inflation, deflation and hyperinflation to the debasement of money througout history, with key parallels between the fall of the Roman Empire and the USA.

Episode 10, "American Bread and Circus" premiers 10/30/2018, with live chat, 8:00 p.m. EST (link at the end of the Episode 9 video and here, 

(However, I don't share his enthusiasm for cryptocurrencies per his reference in Episode 9....)

skipr's picture
skipr
Status: Silver Member (Offline)
Joined: Jan 9 2016
Posts: 165
a simple question

Does all of this mean that the "kaboom" theory (deflation followed by hyper-inflation) has been replaced by the "boom" theory (straight to hyper-inflation)?

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