Deflation vs Inflation?

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Adam Taggart's picture
Adam Taggart
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Deflation vs Inflation?

The planets successfully aligned this weekend to bring Mike "Mish" Shedlock, Steve Keen, Chis and myself together around the same pizza table in Chicago.

Here's a shot from the evening:

So, what was the outcome of the epic inflation/deflation match-up? Given that Mish and Steve somehow escaped pitching in for the bill, I'd have to say deflation won this round. Invest accordingly...

In seriousness, though, this was a great night. Every bit as enjoyable to witness as you would expect it to be (neither Chris, nor Mish, nor Steve had ever met each other in person before). We tried to record the conversation, but the restaurant was just too loud. All agree there will be a next time, so we'll make sure to pick a quieter location.

Extra bragging points to those Chicagoans who can identify the restaurant from this photo...

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Central Banks are going for inflation, it's obvious...

... says Jim Rickards, last minute of the show:

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I love my Mish and Chris (and Adam)....

But I still have no idea what Steve Keen is really trying to teach us.  What are his actionable teachings?  Anybody?   

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Observation.

I subscribe to SK's website. Operation Twist does not print money. It has the effect of flattening the yield on bonds. I guess it makes the holding of long bonds less appealing. What that achieves, I don't know.

Be advised. I am not strong on economics. My interests lie more in the Pizza.

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Hi Arthur...

Sure..operation twist is (CB) balance sheet neutral... whereas QE3 is back to good old printing of money.  If I recall correctly... SB once set up some kind of complex flow model that was managing to prove that somehow debt-based fiat money can operate in some kind of homeostasis that does not need to grow exponentially.  I am not sure in what kind of non-crony, non-CB controlled universe this applies, but it didn't help me much.  He is an Aussie though... so you gotta like that  cheeky

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Mind Control.

Hi yourself Jim.

In his first lecture SK said that he is not allowed, by Law, to give financial advice. I guess this means that the Powers that Be do not want the Great Unwashed to have access to the finest minds. The message here is tightly controlled. My policy is to wrest back control of what is left of my mind.

Patriotism is for idiots. I am Patriotic to civilization, not to some putative "Great Leader."  The game is a lot more ferocious that I had imagined. And a lot more interesting than the "Footie."

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Chicago Pizza and Oven Grinder?
Adam Taggart wrote:

Here's a shot from the evening:

Extra bragging points to those Chicagoans who can identify the restaurant from this photo...

That looks like Chicago Pizza and Oven Grinder.  One of my favs.

Do I get anything other than bragging rights if I am correct?

ps.  Just and FYI.  That is not really considered Chicago pizza but it is still great stuff.  Hope you also did try the Mediterranean bread which is also outstanding.

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Judging by the detail in many

Judging by the detail in many of your posts Jim, you are a really educated investor. I am not. But for what it's worth, I'll give you my simple take on SK. I have been following his blog for years (although since it turned subscription only I opted out - more and more commentators these days need money to keep their blogs running and I can't subsribe to them all).

He was the first person I came across who could explain the role of debt in growth. The simple formula Aggregate Demand = Incomce + change in Debt gave me a bit of clarity. The simple personal strategy I took from him was to get out of debt. That's it. And I have.

As Arthur says below, you wont find SK recommending any stocks, bonds, real estate, pm's or derivatives. Maybe he is not allowed to. But I suspect (speculating here) he may just not be interested in promoting the pursuit of income that is not derived from work. Income derived from other peoples debt is in large part what caused the mess we are in. 

His actionable teaching is at the personal level - get out of debt. At the highest level he has proposed some pretty radical ideas like the debt jubilee. But one way or another his "actionable teachings" seem to me to be about debt elimination.

This probably isnt helpful Jim, but you asked "anybody". I always enjoy your posts by the way.

 

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Lauren Lyster is disturbingly hot.

Sheesh.

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Rector.......and Bowskill

FYI.. you said that out loud Rector.    wink

Bowskill, Thank you for the comment, and the kind words.  I have been on a decade + journey to educate myself as an investor, spurned on by my employer's decision to cut me out of a traditional pension 12 years ago, putting me on the lump sum/401K plan.  Please don't tell my boss, but I am much more passionate about economics and monetary policy these days than I am about my technology job.  

Speaking of learning.. I thought this piece on ZH today was really enlightening;     http://www.zerohedge.com/news/2012-09-23/fed-has-another-39-trillion-qe-...

I had to read it twice before I started to grasp the points being made... that the FED reflation is being targeted at the place where the real deleveraging is happening; the shadow banking arena.. and that by reflating the system (total debt) on the traditional banking arena side... for the same nominal total debt, they are creating a situation with dramatically more inflationary tinder (since this new debt can be lent, and relent, via the traditional banking fractional reserve route eventually).  Anyway, another lens through which to view the coming catastrophe and the FED's motivations. 

Certainly SK was one of the early predictors of the global financial crisis... and it is debt that got us there.  Oddly enough though, if there is inflation ahead, and money is cheap.. then I am not sure getting all the way out of debt is the best idea for all going forward.. for instance, I would sure not want to have all of my net worth tied up in a house and have no PM's or other liquid assets to speak of.  Similarly, one might take advantage of a loan against their 401K in order to diversify their savings with PM's.  Debt is quite the double-edged sword.     

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Jim H wrote:Sure..operation
Jim H wrote:

Sure..operation twist is (CB) balance sheet neutral... whereas QE3 is back to good old printing of money.  If I recall correctly... SB once set up some kind of complex flow model that was managing to prove that somehow debt-based fiat money can operate in some kind of homeostasis that does not need to grow exponentially.  I am not sure in what kind of non-crony, non-CB controlled universe this applies, but it didn't help me much.  He is an Aussie though... so you gotta like that  cheeky

 

 

Steve Keen is a professor of economics, not an investment advisor. He has made a number of substantive contributions to the field of modern economics, and counts himself as a member of the "Post-Keynsian" school. For those unfamiliar with the specifics of his contributions, here is a brief summary:
 
- His main efforts have been directed at exposing the principles of  neoclassical economics as being fatally flawed.
 
- He is an accomplished mathematician, and substantiates most of his conclusions with numerical proofs. Additionally, he has created simulation tools (free downloads) which model the complex flows and stocks of a simplistic economy, which expose, among other things, the fallacy of believing that an economic system underpinned by debt is unsustainable. He demonstrates mathematically that which we can observe, which is that the interest accrued from the act of lending money can in fact be repaid, even though the total debt in the system exceeds the money in circulation, which is in opposition to much of "conventional wisdom".
 
- He has shown that many incorrect assumptions about money, debt and interest are the results of not understanding the difference between stocks and flows, as well as the importance of dynamics and time based aspects of monetary flow.
 
- His theory of "endogenous money" explains in a rational manner that supply side economic theory "the fed is to blame for everything" is patently false. Endogenous monetary theory concludes that we have a demand side construct which is organized as follows:
 
     ~ Loans are created first as demanded by businesses or consumers, reserves are then solicited after the fact by banks that seek to maintain lawful reserve ratios, not the other way 'round, as is commonly believed. Said another way, passbook savings do not create loans.
The difference is not one of semantics as the implications are profound, especially from an ideological perspective.
 
- The essence of neoclassical micro-economics contains fatal flaws. The notion of the "rational consumer" which is an essential assumption of Neoclassical theory is not reasonable and in fact false (proof by negation). According to Keen, it is not possible to scale micro-economic individual preference and demand curves to represent macro-economic theory, this approach, of necessity, reduces to one consumer with one commodity, which is hardly macro.
 
The upshot of all this is the accusation that the theories used to establish modern political economy, modern monetary theory, and the associated ideologies are based not only on poor assumptions, but irrational and false first principles. He suggests that the disastrous Great Recession was missed by most economists precisely for these reasons, and further, suggests that virtually all the corrective action proposed to date is off target and ineffectual. His version of corrective action contains such measures as a debt jubilee, and strong regulation against speculative finance of any kind, to name but two.
 
These measures are rejected out of hand by the free market crowd, who profess the exact opposite, as the ideological implications of Keens's work is too disturbing for most.
 
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Hot indeed, but is it the bod

Hot indeed, but is it the bod or the brain?  Are those Ruskies (RT) trying to distract us from the important stuff, or remind us of what, essentially, is most important?  Next thing your know they'll start messing with our gold... I'm just thankful that I think my sweetheart is hotter than LL, or else I'd spent even more time on this computer....Aloha, Steve.

p.s.- just gotta laugh at your making that comment on this site...I've been holding back!

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Typo?

Hello Darbikrash

Is this quote from you accurate and if so, would you mind expanding on it please?

which expose, among other things, the fallacy of believing that an economic system underpinned by debt is unsustainable.

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Correct

Goes211 -

Good eye! Yes, the restaurant indeed was Chicago Pizza & Oven Grinder.

As a tourist, I can't speak to how "authentically" Chicago the pizza was - but it sure was good! And Mish won his bet with me that it's unlike any other kind of pizza I've had before (for the uninitiated, think of a pizza made like a popover).

And yes, we had the flatbread, too (excellent!)

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Lauren who!? I watched the

Lauren who!? I watched the video between the guests. wink

Lauren is both intelligent and beautiful, and is complimentary to state the obvious.  

Gooooo Tigers

BOB

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Arthur Robey wrote: Hello
Arthur Robey wrote:

Hello Darbikrash

Is this quote from you accurate and if so, would you mind expanding on it please?

which expose, among other things, the fallacy of believing that an economic system underpinned by debt is unsustainable.

No typo, Keens' models show that debt based economies do not intrinsically require exponential growth in and of themselves. Debt issued and applied to productive use, as opposed to speculative (Ponzi) use, does not require or result in exponential growth. If the debt is used for non-productive purposes, or Ponzi schemes, (as it often is) all bets are off.

There is a growth imperative, but it's not from the issuance of debt......

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Inflation vs. Deflation

Which will it be?  The answer will continue to be 'yes.'

I had a great time meeting Mish face to face for the first time after ~50 podcasts, and Steve Keen who just magically, accidentally happened to be at another conference in Chicago at the same time.  Aussies put the F in fun.  I could hang with Steve in a bar, on a blog or at the beach.  He's versatile!

I loved the Pizza joint, it was hopping, but could have used a quieter more distraction free place to really have a free-flowing conversation.  Between Mish and Steve and I wanted a chance to really test out my inflation leaning ideas in a rough and tumble Chatham rule session.

I remain convinced that deleveraging will be fought tooth and nail and nothing of late has dissuaded me of the notion that in the future our money will be worth a lot less compared to the things we both need and want.

One tidbit from the conference that I am wrestling into prose was our meeting with a representative of a firm that has access to all trade data at the millisecond time scale.  If I was worried before that our markets have become electronic scrums where price discovery is utterly divorced from the outside world and volume and liquidity can disappear within a fraction of the blink of an eye, I am doubly worried now.   More on that in a special report coming soon....

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"Deflation or

"Deflation or Inflation...YES". I love it!

Next up, Deflation, are my thoughts.

Gooooo Tigers

BOB

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Thanks Darbikrash

Got it. Now it makes sense.

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Mauldin is wrong about the Euro

John Mauldin is simply wrong about why the Euro was formed. Go back to the quotes of Wm Duesenberg and you will see they wanted  a currency with specific function: 1) not dependent upon a single nation state and 2) no direct support for gold. Figure out why these were important to them and you will bem alot closer to understanding the Euor than any of these talking heads.

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The Great Triumph of Capitalism

Do you remember when the Soviet fell, nodding wisely about the demonstrated triumph of the Free Market over Communism and a centralised government control?

Oops. It seems as thought we have a cadre of experts who believe that but for them, the free market will fail. At last count there were about 8 men (yes, Men!) who have seen fit to shoulder the burden of steering the market through it's obvious failings. You guessed. The FED.

Capitalism has become the reverse side of the same coin as Communism, and will have the same result.

Which of cause, is Dmitri Orlovs' point.

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RJE
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Arhur, I wonder what the new

Arhur, I wonder what the new label will look like. We'll still call it capitalism but growth just can't be.

I still bleed the Red, White, and Blue though, my bad.

Every Time I catch something, today a head cold and upset stomach I think PANDEMICK!!!! I have to stop reading such things before bed.

Respectfully Given

Gooooo Tigers (apple pie and chevrolet)

BOB

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Arthur Robey
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Meltdown, RJE

RJE take care of that headcold.

I Love freedom.  I dont care what colour it is.But what is it? I know it when I see it. It is the confusion that you have when you wake up and realise that you have nothing else to do but amuse yourself. "Whatever turns ya on, Baby."

We have to leave the Enlightenment behind us for it is Enlightenment thinking that stops us from using both brains. We are losing freedom because of the dominance of the rules-bound Left Hemisphere as is described in this video. 

How will this insanity end? Like most insanity, complete meltdown. It is not going to be pretty. But then a pupa never is. The flutterby that emerges is.

What I hope for on the other side is that there will be no more "Money". Machines will have become sophisticated enough to do the drugery that we pay others to do for us. Hence we need money. We are making progress. It is my belief that when Quantum Computing hits the streets, we will have true magic.

Without capital there can be no capitalism. With freedom there can be no Communism. To do this painlessly we must expand. To expand we need the space elevator. For the Space Elevator we need to produce an endless carbon nano-tube. The future of humanity hangs by a fine thread.

We wont need 50 tonnes of rules from Congress to tell us how to cross the street. We will use empathy to set the standards. It will be obvious to everyone when the rules are broken.

We must sieze control of our Evolution. Random is not good enough.

We need to escape the pain that drives us to hurt others. We need introspection to identify the source of the discomfort. We must learn contentment. Lazyness and procrastination will become virtues.

Reading and writing will become a lost arcane art.

I am both a doomer and a cornucopian. Like a good joke, it is all in the timing.

Kunsler says that there is too much magic. I say that there is not enough.

Wizards Rule,OK?

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Thanks for this Arthur, I

Thanks for this Arthur, I enjoy very much attempting to understand. I go real simple Arthur, three squares and a bunk for all, and the bully's have to take a 'time out'.

Ahmadinejad giving a speech at the UN!? Really? On Yon Kippur?! What!?

Who cares, like we have no idea on the other 364 days what this fool thinks. He's a bug in search of a windshield (Mauldin), and he has very little time before his irrelevance becomes a self fulfilling prophecy. The world cannot be this mad, can it?

I like colors Arthur because the Black and White has failed miserably. Truthfully now Arthur, the colors have NO OFFICIAL MEANING! It is why I like the colors. Interpret as you wish. So I go with Character, Love, and Family. My colors, my family mantra.

You can add 'walk softly but carry a BIG ASS stick' or train a really BIG Rottweiler just in case someone disturbs your soliloquy or has a need to harm your/my Lady. That just can't be.

Have a great day

Gooooo Tigers

BOB

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Inflation and Deflation
cmartenson wrote:

Which will it be?  The answer will continue to be 'yes.'

 

With two different types of money, we can expect two different types of "flation." 

Things that are purchased with credit will experience deflation as credit is destroyed.  Things like cars, houses, colledge educations, and gold exposure will fall in price.

Things that are purchased with cash will experience inflation as cash is printed.  Things like food, energy, land, and gold bullion.

In a deleveraging, credit is destroyed and cash is created. 

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macro2682 wrote: cmartenson
macro2682 wrote:
cmartenson wrote:

Which will it be?  The answer will continue to be 'yes.'

 

colledge

Irony...

Chris... Put a damn spell check on this form!

 

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change the rules!!

deflation can happen and it is what SHOULD happen....but it will not happen because all failing assets will be bought with newly printed cash and the bill will be sent to the users of the dollar in the form of inflation and higher taxes. This new cash is the food of hyperinflation. This has always been the plan (among those who understand the life cycle of a fiat currency and it's interaction with human behavior.)

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Millisecond trade data

You can't get ALL trade data on a millisecond (300 light metres) time scale even for North America due to the Toronto to New York distance for many dual listings, but I know what you mean and there are many companies selling their "co-location" services.

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