More evidence of Deflation

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More evidence of Deflation

From July 2008 to July 2009, prices for finished goods fell 6.8 percent, the index for intermediate goods decreased 15.1 percent, and crude goods prices dropped 44.8 percent, all of which are record 12 month declines.

The consumer price index is down 2.1% year over year.

The Federal Government current receipts are down negative 10+%; the rate of fall has not been this great in almost 60 years.

Federal tax receipts on corporate income is down 40+% year over year; not since 1930 has the collapse been this great.

State and local government sales tax receipts are negative for the first time since the beginning of World War II.

Corporate profits after tax have experienced the most severe collapse in history.

Net corporate dividends again have an historic collapse.

Compensation of employees wages and salaries accruals - go back to 1949 to find the same level!

Personal income is negative 2.5%, as is disposable personal income year over year.

Personal consumption expenditures continue to dive off the cliff, as does personal consumption for durable goods.

Total personal consumption expenditures is negative for the first time in modern history!

Final sales to domestic purchasers, negative for the first time in modern history!

Final sales of domestic products is, you guessed it, negative for the first time in modern history.

Personal savings rate continues to skyrocket, now approaching $600 billion, as the general populace continues to deleverage at a feverish pace.

Now, speaking just for myself, I DO NOT see any indication of inflation being present in the above statistics and facts.

What I do see is the start of a wage/price deflation spiral.

http://seekingalpha.com/article/157021-more-evidence-of-deflation

 Lots of good comments on this article.......

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Re: More evidence of Deflation

You might want to peek at Schiff's video and commidity prices. Also, CPI backs out what we can't - gas and food. Also, what a lot of "Deflationists" might not be watching is that while government revenues are cliff diving their outlays are on a trajectory for Saturn. This spells insolvency.

What few get is that we are broke. Our dollar is worthless. When people wake up to this like they woke up to the housing bubble there is going to be one heck of a collective "Oh sh*!"

This comes from the inability to understand what inflation and deflation is. Both pertain to supply and demand and both pertain to the size on the money supply. 

Please don't be fooled by velocity. Printing what creditors refuse to loan creates a worthless dollar. Welcome to the United States of Zimbabwe presided over by president MugObama.

Take care

 

Peter Schiff on Warren Buffett (Video, H/T iDoctor)

 

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Re: More evidence of Deflation

Kiss deflation bah bye. The only de-anything is going to be a de-valued dollar.

 

*U.S. TREASURY TO AUCTION $27 BILLION IN 52-WEEK BILLS
*U.S. TREASURY TO AUCTION $42 BILLION IN TWO-YEAR NOTES
*U.S. TREASURY TO AUCTION $31 BILLION IN THREE-MONTH BILLS
*U.S. TREASURY TO AUCTION $28 BILLION IN SEVEN-YEAR NOTES
*U.S. TREASURY TO AUCTION $30 BILLION IN SIX-MONTH BILLS
*U.S. TREASURY TO AUCTION $39 BILLION IN FIVE-YEAR NOTES

This is the price of supporting the grift and fraud in our banking system.

I count $207 billion, coming two weeks after a $250 billion dollar week.

Let's annualize - that would be about $5 trillion a year in annualized issuance.  My-oh-my how long can this continue?

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Re: More evidence of Deflation

Davos, I know our dollar is worthless.  The bigger problem--so is our economy--we're insolvent with never-before-seen levels of debt hovering overhead.  For some reason inflationists are ignoring the impact of that in the medium term.  Schiff knows we're insolvent but then ignores it when he considers the inflation/deflation debate.  Nothing is worth investing in on a fundamental basis, no loans will be made, capital will continue its bias toward risk aversion.  We are seeing a lot of primary dealers buying up this US debt.  What does one think is coming if primary dealers are parking their cash (the most productive cash in the world) in massive amounts in US debt that pays pretty much zero?  They're doing precisely what Prechter is saying--fighting for the safest dollars they can while the little people are fooled back into equities/commodities markets.  

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Re: More evidence of Deflation
strabes wrote:

Davos, I know our dollar is worthless.  The bigger problem--so is our economy--we're insolvent with never-before-seen levels of debt hovering overhead.  For some reason inflationists are ignoring the impact of that in the medium term.  Schiff knows we're insolvent but then ignores it when he considers the inflation/deflation debate.  Nothing is worth investing in on a fundamental basis, no loans will be made, capital will continue its bias toward risk aversion.  We are seeing a lot of primary dealers buying up this US debt.  What does one think is coming if primary dealers are parking their cash (the most productive cash in the world) in massive amounts in US debt that pays pretty much zero?  They're doing precisely what Prechter is saying--fighting for the safest dollars they can while the little people are fooled back into equities/commodities markets.  

From reading about other currency crises one thing is apparent: There is a long wait and then everyone is always surprised at how fast the collapse takes hold. I have yet to read about one controlled crash that didn't end in a crash.

I do not think the USD is the "safest" dollar, nor do I think any dollar will be left unschathed.

Folks invested in the Mexican CD's to get higher interest rates. Their president insisted they would not devalue the dollar on Monday. On Monday afternoon he devalued it and the folks in the US who had 100k woke up Tursday with 50k. In addition to that, what we have going on is a multi trillion dollar deficit forming. The BRICs can devalue our dollar for us. China is buying hard assets, not fiat currencies.

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Re: More evidence of Deflation

Davos,

In another thread (similar topic), you said you just "did not buy it" - referring to the deflation standpoint.  That's the problem - nobody is buying.  Here's a post from Mish today:

http://globaleconomicanalysis.blogspot.com/2009/08/belief-in-wizards-runs-deep.html

Belief In Wizards Runs Deep

In response to Misguided Worries About Inflation I received an email from "GR" telling me "The deflation metaphor is not playing out. Every month the things I consume go up in price."

He pointed numerous price increases, including gasoline, up a nickel in a week.

It gets especially insightful at the very end.

I understand and agree we are all screwed in the long run.  However, exploding Treasury debt issuance and dollar-aversion are not going to be enough to counter the massive amount of credit destruction that has already occured, not to mention what's left to be destroyed.  Further debt issuance by Uncle Sam will completely collapse the economy with ever-increasing burdens, but that does not necessarilly mean the dollar will collapse.  Our economy could stay in the woodshed for some time and the dollar could continue to function relatively unimpared.  That's what's happened in Japan for 20 years.

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Re: More evidence of Deflation

Hello FarmerBrown:

You and Mish and 99% of everyone else may be right and I could very well be wrong. Time will tell. I don't buy into the Keynesian "Economics". I'm certain asset prices will tank on anything non-essential.

I do thnk the dollar is toast and when it turns crisp I think we are going to see Zimbabwe inflation until they issue a new one.

Hope all is well, take care

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Re: More evidence of Deflation

Good article Farmer.  Yes the key is at the end...we will not get the type of hyperinflation people talk about, yet, because it's against the interests of the Fed and the banks.  I've said this many times to no avail (perhaps my tone hasn't been right!) but the Fed and the cartel own our economic system.  They will not kill themselves in the hopes of saving us.  They will not, yet, engage in the type of money printing people are worried about. They aren't interested in saving the people or giving us purchasing power because that hurts the banks.  They are interested in saving the banks in fact by TAKING purchasing power from the people, i.e. making the government steal from us and hand it over to them.  

An important word was 'yet.'  I think we will get hyperinflation eventually through 1 of these 2 paths:  1) the oligarchs lose control as the dollar collapses naturally, bringing them down in the process.  2) once the financial oligarchs have made the necessary adjustments to get ready to milk the China machine for the next 100 years (all the Wall St firms are ramping up big time there), an end game could be put in place in the US where we could see the type of hyperinflation people are worried about as they mop up the US after it has been milked to the last drop.  #1 is a natural process. #2 is based on an understanding of how pyramid builders work, i.e. some would call it "conspiracy."  

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Re: More evidence of Deflation
Davos wrote:

Hello FarmerBrown:

You and Mish and 99% of everyone else may be right and I could very well be wrong. Time will tell. I don't buy into the Keynesian "Economics". I'm certain asset prices will tank on anything non-essential.

I do thnk the dollar is toast and when it turns crisp I think we are going to see Zimbabwe inflation until they issue a new one.

Hope all is well, take care

Davos, I love your certainty and focus!  I wish I could be that sure of either (or any) outcome.  For now, I'm sticking with what the evidence tells me, even though I know your outcome could materialize rather rapidly. 

Good grief!  I feel like we're on a raft about to fall down niagara falls!  We've each got out own theories - "the raft will hold", "it doesn't matter if it holds, we'll all drown"; "the rocks will kill us!"; "we'll die of shock before we hit bottom"; "others have done this and come out ok". 

Well, I guess it's not that bad - it's just an analogy.  See you on the other side.  ;)

 

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Re: More evidence of Deflation

The only way we'll have Zimbabwe style hyper inflation is if the bankers decide to raise the intrest rates to 800% (what they are in zimbabwe) and continue to loan us 'money'.

If you want to stop that from happening to your country, your children, and your neighbors, or even yourself, you're going to have to pass laws that wake away the control and the issuance over 100% of the nations money supply.

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Re: More evidence of Deflation
Farmer Brown wrote:
Davos wrote:

Hello FarmerBrown:

You and Mish and 99% of everyone else may be right and I could very well be wrong. Time will tell. I don't buy into the Keynesian "Economics". I'm certain asset prices will tank on anything non-essential.

I do thnk the dollar is toast and when it turns crisp I think we are going to see Zimbabwe inflation until they issue a new one.

Hope all is well, take care

Davos, I love your certainty and focus!  I wish I could be that sure of either (or any) outcome.  For now, I'm sticking with what the evidence tells me, even though I know your outcome could materialize rather rapidly. 

Good grief!  I feel like we're on a raft about to fall down niagara falls!  We've each got out own theories - "the raft will hold", "it doesn't matter if it holds, we'll all drown"; "the rocks will kill us!"; "we'll die of shock before we hit bottom"; "others have done this and come out ok". 

Well, I guess it's not that bad - it's just an analogy.  See you on the other side.  ;)

 

Hello FarmerBrown:

See you on the other side and if I'm wrong beers on me! I'm only resolute and convicted because I think Keynesian economics is hogwash. Take care

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Re: More evidence of Deflation
Thomas Hedin wrote:

The only way we'll have Zimbabwe style hyper inflation is if the bankers decide to raise the intrest rates to 800% (what they are in zimbabwe) and continue to loan us 'money'.

If you want to stop that from happening to your country, your children, and your neighbors, or even yourself, you're going to have to pass laws that wake away the control and the issuance over 100% of the nations money supply.

Hello Thomas:

That would certainly be one way. Brazil, Russia, India and China could also form a new reserve currency - that would be another.

The deficit that Bernake is loaning into existance could do it.

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Re: More evidence of Deflation

Davos, given your outlook, how do you plan to protect/invest your capital? 100% PMs? Thanks in advanced.

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Re: More evidence of Deflation

duplicated 

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Re: More evidence of Deflation
JAG wrote:

Davos, given your outlook, how do you plan to protect/invest your capital? 100% PMs? Thanks in advanced.

PMs are one way. Little to no debt is another. Necessary assets (food, clothing) is yet another.

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Re: More evidence of Deflation

 

Thomas Hedin wrote:

 

The only way we'll have Zimbabwe style hyper inflation is if the bankers decide to raise the intrest rates to 800% (what they are in zimbabwe) and continue to loan us 'money'.

If you want to stop that from happening to your country, your children, and your neighbors, or even yourself, you're going to have to pass laws that wake away the control and the issuance over 100% of the nations money supply.

 

 

Hello Thomas:

That would certainly be one way. Brazil, Russia, India and China could also form a new reserve currency - that would be another.

The deficit that Bernake is loaning into existance could do it.

Davos would you be willing to join in on a tele-conference?

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Re: More evidence of Deflation

Hello FarmerBrown:

See you on the other side and if I'm wrong beers on me! I'm only resolute and convicted because I think Keynesian economics is hogwash. Take care

Hi Davos,

Here's yet another argument for deflation from Nate's blog.  Now if you end up being right, I'll end up owing you much more than a couple of beers because at this point, I think you deserve odds!  I'm not sure how thinking Keynesianism is hogwash factors into this.  I think it's worse than hogwash but still reach a different conclusion.   

David Rosenberg on... DEflation

It would seem to me that Rosenberg is viewing the current situation pretty clearly… here are some snippets I took from his most recent interview (ht Ozzy):

Rosie On Inflation

We have said often that just as society couldn't spell ‘inflation’ in 1937, it has no clue what causes deflation now. That's beginning to change in the aftermath of the housing and credit collapse, but try to explain the deflationary forces contained in debt liquidation or global manufacturing over capacity or a socio-economic trend towards savings, and the notion of ‘deflation’ gets fuzzy for most thinkers (even Warren Buffet). That doesn't change the fact that the deflationary forces are enormous (and current) and the policy-induced reflationary forces are a partial antidote.

…To repeat — three variables: rents, wages and credit — will ultimately determine the trend in inflation. Down, in other words. If you are not yet convinced of that in the consumer arena deflation remains the primary intermediate-term risk, then go the article on page B8 of the WSJ and see if that changes your mind — discount coupon redemptions are up nearly 20% this year (Club Stores Accepting Coupons: Sam’s Club Joins BJ’s, Costco in Issuing Discount Chits to Members).

…We should probably add here that even though the moves by the Fed have provided ample liquidity, they have not stopped the underlying fundamentals from deteriorating — see Corporate Bond Defaults Hit Record on page 19 of the FT. (S&P just reported that 201 companies with $453 billion of debt have defaulted this year, exceeding the entire tally of 126 defaults covering $433bln in ALL of 2008). The 12-month speculative-grade corporate default rate has risen to 8.58%, as of July, from 8.25% in June (the rating agency is forecasting that the default rate will rise to 14.3% by the first quarter of 2010, taking out the prior record of 12.54% set in July 1991).

…From our lens, there is always a catalyst or a spark for the next economic expansion and bull market. In 2003, it was leverage and a housing boom. What is it today? Cash for clunkers? Digitized medical technology? Chinese consumption? Government incursion into the economy and capital market? Perhaps we should also recognize that heading into the post-recession environment of 1991, there was a tailwind from sub $20/bbl oil; and heading into the 2003 rebound, we had sub $30/bbl oil; so it may pay to ask the question as to how $70+ oil is going to play in the recovery, unless we are talking about recoveries in Saudi Arabia, Qatar and the UAE?

"To repeat — three variables: rents, wages and credit — will ultimately determine the trend in inflation. Down, in other words."http://economicedge.blogspot.com/2009/08/david-rosenberg-on-inflation.html

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Re: More evidence of Deflation

There was another deflation-thread on the forum, where deflation-statistics from Germany were mentioned, figured I'd take a stab at that......

A very important thing to note is the fact that deflation outside the US is nothing unusual in this situation.

What's going on is decoupling, the world is letting go of the US, and as that happens, the purchasing power of the US is going to spread to the rest of the world. Thus there will be inflation in the US, as there is deflation in the rest of the world.

Considering that Germany is a productive nation, plenty of factories, etc, and that the US is a black consumption-hole in the ground, one can easily picture the two countries as being complete opposites of eachother, and as decoupling happens, purchasingpower leaves the unproductive country, and reappears in the productive country.

So while there's deflation in Germany, there's inflation in the US. The fact that there's deflation in Germany pretty much proves that there's inflation in the US.
As Schiff said, the government spectrum is distortive. Eventually I think the dollar is going to fall faster than financial gravity can pull it, although it could still be a while.

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Re: More evidence of Deflation
Farmer Brown wrote:

 

 

Hi Davos,

Here's yet another argument for deflation from Nate's blog.  Now if you end up being right, I'll end up owing you much more than a couple of beers because at this point, I think you deserve odds!  I'm not sure how thinking Keynesianism is hogwash factors into this.  I think it's worse than hogwash but still reach a different conclusion.   

"To repeat — three variables: rents, wages and credit — will ultimately determine the trend in inflation. Down, in other words."http://economicedge.blogspot.com/2009/08/david-rosenberg-on-inflation.html

 

 

Hello FarmerBrown:

Well, if I'm wrong then the beer will be CHEAP! Don't worry about the odds, if I'm right beer is going to be expensive!

Keynesian economics changed inflation to an asset sided definition. I don't agree. In fact I think they are flat out wrong. I think prices are effected by supply and demand of the asset and of the supply and demand of the money. Zimbabwe had a lot of money. The amounts are akin to where Ben is headed.

I'm not argueing all the experts like Mish and these super articles. I think they have merit. 

But the bottom line I look at this as a pregnancy, you are, or you aren't, so I'm parking my but in the inflation camp.

What I'm driving at is: I just think the vast majority aren't watching the currency when they utter hyperinflation becuase they have the Keynesian definition that inflation is high asset prices. It isn't. That is flat out wrong. Hyperinflation is the result of a destroyed dollar.

I think it [the devalued USD] is going to strike like a theif in the night and cause hyperinflation.

My hope, and I know I'm stupid for thinking this, is that this is the plan and that is why they are driving at nutty things we can't afford. Cap and Tax etc... So if they say okay, new dollar is here without much suffering/elapsed time I'll know this was the plan. If they dork it up like they dorked up Katrina then I'll know they are just plain st*pid

Take care

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Re: More evidence of Deflation

Corporate Insider Selling Is An
Extremely Bearish 17 Times Normal

http://www.financialsense.com/editorials/bronson/2009/0819.html

 

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Re: More evidence of Deflation

Hi guys

I have what is probably a really stupid question, but I'll ask it anyway.  When markets go down, that is spoken of as destruction of wealth.  In my mind that means destruction of cash.  Poof, it goes away, not to someone's pocket, just away. It no longer exists. 

OTOH, we are seeing massive printing of money.  That is normally seen as inflationary.  But, and this is the question, do those two phenomena cancel each other out in terms of the amount of cash out there in circulation.  If my speculation has any merit, the crash in markets and printing of money would effectively be a transfer of private wealth to public debt, but not (assuming both sides are equal) a change in the amount of cash out there.  Therefore, no inflationary pressure.

OK, rip me apart, I'm ready for it.Sealed

doug

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Re: More evidence of Deflation

FB,  

The market doesn't seem to be agreeing with our deflation hypothesis. And the dollar is retesting the 78 support level. Would someone please inform the markets of our grand plan and ask them to please conform to our expectations. Thank youFoot in mouth

Davos,

Is there still room on your bandwagon? :)

Doug,

I think deflation has more correlation with the credit markets (i.e. the destruction of credit money) than the stock market, at least initially. There is a ginormous pile of credit (debt) out there that can't possibly be paid back, so the only logical conclusion is that it must be defaulted on and written off the books. This process, like you stated, removes many electronic zeros (decimal points) from the economy's ledger. Meanwhile back at the ranch, the Fed is very busy adding zeros to the bank's books. The only problem is, the banks are bleeding out, and the Fed's I.V. can't keep up with the loss of decimal points on the bottomline of these banks. So the sum total of this equation looks like this:

No Credit Creation=No Inflation Creation

Obviously, the markets are their own beasts, and are not directly correlated to the economy. The name of the game in this arena, is how do I get you to give me your money and nothing else. But with less credit-money being created in the banking system, the market players have less and less chips to bring to the table. Eventually, the big boys (aka smart money) will cash out and look for another game, taking the pot with them.

 

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Re: More evidence of Deflation
JAG wrote:

FB,  

The market doesn't seem to be agreeing with our deflation hypothesis. And the dollar is retesting the 78 support level. Would someone please inform the markets of our grand plan and ask them to please conform to our expectations. Thank youFoot in mouth

Ouch - right you are!  I'm on the receiving end of the "the market can stay irrational longer than you can remain solvent" paddle spanking. 

Volatility is nuts.  Gold and the $ charts look like Richter scale logs if placed on a very old and clunky washing machine.

That volatility and the low volume tell me something is about to crrraaaaaack.  Of course, that's just me trying to be "rational" while those piranhas continue to knaw at nothing but bone at this point.  Fortunately, all the nerves were eaten long ago. Yell

 

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Re: More evidence of Deflation

No Worries FB,

This is more than likely the final short squeeze. after which, traders will probably be facing this:

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Re: More evidence of Deflation

Looks more like Ben Bernake's kid holding onto our dollar. Which by the way spells the i word. Sealed

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Re: More evidence of Deflation

The Great Deleveraging, Part I & II

http://seekingalpha.com/article/157641-the-great-deleveraging-part-i

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Re: More evidence of Deflation

The deflation should remain confined to credit sensitive items. Things you need or want on a day to day basis have to increase. The Panera Bread  article linked below provides an example of how companies will restructure in the future. As it becomes ever more apparent that  discounting their way out of this kind of crisis is futile,businesses will raise their prices, across the board. This includes the big box stores. As govt attempts to strengthen a weakening dollar and control the price of essential commodities, it will likely raise interest rates, and businesses will have to hike prices to cover their costs of borrowing. This could easily offset any gains they may achieve if essential commodities drop in price.

 

http://www.bizjournals.com/dayton/stories/2009/08/17/daily25.html

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