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Is the U.S. experiencing inflation or deflation?

PostPosted: 24 Jul 2008, 22:54
by mxsquid
Click below to play the audio presentation of the story from the Ludwig Von Mises Institute

Inflation Deflation Red-flation Blue-flation

Daily Article by Matthew Beller | Posted on 7/24/2008

A debate has been raging for some time among those in the finance industry about whether the United States is currently experiencing inflation, deflation, stagflation, reflation, hyperinflation, or maybe even some other sort of "-flation" that only Dr. Seuss could imagine.

Unfortunately, much of this debate is unproductive because the participants use varying definitions of these terms, and even when they use the same ones, deciding on one simple label might not be sufficient to describe the deeper economic forces at work and what their effects are likely to be. Given the confusion, this article will add some color to the debate by offering usable definitions of the terms inflation and deflation and then attempt to show what is occurring in today's economy.

What Is Inflation?

The most commonly used definition of inflation — a general increase in the prices of goods and services — is probably the least descriptive, and it is certainly the most misleading. By no coincidence, this is the definition used by politicians, major financial newspaper columnists, and CNBC pundits; and it is the one taught in public high schools and colleges. The reason that this definition is misleading is because, as described in a recent article, it detaches the cause of the phenomenon (an increase in the money supply) from its eventual effects (an increase in the prices of goods and services).

Furthermore, use of this definition also leads to such ridiculous terms as "food inflation" to describe price increases in a few specific agricultural commodities. The absurdity of this notion can be seen when one realizes that nobody ever complains of "stock inflation" or "housing inflation" and that no economics textbook contains a case study that explains how monetary policy caused "Beanie Baby inflation" from 1995 to 1999.

If we agree with Milton Friedman's famous dictum that "inflation is always and everywhere a monetary phenomenon," then we should adopt a definition that explicitly acknowledges this point. Prominent Austrian economists such as Ludwig von Mises, Henry Hazlitt, and Murray Rothbard have presented definitions that vary slightly from one another, but one aspect common to all of them is an increase in the money supply.[1] Accordingly, I will adopt that simple definition. Deflation will be defined conversely as a decrease in the money supply. In order for these definitions to be meaningful, however, one must also have a precise definition of money.

The original story here:

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 27 Jul 2008, 18:07
by mxsquid
Ron Paul on the Alex Jones Show 7/24/08:"End of The Dollar"

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 25 Aug 2008, 20:49
by mxsquid
The always excellent Jim Sinclair weighs in.


Dear Friends,

Part of my attempt to serve is to be barraged with every opinion from every chat site and blog that presents arguments against gold.

The most popular one now starts off sounding reasonable. It states that crude will trade down between $110 and $85, making inflationary expectations fall and as a result the trade deficit will decline making the dollar rise and therefore commodities fall. This will raise consumer expectations that will then increase spending, making the dollar rise.

The following is missing:

1. Deflation is assumed here to mean the falling cost of living. Deflation is the failure of debt. That looks toward the OTC derivative meltdown and the ongoing collapses occurring now in financial entities that require liquidity increases through rescues that use public money. Increased liquidity results in an increased cost of living regardless of economic conditions. That is an economic axiom.

2. The assumption many have that Gold is not a currency speaks to their eyesight and poor memory. It stares you in the face every day if you look.

3. The US is the MAJOR manufacturer and exporter of OTC derivatives. Should any side of the specific performance contract fail, the failure potential of the counter party is extremely high. That is quite dollar negative.

4. There is a desire worldwide for central bank diversification out of the US dollar, which is unlikely to change.

5. Central banks have already indicated they will cease buying US agencies, which is TIC negative and therefore dollar negative.

6. There is no consideration of an explosion in the Federal Budget deficit that will eclipse any improvement in the US Trade deficit that is always looked at in comparison to TIC. It is certain to drop faster that the trade deficit drops, therefore making the Trade Deficit drop meaningless.

7. This coming and present crisis is from a lockup of the credit system that is emerging from the meltdown of OTC derivatives. Consumers hold too much debt and are on the ropes. You would first need one hell of a recovery in housing to reinstate home equity and a major unlock of the credit market before consumers see any light at the end of their bankruptcy tunnel. Consumers being gleeful in this crisis at any point are simply NOT GOING TO HAPPEN.

8. Consumers picking up the dollar is an interesting view because internal consumer glee means nothing to foreign exchange except as it impacts expectations of a US recovery in the middle of what the writer says will be the Great Greater Depression. That scenario defies logic.

9. In the same argument the writer says the US economy slows, so where does the gleeful consumer fit in? The answer to that question is they don’t

10. The writer feels the Trade Balance stands alone and will, by contraction, move the dollar. The trade deficit, whether or not covered by the TIC report, is what the Trade Balance is all about.

11. This argument has, along with the totally non-existent yet still popular “Synthetic Dollar Short,” many of you angry with me. That is ok and deserved, as you are as good as your last call, but the arguments you now base that on are totally wrong in both instances.

12. The Bush Administration will do what they did the last time the "D" word was used as recorded below. That was totally dollar negative long term. Should Obama win, his administration would invent social approaches to money and business that the Bush and Roosevelt administration never heard of. These approaches will without any doubt be long-term dollar negative ... _ARID=6612

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 27 Aug 2008, 02:45
by mxsquid
Frank Barbera weighs in on U.S. currency debasement seems clear that the US Government has set itself upon a course of unlimited damage control. Institutions will continue to fail in the coming year, and Uncle Sam appears ready to step up with his giant tube of crazy glue, intent on making sure that nothing falls apart. It is likely a self-defeating course of action, as bail-out after bail-out will require a steady stream of new digital money. Monetary inflation is the likely end game result.

In the process, confidence is likely to steadily erode and with it, the purchasing power of the Dollar. While many are currently proclaiming a new Dollar bull, we see nothing in the current fundamental monetary climate that would justify such an outcome. While all markets are given to periodic recovery swings and regular counter-trend movements, in order for a secular trend to alter course, there needs to be a solid fundamental under-pinning, which in the case of the Dollar is entirely absent. For the Dollar, large Current account deficits remain, and now, the Federal Deficit is once again running out of control, poised to hit records in the years ahead. It is likely, ultimately, this concern about the ability of the US government to fund its many obligations which will start trouble in the Current Account and a more aggressive period of foreign Dollar diversification. For those who missed it, Fed Governor Richard Fisher of the Dallas Fed, presented a lot of the grim statistics in a speech he made back in late May. Hearing this from those in the so-called ‘lunatic fringe’ is one thing, but hearing it from a Fed governor is quite another. ‘Clarity,’ potentially straight from the horses-mouth. I might add that this speech was given before Fannie Mae and Freddie Mac ran into real trouble, an outcome that now threatens to place an additional 5 Trillion dollars of mortgages and mortgage guarantees onto the back of US tax payers.

Let’s say you and I and ... every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income. Clearly, once-and-for-all contributions would be an unbearable burden. Alternatively, we could address the entitlement shortfall through policy changes that would affect ourselves and future generations. For example, a permanent 68 percent increase in federal income tax revenue—from individual and corporate taxpayers—would suffice to fully fund our entitlement programs. Or we could instead divert 68 percent of current income-tax revenues from their intended uses to the entitlement system, which would accomplish the same thing.

Suppose we decided to tackle the issue solely on the spending side. It turns out that total discretionary spending in the federal budget, if maintained at its current share of GDP in perpetuity, is 3 percent larger than the entitlement shortfall. So all we would have to do to fully fund our nation’s entitlement programs would be to cut discretionary spending by 97 percent. But hold on. That discretionary spending includes defense and national security, education, the environment and many other areas, not just those controversial earmarks that make the evening news. All of them would have to be cut—almost eliminated, really—to tackle this problem through discretionary spending. Discretionary spending would have to be reduced by 97 percent not only for our generation, but for our children and their children and every generation of children to come. And similarly on the taxation side, income tax revenue would have to rise 68 percent and remain that high forever. Remember, though, I said tax revenue, not tax rates. Who knows how much individual and corporate tax rates would have to change to increase revenue by 68 percent?

If these possible solutions to the unfunded-liability problems, throughout history, many nations, when confronted by sizable debts they were unable or unwilling to repay, have seized upon an apparently painless solution to this dilemma: monetization. Just have the monetary authority run cash off the printing presses until the debt is repaid, the story goes, then promise to be responsible from that point on and hope your sins will be forgiven by God and Milton Friedman and everyone else. We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid. If these measures seem draconian, it’s because they are draconian.” ... /0826.html

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 29 Nov 2008, 21:06
by mxsquid
Now what does Jim Willie really think?

Be sure not to miss the spectacular conjunction of planets and the moon in the southwest sky, over the next few days. The opportunity is for those in the Northern Hemisphere, sorry Australians and New Zealanders. Venus will converge with Jupiter, seen in nearly equal magnitude of brightness. When they are close in a few more days, the moon will enter the picture as a crescent in a spectacular display. For the description of the highly unusual event, check the NASA website (CLICK BELOW). One could regard this event as another omen for a COMEX gold default, a stretch, but a legitimate one.

Ethereal NASA pics of Moon, Venus, Jupiter Conjunction on my JPL Board

From whimsical to seething outrage

The contained messages are four-fold:

* ABSOLUTE CONTAGION: the global economy is suffering from broadly felt toxic shock due to US bonds, a process that has a few more quarters of severe crisis pathogenesis

* POLICY EXTORTION: the major and secondary CB heads want to cut so that the US$ does not fall, coerced with a monetary gun at their heads

* INFLATION EXPLOSION: global monetary growth has gone ballistic, no longer a priority to control, with all talk about limiting price inflation relegated to mumbling in the corner

* ENDLESS RESCUES & BAILOUTS: the government sponsored bailouts are nowhere near finished, sure to be an endless parade of patchwork and stimulus with eventual climax of mortgage aid.

Just think of it. The USGovt, after a coup d'etat pulled off by Wall Street and fraudulent climax diversion of TARP funds, has yet to address the mortgage problem at all. Mortgage aid in meaningful and necessary terms is actively avoided, since it must come with a price tag up to $2000 billion in the United States alone. The nationalization of the US banking, if not financial system, is highly likely to be followed by an eventual virtual nationalization of the entire mortgage system. Such a decision and desperate socialist action will be the death knell for the USDollar, if it survives to the point when such a program is enacted.

The unbridled monetary inflation is a powerful bull market signal for gold, once asset prices stabilize. Monetary explosion always pushes gold upward in price, but this time much money is directed into a multi-channeled black hole. Today, yet another program was announced, finally to enable more lending capital to banks. They have been starved to date, drained in order to supply the corrupt Wall Street conmen in charge. The coordinated interest rate cuts reveal the strong impact of Competing Currency Devaluation. Foreigners wish to avoid further aggravation to their economies from even lower domestic currency exchange rates. They inflict higher prices upon their economies. Later, foreign governments will order their reserves and sovereign wealth funds to dump USTBonds in order to bolster their domestic currencies, the great counter-attack. The USEconomy has a worse problem to fix by an order of magnitude. My view is that the powerful US ailments are not fixable, since the financial engineering is too deeply rooted and the manufacturing industrial base has been removed in several stages over a 25-year period. Besides, the credit derivatives loom like a series of hidden bombs whose fuses intersect in the dark.


Ignore for now the paper price heavy-handed influence, which in my view will suddenly disappear in a volcano of controversy and tumult! The US paper system has falsified the entire global pricing structure. Instead of price discovery, we have been subjected to price controls and tyranny. Next comes the counter-attack. ... 12508.html

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 06 Dec 2008, 14:50
by mxsquid
John Mauldin on Inflation, Deflation and the Velocity of Money

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 29 Jan 2009, 01:10
by mxsquid
The Future of Gold by Naufal Sanaullah

The historic wealth destruction of 2008 was obviously deflationary. Defaults strip away wealth. Institutions respond by selling assets to raise capital. Widespread deleveraging leads to supply expansion in assets and contraction in money and credit. Deflation.

Nevertheless, the response has been unprecedented in its own right. Government debt held by the public was $5.51 trillion when September began; by the end of 2008, it had risen to $6.37 trillion. The more than $1 trillion expansion in Treasury borrowing surely partially serves to offset the $438 billion budget deficit. But what about the additional half a trillion dollars?

On September 17, the Treasury announced the creation of the "Supplementary Financing Account" in the Federal Reserve. This is a capital reserve in the Fed financed by the Treasury selling new debt, but its excess capital is "trapped" and does not immediately reach currency in circulation. As of January 2, $259 billion is in this cash pool and $365 billion counting the Treasury's "General Account." The capital itself is money borrowed by the public, so its immediate net effect is deflationary.

On top of that, the Fed in an unprecedented gesture has started incentivizing excess bank-reserve deposits by issuing interest on these holdings, trapping liquidity. The Fed is essentially issuing debt, and banks are engaging in what amounts to a dollar-based Fed vs. interbank carry trade. Banks borrow money from the Fed, deposit it back into the Fed, and profit from the differential between the federal-funds and overnight rates. Less than $40 billion a year ago, the excess reserve deposits held by the Fed have ballooned to $860 billion. These deposits comprise another huge pool of excess liquidity on the Fed's balance sheet that doesn't immediately affect circulated currency.

Another Fed-induced cash trap has been in the form of increased reverse repurchase agreements, which are up to $88 billion. Reverse repurchase agreements are the offering of collateral in exchange for a cash loan. The Fed has utilized reverse repurchase agreements in its liquification of banks. It buys off toxic defaulting assets in exchange for cash and immediately reclaims the cash by selling the banks' T-bills. The Fed printed money to pay for these T-bills, so there is excess liquidity that is trapped in time-sensitive debt.

The Fed's risk transfer to the taxpayer is only worsened by its lack of transparency in doing so.......

Bernie Madoff is well recognized as the perpetrator of the biggest Ponzi scheme in history, at $50 billion. I beg to differ with that assessment. The United States has financed debt with debt since the late 1980s, when its external debt/GDP broke the 0 mark. Since then, it has risen to over 100% of its GDP (which in itself is quite artificially inflated because of manipulated hedonics-adjusted inflation figures), and now stands at $13 trillion. That is what's called a debt bubble. Bernie who?

But the debt bubble appears ready to collapse. The pyramid scheme is finally running out of investors, and many Treasury ETFs (like SHY, TLT, IEF, and IEI) are showing classic parabolic topping patterns and the next few weeks should confirm or deny my suspicions. Interest rates are at an obvious floor at zero, so there is nowhere to go but up. That means bond prices have nowhere to go but down, and the falling prices will cascade into more selling until the debt bubble deflates and all the spending is financed by quantitative easing. Judging by gold backwardation (discussed later) and the bearish charts on the bubbly debt ETFs, I think the debt monetization and dollar devaluation will begin within the next six weeks. The ProShares UltraShort Lehman 20+ Year Treasury Bond ETF (TBT) and ProShares UltraShort Lehman 7–10 Year Treasury Bond ETF (PST) are good ways to play this debt-market collapse.

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 05 Mar 2009, 10:27
by mxsquid

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 26 Mar 2010, 18:04
by mxsquid
The Ultimate Bubble, the case for Hyperinflation

Re: Is the U.S. experiencing inflation or deflation?

PostPosted: 10 Oct 2010, 13:18
by mxsquid
Meltup Documentary - InflationUS

Coming disaster in Social Security