Comments on: Lemmings Stoke Flight to ‘Quality’

By: Myke

Myke — Thu, 25 Jun 2009 14:07:46 +0000

I don’t have time to argue but all I really care about is what are the consequences for gold holdings in deflationary times?

By: Rich

Rich — Wed, 24 Jun 2009 23:41:24 +0000

Aloha All
The economy is contracting at depression rates (-12% the last three quarters) and the long bond made it up to 5.066% this month. The real cost of borrowing is the 17% spread.
When Volcker was Fed Chair, remember the Misery Index? Add 10.8% unemployment to the inflation rate and you had a new President.
The 1980 inflation rate hit 14.6%, T Bills 15.6% and the long bond made it up to 14% briefly. The real cost of borrowing was negative. Then RR reduced the tax rate from 70% plus a 2% Vietnam War surcharge to 28% and GDP peaked in 1984 with over 8% growth.
A different world, long ago and far away. That was inflation.
http://www.buyandhold.com/bh/en/education/history/2000/paul_volker2.html
We may be closer to 1929 to 1934 in USA or Russia from 1992 – 1999.
(The more government the longer the refractory period.)
Wait until transfer payments stop or taxes are hiked:
Defaults, depression, then desperation.
The scramble for cash, food, housing and survival.
This is deflation.
Regards from a Kamaina…

By: Robert

Robert — Wed, 24 Jun 2009 19:14:02 +0000

Rick, when you say “Rising real interest rates increase the real burden of debt” do you equate “real interest rates” with the published yields minus CPI? What is your metric for quantifying real interest rates?

Also, are you proposing that this effect (which you call deflationary) impacts the holders of existing fix rate debt, or only new borrowers or variable rate borrowers?

An interesting dynamic I am studying is the prospect that many underwater homeowners are going to invest all their cash equivalent assets into riskier investments in an attempt to create enough capital to pay cash for an equivalent house (at lower current market prices) and then they will simply walk away from their existing loan. I’m curious to see what effect this will have on the deflation/inflation argument as more home purchases will stabilize the housing market data while increasing loan defaults will de-stabilize the banks even further. Would such data be interpreted as good or bad for the economy?

By: GlennK

GlennK — Wed, 24 Jun 2009 15:26:11 +0000

I don’t get it either Rick? What your saying seems contradictory. How does rising rates = deflation again?

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Rising real interest rates increase the real burden of debt. That is the very crux of deflation as far as I’m concerned, and you should tune out all of the bozos who use money supply as their inflation/deflation metric if you want to be un-confused. RA

By: Larry

Larry — Wed, 24 Jun 2009 13:10:41 +0000

When I read (not from you and your follower’s) huge amount of negative thoughts on gold and silver, that combined with an historical positive bias going into the July 4 arena. I bought gold and silver stock’s yesterday for, at least a short term bounce into the first or second week of July.

By: Clark

Clark — Wed, 24 Jun 2009 11:48:54 +0000

rising % rates and deflation is the order of the day, I think it’s called stageflation; where things you don’t need go down in price and things you have to have go up in price, and we have to have credit so % rates go up, the dollar goes down, we are the new banana republice!
As John Law showed you can only crap so much paper before it becomes trash.

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Stagflation is what is NOT happening — nor can it, not even remotely so, since the forces in opposition are vastly too powerful to allow for a stasis. Deflation is winning by every metric I can think of — except at the grocery store. RA

By: sherry

sherry — Wed, 24 Jun 2009 11:42:26 +0000

I suppose you noticed Karl Denninger point out in ‘The Market Ticker’ two weeks ago Bernanke’s pulling of liquidity just before the market turned down. Seems karl also rang the bell on Sept 24 last year when Bernanke deliberately pulled 100 billion then. Seems they gotta get money into treasuries by draining the stockmarket. It’s staggering that the manipulation is so blatant and calculated.

By: Ben

Ben — Wed, 24 Jun 2009 07:33:50 +0000

Hello Mr Ackerman,

I always like it when you talk about deflation. Well… not REALLY, because the subject is always depressing, but you know what I mean! Anyway, I’ve come around to the “deflationist” school of thought, have been studying it for the past few months, but only truly began to understand it maybe a week ago. No particular reason, the tumblers just clicked!

But people talk about inflation, rising prices to the moon, “green shoots” and all that jazz. I just don’t see how they can, though. I mean, haven’t bubbles taught them anything yet? True, money supply has shot up but the trouble is is that it isn’t circulating. At the same time, credit is drying up like a (merely) damp sponge in the Death Valley high-noon Sun.

And yet I can see a relative meaning in the inflationist camp. I mean, what is the difference between a million dollar loaf of bread that you can’t afford vs ,say, a ten dollar loaf of bread that you can’t afford? Nothing, of course…. Neither is affordable!

Am I right?

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You are very right, Ben. Thank you for sparing me the effort of having to explain for the umpteenth time what you have observed, understood and explained so well yourself. RA

By: TC

TC — Wed, 24 Jun 2009 03:38:48 +0000

So you see deflation along with rising intrest rates… That does not make sense to me but maybe I am missing something.

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With public and private debtors in the worst shape ever, any increase in the real burden of debt IS deflation. RA