We took on the conventional wisdom of Gary North here yesterday because we are living in unconventional times. This isn’t the Eisenhower era, for sure, and we don’t expect the dire economic troubles that have come to dominate the news, if not yet our individual lives, to simply melt away over time. Not that North’s vision of the futures is all sunshine and lollipops. He has always been a persuasive doom-and-gloomer who has put his money where his mouth is. He ensconced himself in an exurban fortress in preparation for Y2K, equipping it with redundant utility backups that probably could have kept a small town’s lights burning and water running for months. And he is probably still doing immune-system calisthenics to ward off bird flu. (From what we know of this disease, which in China recently started to kill humans rather than birds, we would be the last to disparage North’s seemingly kooky dedication to preparedness.)
But on the question of inflation-or-deflation, one or both of which seem all but certain to play out in the years ahead, he is surprisingly non-alarmist. In fact, North is downright skeptical that a serious inflation or deflation lies ahead, even though a debt bubble aggregating into the hundreds of trillions of dollars is being precipitously unwound. We surmise that his reluctance to view this process with alarm stems from his faith, borne of years in academia, that the Fed is sufficiently in control of the money supply to ward off such extreme events as deflation or hyperinflation.
We quite agree that hyperinflation can be avoided, since it would require nothing less than a willful and determined political effort to trigger one off. Hyperinflations do not occur inadvertently, and to promote one would be tantamount to destroying savers as a class, as well as all of the institutional lenders who have received such tender, loving care since the collapse of Bear Stearns. Deflation, on the other hand, would never occur by design. It is a black hole in the financial system, and its presence is undetectable until the moment we realize we are caught in its gravitational field. And we are, although North, fixated on ultimately meaningless money supply figures, seems oblivious. Every business on the planet go could bankrupt tomorrow, and North would tell us only that bank reserves were unchanged – so, no deflation.
In the past, we have tried to make the case for deflation as clear and compelling as possible. We would have thought the effort unnecessary at this point, since deflation has been crushing asset values around the world for more than two years. But as long as there are guys around like North, and iTtulip’s stagflationist, Eric Janszen, there is work to be done. To that end, I invite you all to weigh in at the Rick’s Picks forum with your observations concerning the deflationary juggernaut. Earlier, we solicited comments from inflationists with the headline “Calling All Inflationists.” Now, it is time to bury them, so click here to add your comments at the bottom of this commentary. (And if you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)
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The year of 2009 started as how it ended in 2008. The inflation/deflation debate intensified and still there seems to be no agreement whether we’re heading into a deflationary or hyperinflationary depression.
I’ve stated many times that hyper inflation will be the tune of the day coming years. The deflationists can argue what they want but the simple truth is that the US government will default sooner or later on its inability to service its ballooning debt which makes the US dollar worthless overnight. This happened to the Reichsmark, this happened to the Zimbabwe dollar and this could happen to the US dollar. Once confidence gets into a steep decline foreign investors will dump their worthless dollar holdings which will translate itself into the death of the dollar.
Deflationists may argue that governments can’t keep up with printing money as fast as credit is being destroyed through means of weapons of financial mass destruction called derivatives so the net result would be deflation, yet they still miss the point that no government ever managed to create the strongest currency in the world by means of default. The US government is adding debt at the fastest pace ever but no one seems to be willing to take on that debt. The only alternative would be (and will be) to monetize that debt which will eventually lead to a confidence collapse for the dollar. Any currency facing a confidence collapse will eventually seek its intrinsic value which is zero. Needless to say what inflation figures would look like by then
a definition of inflation depends on whose school you claim
Keynes? Chicago? Austrian?
Defining Inflation
the essence of inflation is not a general rise in prices but an increase in the supply of money, which in turns sets in motion a general increase in the prices of goods and services.
http://mises.org/story/908
Joe, I posted the link to the article by Dr. Fekete that you are referring to further up in this comment thread.
I can recommend to anyone here, that they take a look at it.
Also, it would indeed be interesting to hear Rick’s comments about backwardation of a “commodity” such as gold, as distinct from one such as field crops.
as an avid reader of your articles (mostly on your deflation view), i was wondering if you have read prof. antal f. fekete (he has published on-line for years) his view has been all along that low interest rates (schiff got one thing right – NOT) causes deflation and not inflation, as they wipe out capital as some older bonds must be payed off early (he predicted zero treasury rates 5 years ago) prof fekete’s opinion over the long debate is that it has now been answered – we will have both at the same time via devolution of money, as ben’s new digital dollars do cannot drop from the helicopter and will not reach the people, while federal reserves notes (which you can fold) will be stored as real money (along with gold). i have not seen anyone bring up fekete’s theories in your on line debates, while i think he may have it correct. Nor have i seen anyone mention the gold basis (e.g. the december backwardization in the gold market) which according to fekete is the announcement of the end to fiat paper money should it continue (and it has continued in a wave type cycle as he predicted)
I haven’t seen any of Fekete’s work lately, but he has always been a provocative thinker. I’m sure the Forum could benefit from and appreciate any links you might post here to timely essays he has written.
Rick,
I would still contend that the word “deflation” is being used incorrectly but you do definitely have a point.
However, I believe it would be more accurate to frame it as:
Deflation = negative growth rate (-%) of the money supply *= an economically fatal increase in the real burden of debt
(*=) notation meaning: “can lead to”. In other words, you describe a possible (if not probable) symptom of deflation but not deflation itself.
While this may seem a bit anal-retentive semantically it is necessary to illustrate the two separate forces that are occurring–inflation and supply/demand. Right now, the supply/demand part of the equation is stronger, thus many asset classes appearing to “deflate” in value. House values are going down because there is too much supply (over-building) and decreasing demand (credit contraction–not to be confused with money contraction). Money is not being destroyed, it is merely moving into other sectors (massive liquidations/decoupling) and then not being used, sat on or shoved under the proverbial mattress thus not being available as loans or credit. The proof of this is simple: as pointed out previously the money supply at all levels is still increasing–it still has a positive growth rate.
This isn’t to say that deflation, were it actually to occur, cannot create symptoms similar to what we are seeing. It is simply that what we are seeing now is basic oversupply (labor, real estate, general mal investment due to artificially cheap money) causing a natural correction–a natural correction that goverment bureaucrats will do anything in their power, including running the printing presses at full tilt, to try and stop.
I say that money IS being destroyed, and I used the example of a money tree in one’s back yard to make the point. I see monetary reserves as irrelevant relative to a a collapse in derivatives VALUES that aggregate into the hundreds of trillions of dollars. Money as the Fed has defined it is irrelevant and misleading; it is only the supply of CREDIT that matters, and the COLLATERAL on which credit availability is predicated has collapsed in value.
IMHO the real hidden question is this important debate is whether the Fed/Gov/Bankers/Elite can control the future with their paper manipulations, — or whether some economic law or social force is inexorably leading the next (final?) stage — as in the Kondratief Winter which is going to be a monumental deflation – wiping out all the debt that can never be paid off — no matter how much worthless paper is printed — with more and more people gradually feeling the inevitable – no matter what the definitions are and which data one uses.
It will walk and quack, – and even the judge will know it when he sees it.
Rick Ackerman – Okay. But economically fatal to what extent? Mass extinguishment of bad credit seems like a curative process which makes for a better future. In fact, the US banking system has gone down several times in the past (particularly before 1900s) and we are still here. The big question is what folly the authorities are going to involve us in to keep themselves running the show and thereby putting us in a “never-ending” depression.
The definition that would make sense from the perspective you’re offering is “a universal increase in demand to hold money” … but eventually when things recover, prices will firm up, albeit in a sustainable pattern with some prices higher and some lower. That’s why I define “inflation” and “deflation” as a change in spendable funds, deposits plus cash, not as moves in the demand to hold money. Otherwise it conflates relative asset valuation changes, risky asset valuation changes, and time preference for inflation and deflation.
However, I see your point and a lot of people look at it that way (unfortunately a lot of people use that as an excuse for authorities to push money into the system). It seems we are seeing a mark-to-market of risky assets, and the counterpoint to that is the increase in demand to hold money as a safe asset. If that’s what you call deflation then we have it.
I note that should spendable funds shrink (cash plus deposits) and prices also fall (almost a certainty in that situation), then we would have deflation by any definition. My guess is, should the system expand the increase in reserves on the Fed’s balance sheet (795B as of Jan 29, 2009) into publicly spendable funds (like buying government bonds with reserves), it will be a massive increase which will be price inflationary unless that is fully offset by an increase in money demand (which it very likely wouldn’t be).
We are experiencing deflation as seem by the collapse in the price of homes, commodities, and stocks. However, the price of groceries have gone up supstantially since this so called deflation started. So it looks like we can have deflation in some things but inflation in others.
There are conflicting forces that could either result in deflation or inflation. The current deflation and job losses can easily become a downward spiral. However, as the government prints/borrows money to fight deflation it increases the chances of inflation later. Also, increasing world population and use of motor vehicles, plus the exhaustion of cheap oil and mineral deposits and pressure on food supplies would lead to inflation in these commodities eventually.
One thing is certain: the US government doesn’t have the resources to pay promised Social Security benefits or pay back foreign holders of Treasury bonds. Therefore, the government actually wants inflation so it can pay Social Security benefits and redeem bonds with dollars that are perhaps only worth ten cents in current purchasing power. I think the government will “fix” things so it gets what it wants. Or the world will see this coming and flee the US $ causing the same outcome.
Question for Rick A. please. If housing costs, commodities, the real cost of autos and durables, interest rates and the cost of financing and refinancing, the value of stocks, energy, all of the costs and expenses of running the economy, if everything gets cut roughly in half, what has changed? If velocity gets cut by half, if there is less frivolous spending and more saving is it necessarily a negative result????????Regards TKO
My previous post was in jest obviously.
I am glad Rick can at least see that it is possible that inflation will be the way this plays out.
For those of you who think it is impossible, like denninger and mish… One day the government could simply create 20 trillion and give it to the banks or send $50,000 checks to everyone. The money is backed by nothing and there is no limit to what they can create out of thin air.
So the answer to this question is impossible. It is about if you think the government is going to do too much (inflation) or not enough (deflation)
It is my intention to show that:
1) The term “deflation” is being used incorrectly
2) Prior to 2001, we have not experienced true deflation since 1960.
3) These findings are based on the most conservative value of our monetary base–the M0
4) The above three points are a summary of another article that explains why we are nowhere near deflation in the real sense and is not based on my personal findings (links below)
5) While we may not be in a hyperinflationary crisis right now (it is up to you to decide whether you believe we are headed there–I do), we are in no way, shape or form in a deflationary period. Not even close.
Before I even begin, let’s check out the dictionary to make sure that we are on the same page as far as definitions:
<blockquote cite=”Economics. a fall in the general price level or a contraction of credit and available money”>
Emphasis added. What is the “general” price level? Well, what is generally used as a means of exchange…money, silly! Deflation is purely a monetary phenomenon.
Let me state that again so you don’t miss it: Deflation is a purely monetary phenomenon. If the value of your house goes down or the price of gas goes down that is not “deflation”–that is basic supply/demand economics 101. If the money supply did not change, there is no deflation, no matter how prices otherwise change within the economy.
So what has been happening to the money supply? Well, take a look at the below link directly from the fed in regards to the monetary base (M0):
http://www.federalreserve.gov/releases/h3/Current/h3.htm
Yes, that is correct; the most conservative indicator of our money supply doubled in not more than four months. 98% inflation rate. Hyperinflation maybe not, but it is most certainly NOT deflation by any stretch of the imagination.
Now, you may be saying, “well so what if the most conservative indicator of our money doubled in less than four months–credit is still contracting”. So what indeed. But you would also be incorrect. There is no deflation ANYWHERE. Not at the M1, M2 or M3. There may be DISinflation–that is, the contraction of the RATE of increase. But the supply is still increasing none the less.
Full explanation: http://www.zealllc.com/2009/biginf.htm
Monetary Base (M0) straight from the fed: http://www.federalreserve.gov/releases/h3/Current/h3.htm
Unofficial M3 (since the gov doesn’t publish it anymore–gee I wonder why?): http://www.shadowstats.com/charts_republish#m3
Summary: In closing, if there are still those that insist on saying we are in a deflationary period, please explain where you are getting your data from that shows that the money supply is shrinking (not to mention how you managed to re-define the english language). That is, please provide data that shows that at any level, M0/1/2/3/whatever, there is a -% growth rate. Thank you.
My final answer is – All (analysis) are mostly correct – we are having and will have both – Inflation & Deflation in degrees, in different things at varying times. Everyone on both sides simply focus a little more or less on different aspects or factors of the monetary situation. Although by far the greatest factor of all of this is the overextended, out of control, manipulating government. Everything almost totally depends on what they do – which of itself is a total and huge farse / scam / disaster – that those idiots and criminals have the power to arbitrarily & artificially set interest rates and credit & money supply and thus, along with their direct manipulation of the markets and control over the media, largely control the whole economy and thus much of the lives of much of the world is utterly insane. The most important thing we all can do is to help inform everyone we know, so that we can get the bastards out of there. Anyone in the legislature that voted for the bailouts, should be fired from their position, and in front of a firing squad as a traitor.
The credit and money being created in mass right now is mostly being hoarded by the banks and criminal bankers – not finding its way into the economy. Most of the money lost in housing and the stock market is also probably being hoarded by the bankers, PPT & Fed (owners), and wealthy. Thus the money extraction from “the economy” overall has been greater than the increase of money – resulting in deflationary effects – slowing economy and job losses. Though as time goes on, if the government (the Fed) continues what they are doing, the effect of their money creation will (have to) destroy the dollar and we would most likely see increased inflation (in everything). Eventually Schiff will likely be right – if and as the rest of the world ditches the dollar and “decouples” their currency. Though it all insanely depends on exactly what our out of control corrupt government does.
Right now and for some time to come we are seeing falling prices in housing / Real Estate, autos, and stocks generally, whereas we are still seeing (in spite of the recent drop in commodities) inflation, more correctly described, “rising prices,” in food. If and as our (foreign) creditors begin to act more prudently, and as competition and inventories are diminished, we will see prices rise in clothing, electronics, and energy, and everything.
I think Steve Saville did a good job summing things up in a recent article here:
http://news.goldseek.com/SpeculativeInvestor/1233645000.php
“The Inflation-Deflation Debate” – – By: Steve Saville, The Speculative Investor
Excerpt of critical part here:
“Based on our observation, a lot of confusion on the inflation/deflation issue is caused by the lengthy and variable time delays between changes in the monetary trend and changes in prices. It will often be at least 2 years before the effects of a major change in the monetary trend start to become apparent in the prices of commodities and everyday goods and services. Consequently, during the first 2 years of a new monetary inflation cycle the outward evidence will often point to deflation (even though the inflation threat is rising), and for 2 years following the END of an inflation cycle it will seem as if the inflation threat is growing (even though it is falling).”
Thanks,
Walt
The real sticking point in this whole argument is the Federal Reserve system. It should have never been authorized by Woodrow Wilson in 1913 thus the monetary expansion policies they expounded would have never gotten us into the mess we are in.
We need to produce things of value not manipulate the financial system which only benefits a few. Just where does it say the bankers are to take the lead in a capitalistic system?
If our economic system followed the Austrian School of Economics instead of the Keynesian folly that lets the financial institutions ditate monetary policy, this nation’s focus would have been focused on what we do best: producing things of value. Banks should only be used for short term commercial purposes whereas home loans should be handled by financial companies who specialize in those assets.
The Wall Street boys shifted our attention to their machinations and we were convinced they knew what they were doing.
So, here we are: trying to figure out whether our destiny is inflationary or deflationary. Instead of trying figure it out, just realize this country is bankrupt (we owe 56 trillion dollars to self-imposed entitlements) and that the dollar is worthless. In that situation, gold and silver become the only thing of value.
Consequences of “flations” (in, de, hyper, and stag) have more to do with the mental state of the masses in regards to their confidence in their political leaders, than with precise points or levels of money creation/distruction. As Jim Sinclare puts it, “it is a monetary event” (as in a collapse in confidence in what the politicals have called money; which is their debt and where that debt was spent – i.e. has that spending been economically viable or not). Since the politcal types are utilizing coersion to get their economic programs activated, they are not really economically viable in the long run and always fail – hence the collapse of confidence by the masses; when the masses finally realize that the political arrangement is for the purpose of stealing the wealth from them; then there is a rush to get out of the monetary trap and that door of escape is through precious metals. Otherwise enjoy your debate over “flation” as the mental exercise will do you all great benefit.
Look, we have massive debt/asset deflation and massive monetary base inflation – At the same time. They are not mutually exclusive. One will dominate the other in effect for various periods. The tension between the two is enormously destabilizing. And there are intelligent arguments on both sides as to which will eventually prevail. Smart investors must be prepared for both. That means gold, silver, a house to live in, and cash to pay your bills. Stay away from all counterparty risk. And stay away from common stocks. Though there will be sucker rallies at times. If the US government goes down, everything besides guns and canned food will lose its value. So pray that doesn’t happen.
Hi,
Though stocks, homes (including my own), and raw materials are in the tank, I still have real doubts about deflation. Though assuming I had the money to buy another home it would be cheaper – as would gasoline – overall in the past year from a consumer standpoint my OVERALL costs, repeat OVERALL, have gone up. Health care is a great example. I REALLY think $137 an MD visit in South Florida is gouging, not to mention the consumer costs of the entitlement programs, home and car insurance, food, and even the price of 90 percent of vehicles (you’d) actually like to own (except the Corvette but including including the Dodge SRT series, Ford’s V8 Mustangs, etc.). Anything I’d like to buy (maybe even mostly NEED) is higher, not lower. Perhaps later deflation will REALLY rear it’s ugly head (after all, the dollar IS worthless, not being tied to tangibles) but my salary isn’t going up! “Da Boss” says three percent no matter how good a job I do! Is that deflation (perhaps, in a sense …). But again when I see my OVERALL cost of living stabilize or DROP, that’s when I’ll give deflationists two ponts.
in the history of currency (not monny)there has only been inflation lets say compared to gold since the creation of the monster from Jekyll Island(THE BAD BANK).ABSOLUTE REALITY is NOW which can not be grasped.Deflation and inflation EXPECTATIONS are the tools the TRILATERAL WORLD GOVERNEMENT(where islam is not represented)plays out while it invested more money in building its pyramidical ponzi structure than a so called illusionary world economy.All these BANKrupted institutions are very PRECIOUS to the BAD BANK thats why they will not DEFAULT.Why mumboing about deftation and inflation.Get your body weight in gold(be yr own central good bank) and you will be one of the 2000000 richest people of the world(150000 tons:75 kg)Then you can start thinking about inflation or deflation of yr body weight if you have some sh.. paper left.BON APPETIT.
Everyone took their profits and left the party, printed the money in “foreign” currency. What is now spoiling the “game” is using the US$ as a weapon to subdue upstarts. Stopping the revaluation of other currency/ assets is mutual destruction for all. If all fiat is worthless what does it matter if your trading in chickens or eggs. Devaluation of US$ would allow “foreigners” to buy capital goods off US, starting the recovery. US internal problems will be no worse than other times in history. Killing off the rest of the world is criminal. Deflation/ inflation take your medicine, forget empire, heal yourself. John
Check out North’s latest.
The Federal Reserve’s Self-Imposed Dilemma
by Gary North
The Federal Reserve’s policy-makers cannot make up their minds: depression or mass inflation……..
North does not panic.
He advised people to prepare for BOTH long term mass inflation and short term price deflation.
His current position is that we will be politically forced to allow inflation in prices big time within the next year. The adjusted monetary base has already been goosed.
Remember:
The Keynesians are in charge in DC. AND the big NYC banks,who are really in charge of the FED, are in big trouble. Not to mention 46 of 50 states are running deficits and 1 in 6 homeowners are upside down.
Housing will continue to fall but food prices are already starting up.
Discretionary prices are way down. NON-discretionary items are already starting up.
Time will tell who is correct.
It would be wise to hedge against both.
And to keep 3-6 months of food at home that you would eat anyway. And to buy a gun and ammo. And to buy a little gold. And to pray.
It can’t hurt!
Rick Ackerman – If you stick with prices as being evidence of deflation or inflation, the argument cannot be settled until all prices are going up or down.
In my view, the only unambiguous definition of deflation is a drop in spendable funds. Deposits plus cash is the extent of spendable funds redeemable at par which settle transactions with finality. If the government becomes insolvent, and the Fed will not backstop deposits by printing money (for whatever reason), THEN deposits will trade south of par and we will have a significant collapse of spendable funds. In that respect, only reserves are the real money in the system.
It does not seem to me a change in monetary demand is “deflation”. If that were accurate, then every time I spend $1 it is “inflation” and every time I collect $1 it is “deflation”. That ruins what I believe you are trying to achieve: the explanation of a unique and unusual event that is occurring or will soon occur.
So are deposits plus cash declining? Unless I am mistaken, I don’t think so. What is happening is massive amounts of money substitutes are being revalued far south of par, which is where they should have been in the first place.
So we’ve got to agree on a common definition of what inflation and deflation mean. What is it according to your definition?
Deflation = an economically fatal increase in the real burden of debt.
Inflation or deflation? All we know is that we don’t know. We can either write something intelligent about it or read what someone else has (hopefully intelligently) written about it. What we do know (and can do something about) is that Americans and their dollars are getting very unpopular around the world and everything is amazingly cheap right now. As they used to say when I was growing up in NYC in the 1940s, “Get it while its hot.”
I have been following this debate with great interest. Fascinating to see how so many brilliant minds can be so polarized on an issue. The inflationists: Gary North, Mike Rozeff, LRC, Peter Schiff, Eric Janszen et al. The deflationists: Mish Shedlock, Rick Ackerman, Bob Prechter, Karl Denninger (Market Ticker) et al. Both sides make cogent valid arguments.
Here is my take on it. The following to my mind are the crucial issues:
1. Credit (debt) destruction: In a fractional reserve banking (FRB), only about 10% of “money” is backed by real production, the rest is pyramided on this and “created out of thin air”. When “deleveraging ” occurs and debts are called in, there is a CONTRACTION of the “money” supply if debts are paid back. If debt is not repaid there is actually DESTRUCTION of money because debt IS money in FRB, and money is “removed out of thin air”. At present, trillions of dollars of debt money have been destroyed. To counterbalance this central banks will have to borrow, tax, or monetize (print) multiple trillions of dollars (40 trillion and counting?). There is no hope in hell they can do this because banks were so overleveraged with debt money that once the system unwinds and goes in reverse the process is unstoppable until all the excess debt is purged. Once the pyramid implodes on itself, nothing can stop it from crashing down, like the WTC on 911.
2.Bank reserves, lending and money velocity: The banks are bust. They are hoarding cash. Yes the theoretical money base and supply is growing, but the “Money Multiplier” is not acting, and “money” is not being pyramided. The mushroom of debt is not growing from the seed of artificially-created debt. The banks dont want to lend because they are broke and most would-be borrowers are broke. Just like the ordinary citizens they are in capital-preservation mode and dont mind paying depositors 2% even if they are earning less on their own deposits at the FED or from buying Treasuries. The supply-side of the Money Multiplier is dead. The supply side of Money Velocity is dead
3. Private sector debt, wealth effect and borrowing: the boomers are over-indebted and have lost 30-40% of their retirement wealth. They are petrified they will be old and poor. They have stopped spending and wont start again soon. They are completely risk-averse. Stocks – are you kidding? They will hoard, save and hoard. There is no way many of them are going to start borrowing again even if the banks push debt on them at 0%. This is the demand side of the Money Multiplier that is not working. This is the demand side of Money Velocity that is dead.
4.Confidence: the only thing that will get the Money Multiplier and Money Velocity moving again is one of 3 things: a sudden devaluation of the dollar, a US Treasury bond default, or a massive dumping of US bonds by China/Japan/Middle East driving up Treasury rates. This is what will turn deflation into severe inflation or hyperinflation. As the citizens lose all trust in the purchasing power of their currency, trillions in cash will come flooding out of the coffers, money market funds and bonds as people realize that their money is becoming worthless and there is a mad scramble for hard assets (gold and yes believe it or not, real estate). Anything to get out of paper dollars.
So as we see, both sides are right. A severe deflation will lead to severe inflation. It is simply a question of timing and the proper triggering event linking the two.
Hello,
As a full time Realtor for 23 years, I can tell you that deflation in California and Nevada in terms of housing prices is alive and well. But, here’s a wrinkle that I’ve been writing articles about for a year: the law reads that a borrower has a right to know who his/her loan owner is. That came out of an attempt to foreclose by Deutsche Bank in Ohio. Judge Christopher Boyko stopped the foreclosure because the bank could not prove that they owned the loan.
As you know, banks made loans, packaged them up and then sold them to Wall Street brokers who re-packaged them, morphed them into securities and resold them. The original lender stayed on as the servicng company but they do not own the loan and, in many cases, do not know who does.
Now the question of the legality of the note has been raised. If the bank who is now just the servicing agency does not own the loan, can not produce the note and trust deed with the owners name on it, does not have an assignment of trust deed, is the original loan contract null and void?
If the answer is yes, that the original loan contract is null and void, the poop has only begun to hit the proverbial fan. All one would need to do is to let his/her home go into foreclosure, go to court for a Motion to Stay that foreclosure based on the idea that the bank does not own the loan, and get the loan agreement voided. Free mortgages from banks! Free-fall in bank stocks.
As a full time Realtor for 23 years, I can tell you that deflation in California and Nevada in terms of housing prices is alive and well. But, here’s a wrinkle that I’ve been writing articles about for a year: the law reads that a borrower has a right to know who his/her loan owner is. That came out of an attempt to foreclose by Deutsche Bank in Ohio. Judge Christopher Boyko stopped the foreclosure because the bank could not prove that they owned the loan.
I paid very close attention to this case, Susannah, and wrote about it when the issue came to the fore. However, it seems to have vanished from the news, treated like some nutty Texas secessionist movement drummed up to avoid taxes. As far as I’m aware, the highest court in Ohio ruled against the lenders. At the time, this seemed to have very significant implications for at least half the mortgage loans in this country. What happened?
hey rick,
i’m with you on asset deflation., but cost of living is increasing.
so if thats not stagflation, what is it?
Where do we start?
Currently a loaf of bread is cheaper than the wheat or flour to bake it.
Material prices are not coming down at present; they are hoarded in warehouses at old commodity prices.
Until the materials prices are passed on to the consumer there is no deflation. Will it come; yes in time.
Collapsing of financial instruments that were fraudelent to begin with is not deflation.
Housing prices collapsing is not deflation; it is just letting the air out of the massive run up in percieved profits by none
other than people who think it takes more ink to print a 5. 20. or 100.
Their value is very misleading as they are backed by an orginazation that is broke and has massive debt.
Not to many people understand this for if they did we wouldn’t have the challenges we currently have.
We as a society have been led around by our nose thinking the smell of urine was a fine licquer mfg. by the likes of Greenspan.
Like we have to pay large bonuses to wall st. exec’s or they will leave. Someone has not checked the job market lately. I don’t think there is much demand for the twins Mo & Ron…….
Something that has no tangible value cannot have a loss. You can believe it until hell freezes over or you can organize your tangible assets to work for your advantage . If whom ever reads this and doesn’t get it; make a copy and take to your grandparents so they can explain it to you in kindly family terms. My spelling is not the best; but I can hire a good speller if necessary.
Have a good day, if you choose to.
Ok I’am starting to see the light. I’ve read Prechters book, I understand the concept of deflation and in fact made an argument for it while I started out arguing against it on another inflationists site. The funny thing I see is INFLATIONISTS making the argument for DEFLATION. They’ll have news items that point to defaults, bankruptcies, economic slowdowns etc. and then they’ll say “you see, evidence of the need for government to print” but they are making the argument (at least in my humble opinion) that the government is so efficient it can get the money out there fast enough, they’re actually arguing for government efficiency. It just seems all roads lead to deflation as much as I hate to agree, near term its deflation. The thing I didn’t see before that I see now is that places like Weimar republic and Zimbabwe never had the credit market “innovation” that we had and therefore never had the credit expansion that we had with the subsequent economic structure that facilitated it. When they print money they had no counter force of credit deflation so the money hit the market as frank inflation.
The Fed is sufficiently worried about deflation because they can’t control it, it is a MARKET force which acts in real time while the Fed is REACTING to it. They fix the banks, then the unemployment hits, then its local governments, countries, industries etc. they’re constantly functioning in crisis mode.
I’am still not convinced we wont see inflation in the future, particularly in things people NEED like food, clothes, gas etc. but that is a long way away. This credit unwind is going to take along time and we’ll all be lucky make it through in one piece. It would be interesting to see prognostications about the eventual level of the dow and the value of gold (I think we’re gonna see close to a one to one ratio), unemployment levels, GDP decline etc.
How about BOTH?
Because here and there it is always assumed that inflation and deflation are mutually exclusive phenomena, no one here seems to discuss the possibility of both occuring. The poster above, as Rick is also, is focusing on deflation in assets, Gary North on inflation in the money supply. But, both of you are looking at the electronic dollar part of the monetary system, that which is based on Fed. Reserve deposits.
This is where the inflationists see the skyrocketing money supply, and the deflationists see implosion. After all, neither side’s dollars ever see any ink, let alone any wood pulp (when was the last time you heard of someone buying a NYC co-op in paper money, or an Orange County McMansion?), and this is of course also true for anything even remotely looking like a derivative.
It is here that Senior Ben tries to (re)inflate, and it is too early to tell if he has lost. He is NOT printing dollars, and perhaps he wil prevail (North et al). perhaps he won’t (Rick, Mitch, poster above). But only in this part of it in any case.
But then there is the real FAKE thing, paper money. And this is not created at will in the amounts needed to helicopter, unless one follows Mr. Gono. Even then, not by the FR alone.
Therefore, all of you really should read
“Can We Have Inflation And Deflation All At The Same Time” by Dr. Fekete, see: http://oikonomikablog.wordpress.com/2007/09/30/antal-fekete-can-we-have-inflation-and-deflation-all-at-the-same-time/
Mark B. above will even find something for his approach, as Dr. Fekete does point to “Helicopter Ben has just made a most unpleasant discovery…Ben found that electronic dollars, cannot be air dropped. They just won’t drop. ”
To end with a quote from above citation:
“…the denouement of the fiat money era has been lost in the endless debates on the barren question whether it will be in the form of deflation or hyperinflation. Chances are that it will be neither, rather, it will be both, simultaneously.”
Please read it if you haven’t already, so we can progress beyond this barren question.
The government is going to be very responsible and not just create money to get us out of this. All of the companies are going to have to take their losses. This is the U.S. and we are capitalists! Its not like they can just create money out of thin air, we are on the gold standard.
luxury cars are depreciating in value so fast no one can keep up. many brands have depreciated 50% of msrp in two model years. people are trying to get out from under debt but is proving to be difficult or impossible to acomplish.
I’ve given up on trying to get inflationists and stagflationists to wrap there minds around the deflationary argument. If Rick Ackerman, Mike Shedlock, Robert Prechter, and Bob Hoye haven’t won them over, there’s just no hope. It’s really quite aggravating, since the issue is really very simple. There’s a huge overhang of bad debt, and once it starts to implode, it setsoff a chain reaction of defaults (including driving once solvent people and businesses into default as their assets and income drop or cease to exist). There’s nothing that can halt it short of printing up money to pay off all of the defaulting debt. And starting down that road would crash our largest market, the bond market, which gets you what? Deflation. So the only way to stave off delfation in prompt fashion would be to resort to massive hyperinfaltionary printing–and the Establishment won’t go that far anytime soon.
I’m a fence sitter, though I guess I lean towards being an inflationist, and North may be right that neither a world wrecking inflation nor deflation will occur. There is a reason Economics is called the “dismal science”: There is no way to do controlled experiments. Nobody “knows” what is going to happen, so I see no reason to heap scorn on others arguments, except when they are just mindless cheerleading or propoganda.
Yes, we are caught in a deflationary episode of a credit contraction. Yes, it came on faster and more furiously than many if any inflationist or even some deflationists would have thought possible. But, that does not mean that massive monetization of debt will not eventually be able to stem the tide. Maybe it will. Maybe it won’t. I haven’t seen one person so far involved in this debate who has an algorithm that proves things one way or the other.
Why is there no algorithm? Probably because it comes down to the faith that people put into the system. If people don’t freak out and allow Central banks to act basically eat up a certain amount of the bad debt, sweep it under the rug, whatever (after all what are credit and debt besides notions?), maybe eventually things will stabilize again. There will be winners and losers, but in the long run, if the system collapses, we may all be losers (Thermo nuclear WW III).
As long as I am fantasizing now, let’s also imagine that at some point things normalize to the point where we can get back to a world where the vast majority of people purchase the goods they need and some modest luxuries from savings rather than credit. People learn to enjoy one another more and things less. Will that require a return to a world where money is backed by traditional stores of wealth such as gold, silver?
I think probably, yes.
Maybe the bitter pill of a deflationary depression is what we really need to get there. But I’m hoping maybe a modern day jubilee of monetization might still work. Of course, if that ends in a ruinous hyper inflation, I will be sorry we made that choice: I think the choice is being made for us right now.
It won’t be long before we know.