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Lowe raises a couple of interesting points in favor of the conventional understanding of the credit economy:

QE is meant to stop deflation, not make it good or more tolerable. Deflation is bad for two reasons.

One, people and businesses would hold off on purchases as long as possible, since their cash would be growing in value. This would kill jobs.

This doesn’t describe the technology sector in general or consumer electronics in particular. Computers, smartphones, televisions–these items are all more expensive today than they will be tomorrow, yet sell they do.

More significantly, this should hold true for all kinds of investments, especially liquid ones. If people and businesses will hold off on purchases as long as possible in a deflationary environment where the cash they hold is growing in value, they should also hold off on purchases as long as possible in an inflationary environment so long as they are able to park it anywhere–including the stock and bond markets–where a real return can be realized. Why spend today what will be worth more tomorrow?

In Lowe’s framing, cash is another asset among many that is expected to yield a real positive return. In an inflationary environment, cash–forex markets notwithstanding–is off the list, but there are other assets serving a similar function. People and businesses hold off on discretionary purchases in favor of ultimately growing their cash holdings in this way now.

More simply, if cash yields a positive return, as is the case in a deflationary environment, some people and businesses will spend it on purchases while others will hold it as an investment. If cash yields a negative return, as is the case in the inflationary environment, some people and businesses will spend it on purchases while others will convert it into non-cash investments.

Lowe continues:

Two, debtors would be penalized, including especially the largest debtors, large businesses that can only operate with access to credit. This would destroy private credit and kill even more jobs.

An artificially inflationary environment crowds out private credit. If the Fed allowed the funds rate to float, you and I and tens of millions of people like us would provide credit. Because the Fed and the putatively private financial system it underwrites restricts private credit to risky borrowers–think credit card companies and payday loan operations–we’re left providing credit to commercial banks for negative real rates of return or engaging in asset speculation.

We can reframe debtors being penalized in a deflationary environment to private creditors being rewarded in such an environment. That’s how we get a healthy, resilient economy, one where equity markets move based on real shifts in productivity and innovation rather than on the arbitrary moves of a central bank. When bad employment and poor productivity numbers lift markets on anticipation of what kind of intervention the revealed weaknesses in the economy will lead to, it’s not the sign of a salubrious system. It’s the sign of a sick one.

And our economy is very, very sick. A strong economy would not be on the brink of catastrophe over a temporary partial shutdown, just as a financially stable family would not be on the brink of catastrophe if the husband found himself out of work for a couple of months.

I’ve long been mocked as an economically illiterate boob for conceptualizing an individual’s financial situation as a microcosm for that of a nation’s. The US gives China treasuries, China gives the US real things. America trades pieces of paper for medicines and iPhones and cars. It’s brilliant, as brilliant as my swiping this piece of plastic to get medicine, an iPhone, and a car. No, I can’t pay for those things and I don’t know how to make them, but as long as this card doesn’t decline, who cares?

We’re about to find out. The Fed is promising to purchase everything from junk bonds to preferred stock. Since the Fed has a blank check, this essentially amounts to private asset seizure, something the Fed is supposed to be prohibited from engaging in. Just as an organization sets up a corporation to do what the organization is prohibited from doing, though, the Fed will get around this prohibition by underwriting other government institutions to do the buying on its behalf. We’ll be told that the two are independent from one another, just as we’re told the Fed and the Treasury are independent from one another.

Included in this Fed promise to buy everything, of course, are treasuries. There couldn’t be a better time for China to unload. My hunch is that as the dollar buckled under QEternity this week, the Trump administration was made aware of how tenuous the situation is. On a dime we went from defiantly talking about “Chinavirus” to this:


The counter is that there is no limit to the size and scope of monetary and fiscal stimulus. The Fed creates whatever it needs to. There will be no price inflation as a result. To the contrary, if the Fed doesn’t go balls to the wall, it risks deflation, and we can’t have that.

The only consequence will be increasing deficits, and those don’t matter. Everyone wants dollars and they always will, even those who supply us with everything we need when they are in the midst of severe economic contractions of their own. Though their production is declining and more of what they do produce will be consumed by their own people, they’ll still keep sending us stuff in return for IOUs that obviously cannot ever be paid back in anything other than more IOUs. It’s IOUs all the way down.

Since we’ve turned the audacity up to eleven, recall what we’ve been saying for years now about the coming decline and fall of the American empire:

I think following an economic collapse and currency crisis, we’ll have a gubernatorial candidate run–and win–on his state peacefully separating from the rest of the United States. It will be the beginning of the end of the US as a putatively unified single political entity.

Yet another thing the Fed will be doing is absorbing municipal bonds, propping up state pensions, plugging budget shortfalls, and in a hundred other ways underwriting a host of state and local obligations the economic collapse has rendered utterly insolvent. The blank check will lead to some states becoming even more fiscally irresponsible than they already are. Other states will start looking for the exits.

 
• Category: Culture/Society, Economics, Ideology • Tags: Economics, Future 
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  1. I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears. We need to bring manufacturing capacity back and not be so dependent on China.

    Peace.

    • Agree: Buzz Mohawk, iffen
    • Replies: @Difference Maker
    Once the dust clears we will be once again in a powerful position.

    And it's easy to rationalize after the fact, but the name calling has made its point, so changing tack is not necessarily a total repudiation
    , @Realist

    I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears.
     
    Trump is committed to making the wealthy and powerful...more so.
    , @indocon
    Actually I predict that coming out of this shut down, we are going to see turbo charged version of what was wrong before - private equity led by buyouts that load good stable companies with huge debts and send that same money to fat cats, uncontrolled mergers between companies that serve no purpose other than loss of good jobs and enrichment of fat cats, more outsourcing and off shoring of what can't be outright buy from China, and more bartender and hairdresser jobs for who needs work.

    I hope that I am wrong but the trend going back to W imploring people to shop after 911 points only in one direction.

    BTW, one WASP fat cat Warren Buffet has been curiously quiet in this whole market carnage? He is getting a huge bailout from govt as he is a big shareholder in airlines and rail lines.

    , @prime noticer
    "I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears."

    this is simply what's going to happen though. Biden is going to be President, and that means everything with regard to China goes back exactly to how it was. shrug.

    in no way shape or form is there going to be a reshoring or manufacturing movement in the US. totally the opposite. not only will the tariffs immediately be lifted, the travel restrictions be gone, all million Chinese students right back to the universities, and every Chinese industrial spy returned to their job so they can continue spying and stealing. but the triumphant Democrat monopoly will look to move as much blue collar industry and manufacturing off the continent as they can. the movement to de-industrialize will accelerate, not reverse. college educated white collar Democrat voters have ZERO use for industry.

    if it was possible to grow all the food and mine all the oil and natural gas and generate all the electricity in China too, THEY WOULD DO THAT. they HATE blue collar Republican voting european men who do the heavy lifting and perform the nuts and bolts stuff that keeps a country going. the university educated white collar Democrat alliance with their african, mexican, muslim underclass allies will purge America of their enemy.

    this is the Democrats chance to utterly crush blue collar and middle class european men. i anticipate a de-automobile factory movement next - currently no vehicles made in China are sold here, but under Democrat monopoly, that will change, so that eventually, even GM is pulverized and the US undergoes a de-automobile manufacturing transition.

  2. I think Mr. Lowe is thinking the same thing that I used to, that interest is only charged due to inflation. That is completely incorrect if he meant it that way (I’m going by “This would destroy private credit.”). No, it wouldn’t! Interest rates are the “price of money”, that is the price of the time value of it to spend now versus in 5 years. He would do himself a favor by reading this old Peak Stupidity post: Inflation and Interest.

    Nominal interest rates would be lower of course in a deflationary economy, but their real rates would still reflect the price of money. The Wall Street Journal used to* put out opinions about how bad deflation would be. It didn’t make sense to me then, and it sure doesn’t now. That might be bad for Washington, FS and Wall Street (in some way), but it’s great for the common man whose life of labor would not be continuously stolen from him over the years, as the inherent value of his savings goes down.

    Inflation is bad; deflation is good. Yes, it IS that simple. It’s just that there’s barely anyone alive today who can remember a time when a steady erosion of the value of the dollar wasn’t a fact of life. That’s the real problem.

    .

    * Well, it probably still does, but I just quit reading it over 15 years ago due to their incessant mass-immigration boosterism

    • Replies: @Achmed E. Newman
    A picture is worth a thousand words:

    https://www.peakstupidity.com/images/post_761A.jpg
    , @The Alarmist
    It will be interesting to see what life will be like in a world where there is no time-value to capital. Some might call it capitalism without capital. I figure it is a return to Feudalism.
  3. @Achmed E. Newman
    I think Mr. Lowe is thinking the same thing that I used to, that interest is only charged due to inflation. That is completely incorrect if he meant it that way (I'm going by "This would destroy private credit."). No, it wouldn't! Interest rates are the "price of money", that is the price of the time value of it to spend now versus in 5 years. He would do himself a favor by reading this old Peak Stupidity post: Inflation and Interest.

    Nominal interest rates would be lower of course in a deflationary economy, but their real rates would still reflect the price of money. The Wall Street Journal used to* put out opinions about how bad deflation would be. It didn't make sense to me then, and it sure doesn't now. That might be bad for Washington, FS and Wall Street (in some way), but it's great for the common man whose life of labor would not be continuously stolen from him over the years, as the inherent value of his savings goes down.

    Inflation is bad; deflation is good. Yes, it IS that simple. It's just that there's barely anyone alive today who can remember a time when a steady erosion of the value of the dollar wasn't a fact of life. That's the real problem.

    .

    * Well, it probably still does, but I just quit reading it over 15 years ago due to their incessant mass-immigration boosterism

    A picture is worth a thousand words:

    • Agree: AaronInMVD
    • Replies: @nokangaroos
    Agreed as far as this non-economist is able ...
    too-cheap money going into stock buybacks IS already deflation (destruction of credit, a good thing). Keynesianism was a Ponzi from the beginning (and things that cannot go on tend not to).
    But the readjustment is going to be painful ...
    I always especially found the American habit of using housing (of all things) as a line of credit downright suicidal - and any attempt at bailing out the "poor" is going to punish the responsible (="perverse incentive").

    Interesting times ahead :D
    , @Stargazer
    August 15, 1971 is the day the dollar decoupled from reality.
    , @Adam Smith
    It's fascinating how stable the dollars purchasing power was between 1775 and 1933 when the dollar was made of silver and 20 of them were made of gold.

    https://images.vcoins.com/product_image/239/X/6/Xk53s7EZ4GFeE8zQPY6b2zqGiMo39L.jpg

    https://www.usacoinbook.com/us-coins/saint-gaudens-double-eagle-gold-with-motto.jpg

    Imagine paying the same price for bread, wheat, corn, beans, oil, honey, rice, land, shoes, housing, building materials and ice cream as your great grandparents once did.

    No state shall... make any Thing but gold and silver Coin a Tender in Payment of Debts.

    It's equally fascinating to see what happened after Nixon closed the gold window.

    A picture is worth a thousand words. Thanks.
    , @res
    As Stargazer obliquely noted, the CPI's correspondence with the legal status of gold seems to be closer than with creation of the fed (though that certainly did not help).

    Try adding two dates to your plot and see how they look.

    April 6, 1933 - Executive Order 6102 banning gold ownership and citizens required to turn gold in at a price of $20.67 ($408 in 2019) per ounce. Then the price for international transactions raised to $35.
    https://en.wikipedia.org/wiki/Executive_Order_6102

    August 15, 1971 - gold price in dollars allowed to float from $35
    https://www.forbes.com/sites/briandomitrovic/2011/08/14/august-15-1971-a-date-which-has-lived-in-infamy

    This page discusses some of the history and has a graphic which gives some more perspective on your plot (which I think should be semi-log to better show the relative changes).
    https://inflationdata.com/Inflation/Inflation_Rate/Gold_Inflation.asp

    https://inflationdata.com/Inflation/images/charts/Annual_Inflation/Cumulative_Inflation_by_Decade_sm.jpg
    , @prime noticer
    how much of CPI going up steadily since the 70s is due to getting off the gold standard in the early 70s, versus the flood of immigration since the late 60s? it's partly both, but would be good to have some calculations.
    , @Kim
    You chart shows very clearly when the USA reached peak cheap oil. Once that happened, the dollar had to be freed from gold to allow endless credit to support consumer demand for ever-more-expensive oil.
  4. @Achmed E. Newman
    A picture is worth a thousand words:

    https://www.peakstupidity.com/images/post_761A.jpg

    Agreed as far as this non-economist is able …
    too-cheap money going into stock buybacks IS already deflation (destruction of credit, a good thing). Keynesianism was a Ponzi from the beginning (and things that cannot go on tend not to).
    But the readjustment is going to be painful …
    I always especially found the American habit of using housing (of all things) as a line of credit downright suicidal – and any attempt at bailing out the “poor” is going to punish the responsible (=”perverse incentive”).

    Interesting times ahead 😀

    • Replies: @Achmed E. Newman
    I'm not an economist either, NoKangaroos. To paraphrase George Castanza "what economists? It's like writing a sit-com!"
  5. Does anyone know the actual limit of how much money we can lend ourselves?

    • Replies: @Audacious Epigone
    Nominally, there is no limit. This is why it is so hard for me to understand many of the commenters here who think we're entering a deflationary period rather than an inflationary one in consumer prices. Were there a way to create an infinite amount of money while simultaneously managing to avoid inflation, we'd be set. We're about to find out whether or not that is possible.
    , @Yahya K.
    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what's going to happen, though lots of people pretend to know. And no you can't just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

  6. Inflation is inevitable. The more dollars there are will bring inflation because GDP is static or declining. The monetary bailouts are failing. Wall Street cannot keep going up and Main Street is saddled with crippling debt.

    The Federal Reserve has been an unmitigated disaster for America.

  7. @Achmed E. Newman
    A picture is worth a thousand words:

    https://www.peakstupidity.com/images/post_761A.jpg

    August 15, 1971 is the day the dollar decoupled from reality.

    • Replies: @Achmed E. Newman
    Isn't it neat, Stargazer, that one can see economic history in that graph? (Coincidentally, I was looking at it again only 5 minutes ago.)

    You can see the arab oil price shocks in there too. Note, that even back from the end of WWII to that date Dick Nixon screwed the pooch, there was a significant steady rise in the CPI, with a lower slope after 1955.

    It's hard to tell because the graph is so damn steep from 1971 on, but there's an inflection point around 1981, as FED chairman Paul Volcker jacked up interest rates to the sky for a while to fight inflation make up for their earlier screw-ups. The dollar still loses value very quickly, in the big scheme of things, but that's using the BLS inflation numbers. Inflation has been higher than what they've been reporting.
  8. @Stargazer
    August 15, 1971 is the day the dollar decoupled from reality.

    Isn’t it neat, Stargazer, that one can see economic history in that graph? (Coincidentally, I was looking at it again only 5 minutes ago.)

    You can see the arab oil price shocks in there too. Note, that even back from the end of WWII to that date Dick Nixon screwed the pooch, there was a significant steady rise in the CPI, with a lower slope after 1955.

    It’s hard to tell because the graph is so damn steep from 1971 on, but there’s an inflection point around 1981, as FED chairman Paul Volcker jacked up interest rates to the sky for a while to fight inflation make up for their earlier screw-ups. The dollar still loses value very quickly, in the big scheme of things, but that’s using the BLS inflation numbers. Inflation has been higher than what they’ve been reporting.

    • Replies: @LondonBob
    I like Nixon but he was absolutely calamitous for the US economy.
  9. @nokangaroos
    Agreed as far as this non-economist is able ...
    too-cheap money going into stock buybacks IS already deflation (destruction of credit, a good thing). Keynesianism was a Ponzi from the beginning (and things that cannot go on tend not to).
    But the readjustment is going to be painful ...
    I always especially found the American habit of using housing (of all things) as a line of credit downright suicidal - and any attempt at bailing out the "poor" is going to punish the responsible (="perverse incentive").

    Interesting times ahead :D

    I’m not an economist either, NoKangaroos. To paraphrase George Castanza “what economists? It’s like writing a sit-com!”

  10. @Talha
    I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears. We need to bring manufacturing capacity back and not be so dependent on China.

    Peace.

    Once the dust clears we will be once again in a powerful position.

    And it’s easy to rationalize after the fact, but the name calling has made its point, so changing tack is not necessarily a total repudiation

  11. It all depends if China (and Russia, and then a lot of others) decide that their dollar reserves are now tainted and toxic and shitcan them. Whoops, instantaneous world-insanity

    • Replies: @Audacious Epigone
    Or just stop rolling over maturities into new issues, something China has been doing to some extent anyway. It doesn't require something as drastic as dumping them onto a Fed that has promised to buy them all--though the ability to do so, especially if the dollar is going to somehow strengthen from this, could be irresistible.
  12. @iffen
    Does anyone know the actual limit of how much money we can lend ourselves?

    Nominally, there is no limit. This is why it is so hard for me to understand many of the commenters here who think we’re entering a deflationary period rather than an inflationary one in consumer prices. Were there a way to create an infinite amount of money while simultaneously managing to avoid inflation, we’d be set. We’re about to find out whether or not that is possible.

    • Replies: @res

    This is why it is so hard for me to understand many of the commenters here who think we’re entering a deflationary period rather than an inflationary one in consumer prices. Were there a way to create an infinite amount of money while simultaneously managing to avoid inflation, we’d be set. We’re about to find out whether or not that is possible.
     
    I think you answered your own question. People (especially those in power) seem to believe it is possible to do just that (your second sentence). I think the outcome is going to be similar to what happened when people found out in the 1970s that no, inflation was not impossible with high unemployment. Stagflation.

    Here is an article discussing stagflation and why it is "unlikely to reoccur."
    https://www.thebalance.com/what-is-stagflation-3305964

    A worthwhile read, but my money is on the dollar losing its reserve currency status being that "once-in-a-lifetime" event comparable to coming off the gold standard.

    P.S. Another factor in this is the extreme deflationary pressure (in some areas) caused by rapid technological improvement (the end of Moore's Law and Dennard scaling lessens this IMHO) and the economies of the developing world spooling up.

    P.P.S. Twinkie, my take on this is a bit apocalyptic. I would be interested in your perspective.
    , @Daniel H
    But why shouldn't the effects continue as they have done so for the past 20 years? The printing that the Fed does, little of it seems to go into the consumer's hands. The mechanics of the Fed process seems to go as such: Fed exchanges junk assets from bank's balance sheet for cash enabling bank to continue with the game of lending to private equity/hedge funds who pledge assets (that have nowhere to go but down) that will someday drift into junk status. Some of this cash goes to bank/hedge fund/management as bonus payment for rigging up these transactions. A little cash goes into the hands of bank drones (finance, management, IT) who do get paid well, relative to the rest of the economy. But cash paid to drones only has an inflationary effect in localized real estate/labor markets (New York, DC, San Francisco, etc). The vast majority of the country is untouched by this except in the negative sense in that their employer may be squeezed by private equity and forced to outsource production, resulting in unemployment and downward pressure on wages.

    I really do wish that massive inflation would come roaring off the steppe, wiping away all and sundry, but it seems that the Fed/Wall Street axis can continue with their shenanigans for quite a while longer, maybe for the time frame beyond my natural life. The day will come when foreigners no longer buy US Treasuries, but the Fed will just make up the deficit, buying up the surplus. At that point the inner party may as well be playing gin rummy amongst themselves because commerce will have become near pointless. This state of affairs is immoral. The heavens cry out for justice here. But who/what will strike the blow against this evil axis.

  13. @Svevlad
    It all depends if China (and Russia, and then a lot of others) decide that their dollar reserves are now tainted and toxic and shitcan them. Whoops, instantaneous world-insanity

    Or just stop rolling over maturities into new issues, something China has been doing to some extent anyway. It doesn’t require something as drastic as dumping them onto a Fed that has promised to buy them all–though the ability to do so, especially if the dollar is going to somehow strengthen from this, could be irresistible.

    • Replies: @Jmaie
    If China (or anyone else) were to dump their treasuries, they would either sell them om the open market (in which case the Treasury/Fed would be unaffected) or we'd give them dollars, of which we have an apparently infinite supply. So not seeing how this causes any major conflagration. Of course we could always limit the Fed to buyng treasuries from the US Treasury, in which case we're right where we are today.

    One, people and businesses would hold off on purchases as long as possible, since their cash would be growing in value.
     
    For businesses deciding whether to invest in increasing capacity, it's more than just whether they could make more by just letting their dollars' value increase. That increase would at best be a couple of percentage points yearly. Businesses generally expect whatever new money they invest to increase income a multiple of what is spent. If the product I'm retooling to produce will bring in less revenue I'm not going to think it a worthwhile endeavor and I'm not going to invest. Or buy materials, hire new workers, and the economic damage spreads.

    Of course that's basic macro Econ101 and the variety of commercial endeavors will have different tolerances for deflation/inflation.

  14. The only way deflationary economies can prosper is by dumping production on foreign economies with healthy consumer demand.

    We can reframe debtors being penalized in a deflationary environment to private creditors being rewarded in such an environment.

    Why should we be interested in rewarding insurers and rent-seekers?

    • Replies: @Rosie
    Case in point: Chronicly deflationary Japan is totally dependent on American consumers to prop up aggregate demand. This remains the case whether people continue buying smartphones every couple of years or not.

    In case of significant deflation, at a minimum, justice would require a debt jubilee as falling wages would make mortgages and student loans taken out in good faith totally unpayable.

    https://www.reuters.com/article/us-usa-trade-japan/us-raises-trade-deficit-concerns-with-japan-no-deal-on-individual-issues-idUSKCN1RS2DF

    And BTW:

    https://www.cnbc.com/2019/07/31/apple-and-samsung-earnings-show-most-people-dont-want-1000-phones.html

    , @Audacious Epigone
    This idea of "healthy consumer demand" is difficult for me. Human desires--demand, in other words--are infinite. Resources are finite. We don't become wealthy by consuming, we become wealthy by producing.
  15. @Rosie
    The only way deflationary economies can prosper is by dumping production on foreign economies with healthy consumer demand.

    We can reframe debtors being penalized in a deflationary environment to private creditors being rewarded in such an environment.
     
    Why should we be interested in rewarding insurers and rent-seekers?

    Case in point: Chronicly deflationary Japan is totally dependent on American consumers to prop up aggregate demand. This remains the case whether people continue buying smartphones every couple of years or not.

    In case of significant deflation, at a minimum, justice would require a debt jubilee as falling wages would make mortgages and student loans taken out in good faith totally unpayable.

    https://www.reuters.com/article/us-usa-trade-japan/us-raises-trade-deficit-concerns-with-japan-no-deal-on-individual-issues-idUSKCN1RS2DF

    And BTW:

    https://www.cnbc.com/2019/07/31/apple-and-samsung-earnings-show-most-people-dont-want-1000-phones.html

  16. @Talha
    I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears. We need to bring manufacturing capacity back and not be so dependent on China.

    Peace.

    I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears.

    Trump is committed to making the wealthy and powerful…more so.

  17. @iffen
    Does anyone know the actual limit of how much money we can lend ourselves?

    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what’s going to happen, though lots of people pretend to know. And no you can’t just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

    • Replies: @Rosie

    Today, they are running even larger deficits (~5%) and at even lower interest rates but with little inflation.
     
    Cheap labor. Offshoring would have caused massive deflation without QE.
    , @Jmaie

    So you never know what’s going to happen, though lots of people pretend to know. And no you can’t just build a math model to predict these things. Its false precision.
     
    Thus the old saw that if you ask ten economists a question you'll get 12 different answers. There's a reason it's called the "dismal" science.
    , @Audacious Epigone
    Alternatively, there has been plenty of inflation, it just hasn't gone much into consumer prices (yet). It went into asset prices that were presumed to represent claims on future resources but that have turned out to represent nothing at all.
    , @EldnahYm
    The U.S. inflation of the 1970s was a result of the oil crisis in the Middle East. Volcker's high interest policies had nothing to do with the decline of inflation in the U.S.
    , @Achmed E. Newman
    Like a number of other commenters here, or just astute Americans in general, I don't believe the numbers out of the creative green-eyeshade boys at the BLS (Bureau of Labor Statisitcs - the group that seems to have taken on the calculating and publishing of economics numbers). One can go to the Shadow Stats site to get a lot more info. than I could possible tell you.

    However, the Peak Stupidity site has the topic key Inflation (sorry, you'll have to scroll down). I've got lots of real numbers for everyday must-purchase items. One could tell me that I'm just picking and choosing, but you read some of these and tell me they don't add up to a big portion of the "basket" of goods and services that most Americans spend their money on.

    BTW, I agree also with the commenter about the difficulty of comparing apples to oranges. Hell even that basket with the goods and services in it is made in China and will fall apart in 6 months. ;-} There is the term we pretend-economists use, called "Hedonics". Read, if you've got time (and I'd appreciate it) some here: Measuring Inflation: Hooked on Hedonics, The Solution for Dilution is Substitution, Hedonics - Pleasure from Products and Services, and Hedonics in the Current Era of Cheap China-made Crap.

    I went long here - another comment is coming on my inflation examples.

    , @Achmed E. Newman
    Okay, Yahya:

    - Food: I could give you many examples from memory, as I bought food for myself for many years. If I give specific examples, it'd be considered cherry picking, so you'd have to read my site.

    - Building materials: Read this post, with its emphasis on the reductions in dimensions too. Anyway: framing lumber - up 200- 300% since the mid-1990s (with compounding, that's between 4 and 5 % average yearly increases). Roofing shingles - in same time period, up from $6.50 a bundle to $22 now, if you're lucky (yes, they contain oil product) - that's 5% compounded annually. PVC piping and fittings, if you still use them - way up.

    - Utility bills - taking it straight out of this post, over a 22 year period with all the calculations (incl. compounded interest, again, of course) there:

    **************************************
    Annual percentage inflation rates for these utilities:

    WATER/SEWER:

    Base Fee - 6.9%
    Price per ft^3 - 4.2%

    ELECTRICITY:

    Base Fee - 4.5%
    Price per kW-hr - 2.6%
    **************************************
     
    - Insurance bill on same house and vehicles and same companies, with (amazingly for me!) no tickets or accidents (on record): From $1,150 yearly to $1,500 over 8 years - that's 3.5% and not exactly apples-to-apples, as I increased the deductible on the house to keep the bill down.

    - Health insurance and Education have had a whole nother level of inflation that would take too long to cover.

    - Autos and auto parts. That post is specifically on batteries, which now last 4 years if you're lucky, vs. 10. When you include the durability factor, well these inflation numbers would go WAY UP.

    These are all things Americans must buy and big parts of their budgets, Yahya. When you go from official numbers of 1.5-2% up to 3.5-6%, well your money is being stolen MORE THAN twice as fast. When you account for the shorter lifetimes of the Cheap-ass China-made products, well, why save in dollars? You may be better off living paycheck-to-paycheck and praying for Bernie!


    I'll write about gasoline prices in reply to commenter EldnahYm later on.
  18. @Achmed E. Newman
    A picture is worth a thousand words:

    https://www.peakstupidity.com/images/post_761A.jpg

    It’s fascinating how stable the dollars purchasing power was between 1775 and 1933 when the dollar was made of silver and 20 of them were made of gold.

    Imagine paying the same price for bread, wheat, corn, beans, oil, honey, rice, land, shoes, housing, building materials and ice cream as your great grandparents once did.

    No state shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.

    It’s equally fascinating to see what happened after Nixon closed the gold window.

    A picture is worth a thousand words. Thanks.

    • Replies: @Audacious Epigone
    Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
    And the hearts of the meanest were humbled, and began to believe it was true
    That all is not gold that glitters, and two and two make four
    And the Gods of the Copybook Headings, limped up to explain it once more
    , @Achmed E. Newman
    Thank you for your appreciation for the US Constitution, Adam Smith (where have I heard that name before?) and also for a graphic explanation of real money.

    One thing that amazes people is to explain to them that 2 silver dimes (that is, pre-1965 dimes) can buy in-the-ballpark of a gallon of gas, just as they would have in 1964. The problem is getting a clerk who understands real money and would take them, and switch out in the till with his paper fiat crap ... not bloody likely in this Idiocracy.

    Let's see about right now, since the gas is WAY down. In 1964, those 2 dimes could get about 3 quarts, as duckduckgo came up with ~ 27 cents/gallon. Those 2 dimes, unless worn out a bit, should have 0.072 troy-oz of silver each. At the spot price of $14.5/oz today, they are equivalent to $2.10 of our non-absorbent green rags. At (depending where you live), say $1.60/gallon now, they can get you 1.3 Gallons or over 5 quarts! Just a few weeks ago, they'd have gotten you somewhere between 3 and 4 quarts (note, not valid in tax-happy California).

    So a Circle-K clerk would come out good getting 2 1964 or older dimes per gallon you pump, putting his own fiat money into the register, and keeping the dimes. If he knew that though, he wouldn't be working at the Circle-K for long - he'd be a Dean of the Austrian School of Economics, somewhere in ... like Austria or somewhere.

    Oh, I've got my opinion of what real inflation is right now, with examples, for commenter Yahya, but I'm limited to 3 and running out of time for now. It'll have to be later or tomorrow. Thank you all for the interesting economic discussion.
  19. @Yahya K.
    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what's going to happen, though lots of people pretend to know. And no you can't just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

    Today, they are running even larger deficits (~5%) and at even lower interest rates but with little inflation.

    Cheap labor. Offshoring would have caused massive deflation without QE.

    • Agree: Yahya K.
    • Replies: @LondonBob
    Internet and tech also created enormous productivity gains, my theory has been this caused prices to drop so when the Fed goosed the money supply in the late Clinton boom the distortions were hidden, until the tech bubble collapsed and the bubble was exposed.
  20. @Audacious Epigone
    Or just stop rolling over maturities into new issues, something China has been doing to some extent anyway. It doesn't require something as drastic as dumping them onto a Fed that has promised to buy them all--though the ability to do so, especially if the dollar is going to somehow strengthen from this, could be irresistible.

    If China (or anyone else) were to dump their treasuries, they would either sell them om the open market (in which case the Treasury/Fed would be unaffected) or we’d give them dollars, of which we have an apparently infinite supply. So not seeing how this causes any major conflagration. Of course we could always limit the Fed to buyng treasuries from the US Treasury, in which case we’re right where we are today.

    One, people and businesses would hold off on purchases as long as possible, since their cash would be growing in value.

    For businesses deciding whether to invest in increasing capacity, it’s more than just whether they could make more by just letting their dollars’ value increase. That increase would at best be a couple of percentage points yearly. Businesses generally expect whatever new money they invest to increase income a multiple of what is spent. If the product I’m retooling to produce will bring in less revenue I’m not going to think it a worthwhile endeavor and I’m not going to invest. Or buy materials, hire new workers, and the economic damage spreads.

    Of course that’s basic macro Econ101 and the variety of commercial endeavors will have different tolerances for deflation/inflation.

    • Replies: @Audacious Epigone
    The Fed is going to swamp the open market by buying everything. That's not conspiratorial--it's what they're saying they will do!
  21. @Yahya K.
    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what's going to happen, though lots of people pretend to know. And no you can't just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

    So you never know what’s going to happen, though lots of people pretend to know. And no you can’t just build a math model to predict these things. Its false precision.

    Thus the old saw that if you ask ten economists a question you’ll get 12 different answers. There’s a reason it’s called the “dismal” science.

  22. @Achmed E. Newman
    A picture is worth a thousand words:

    https://www.peakstupidity.com/images/post_761A.jpg

    As Stargazer obliquely noted, the CPI’s correspondence with the legal status of gold seems to be closer than with creation of the fed (though that certainly did not help).

    Try adding two dates to your plot and see how they look.

    April 6, 1933 – Executive Order 6102 banning gold ownership and citizens required to turn gold in at a price of $20.67 ($408 in 2019) per ounce. Then the price for international transactions raised to $35.
    https://en.wikipedia.org/wiki/Executive_Order_6102

    August 15, 1971 – gold price in dollars allowed to float from $35
    https://www.forbes.com/sites/briandomitrovic/2011/08/14/august-15-1971-a-date-which-has-lived-in-infamy

    This page discusses some of the history and has a graphic which gives some more perspective on your plot (which I think should be semi-log to better show the relative changes).
    https://inflationdata.com/Inflation/Inflation_Rate/Gold_Inflation.asp

    • Thanks: Achmed E. Newman
    • Replies: @res
    Here is a semi-log plot of CPI since 1913.
    https://www.maa.org/press/periodicals/loci/joma/the-consumer-price-index-and-inflation-calculate-and-graph-the-logarithm-of-the-cpi

    https://www.maa.org/sites/default/files/images/cms_upload/image01951742.gif

    The big thing to notice IMO is the way the CPI went up with WWII (as with all wars, see paper below), but then did NOT come back down afterwards as had always happened (usually at least somewhat painfully) in the past.

    This paper has a semi-log plot of the CPI going back to 1774. Along with some additional analysis.
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2871686
  23. @Rosie
    The only way deflationary economies can prosper is by dumping production on foreign economies with healthy consumer demand.

    We can reframe debtors being penalized in a deflationary environment to private creditors being rewarded in such an environment.
     
    Why should we be interested in rewarding insurers and rent-seekers?

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite. We don’t become wealthy by consuming, we become wealthy by producing.

    • Replies: @Jmaie

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite. We don’t become wealthy by consuming, we become wealthy by producing.
     
    We become wealthy by producing what others wish to consume while simultaneously consuming a bit less of what others produce.

    As to resources being finite, supplies of most things (food, energy and raw materials as example) have steadily increased and become cheaper** for hundreds of years. Wasn't that long ago that we were approaching peak oil, then along came fracking which diverted demand to gas. I can't remember how many times I've heard predictions of global starvation and yet the global food supply is as robust as it's ever been.

    ** This IMHO is why our standard of living has steadily clicked upwards since forever
    , @Rosie

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite.
     
    Demand is most certainly not infinite, at least not for spiritually healthy people who don't feel the need to consume to fill the God-shaped hole in their hearts.

    We don’t become wealthy by consuming, we become wealthy by producing.
     
    Producers don't produce things they can't sell.
    , @The Germ Theory of Disease
    "we become wealthy by producing"

    Depends what you mean by "we." Nations, as a collective entity, become wealthy by producing. But far more often than not, individuals, cliques, and ethnic networks become wealthy not by producing, but by controlling, manipulating, and gaming those who do the producing.
  24. @Audacious Epigone
    Nominally, there is no limit. This is why it is so hard for me to understand many of the commenters here who think we're entering a deflationary period rather than an inflationary one in consumer prices. Were there a way to create an infinite amount of money while simultaneously managing to avoid inflation, we'd be set. We're about to find out whether or not that is possible.

    This is why it is so hard for me to understand many of the commenters here who think we’re entering a deflationary period rather than an inflationary one in consumer prices. Were there a way to create an infinite amount of money while simultaneously managing to avoid inflation, we’d be set. We’re about to find out whether or not that is possible.

    I think you answered your own question. People (especially those in power) seem to believe it is possible to do just that (your second sentence). I think the outcome is going to be similar to what happened when people found out in the 1970s that no, inflation was not impossible with high unemployment. Stagflation.

    Here is an article discussing stagflation and why it is “unlikely to reoccur.”
    https://www.thebalance.com/what-is-stagflation-3305964

    A worthwhile read, but my money is on the dollar losing its reserve currency status being that “once-in-a-lifetime” event comparable to coming off the gold standard.

    P.S. Another factor in this is the extreme deflationary pressure (in some areas) caused by rapid technological improvement (the end of Moore’s Law and Dennard scaling lessens this IMHO) and the economies of the developing world spooling up.

    P.P.S. Twinkie, my take on this is a bit apocalyptic. I would be interested in your perspective.

    • Thanks: Audacious Epigone
  25. @Yahya K.
    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what's going to happen, though lots of people pretend to know. And no you can't just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

    Alternatively, there has been plenty of inflation, it just hasn’t gone much into consumer prices (yet). It went into asset prices that were presumed to represent claims on future resources but that have turned out to represent nothing at all.

    • Agree: res, Yahya K., Jay Fink
    • Replies: @animalogic
    "Plenty of inflation".
    True. And yes, most has gone into asset bloat.
    But, as PC Roberts, & others, have often noted, there's quite a bit of "product" inflation too.
    Modern ways of calculating inflation are deliberately bogus.
    The substitution rule (Apple phones go up, leave it off the list, as consumers will naturally turn to cheaper alternatives.
    Simply don't count (or under value in the relative basket of goods etc) products (ie food & energy).
    Discount inflation b/c price is equal to quality increases -- that Apple phone went up 30 % but is not included b/c there was a 30% increase in productivity value (ie it has a better camera etc).
  26. @res
    As Stargazer obliquely noted, the CPI's correspondence with the legal status of gold seems to be closer than with creation of the fed (though that certainly did not help).

    Try adding two dates to your plot and see how they look.

    April 6, 1933 - Executive Order 6102 banning gold ownership and citizens required to turn gold in at a price of $20.67 ($408 in 2019) per ounce. Then the price for international transactions raised to $35.
    https://en.wikipedia.org/wiki/Executive_Order_6102

    August 15, 1971 - gold price in dollars allowed to float from $35
    https://www.forbes.com/sites/briandomitrovic/2011/08/14/august-15-1971-a-date-which-has-lived-in-infamy

    This page discusses some of the history and has a graphic which gives some more perspective on your plot (which I think should be semi-log to better show the relative changes).
    https://inflationdata.com/Inflation/Inflation_Rate/Gold_Inflation.asp

    https://inflationdata.com/Inflation/images/charts/Annual_Inflation/Cumulative_Inflation_by_Decade_sm.jpg

    Here is a semi-log plot of CPI since 1913.
    https://www.maa.org/press/periodicals/loci/joma/the-consumer-price-index-and-inflation-calculate-and-graph-the-logarithm-of-the-cpi

    The big thing to notice IMO is the way the CPI went up with WWII (as with all wars, see paper below), but then did NOT come back down afterwards as had always happened (usually at least somewhat painfully) in the past.

    This paper has a semi-log plot of the CPI going back to 1774. Along with some additional analysis.
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2871686

  27. @Audacious Epigone
    This idea of "healthy consumer demand" is difficult for me. Human desires--demand, in other words--are infinite. Resources are finite. We don't become wealthy by consuming, we become wealthy by producing.

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite. We don’t become wealthy by consuming, we become wealthy by producing.

    We become wealthy by producing what others wish to consume while simultaneously consuming a bit less of what others produce.

    As to resources being finite, supplies of most things (food, energy and raw materials as example) have steadily increased and become cheaper** for hundreds of years. Wasn’t that long ago that we were approaching peak oil, then along came fracking which diverted demand to gas. I can’t remember how many times I’ve heard predictions of global starvation and yet the global food supply is as robust as it’s ever been.

    ** This IMHO is why our standard of living has steadily clicked upwards since forever

    • Agree: Yahya K.
    • Replies: @obwandiyag
    Humbug. We get rich by gaming derivatives and asset-stripping.
    , @obwandiyag
    Whose "standard of living"? Tell that to the tent city out on Cheltenham. You must be blind.
    , @Kim
    The issue is not "peak oil" - a really unfortunate misnomer - but peak cheap oil.

    The end of modernity will see lots of oil left in the ground for the simple reason that it costs more to extract than consumers can afford to pay.

    Shale oil is a perfect example of this process. It costs $70/barrel to drill and sells for very much less than that. It is a debt fraud. The junk debt that funds it will never be repaid.

    And it isn't even oil that they are drilling, it's a mix of oil and gas that they refer to as boe, "barrels of oil equivalent".

    The death of the theory of peak (cheap) oil is often announced, but unfortunately real world events keep proving such announcements wrong.
  28. @Yahya K.
    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what's going to happen, though lots of people pretend to know. And no you can't just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

    The U.S. inflation of the 1970s was a result of the oil crisis in the Middle East. Volcker’s high interest policies had nothing to do with the decline of inflation in the U.S.

  29. @Audacious Epigone
    This idea of "healthy consumer demand" is difficult for me. Human desires--demand, in other words--are infinite. Resources are finite. We don't become wealthy by consuming, we become wealthy by producing.

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite.

    Demand is most certainly not infinite, at least not for spiritually healthy people who don’t feel the need to consume to fill the God-shaped hole in their hearts.

    We don’t become wealthy by consuming, we become wealthy by producing.

    Producers don’t produce things they can’t sell.

    • Replies: @Audacious Epigone
    You have everything you want, then?
  30. Either a country’s private sector is productive, robust, with ready customers, or it isn’t. For the former, deflation and inflation are mild irritants, and hyperinflation will never happen. For the latter, hyperinflation is a common outcome.

    The USA is in the former category; and our private sector has always recovered from whatever calamity has befallen it.

    • Replies: @Yahya K.
    I agree.

    The question is: what makes a country robust and productive; or fragile and on the precipice of permanent collapse? In other words, why did Germany recover so quickly from their inflation, but Rome collapsed permanently soon after?

    The great Weimar hyperinflation wasn't the end of Germany. Germany recovered pretty well from the Weimar inflation. They destroyed the currency, but then they went back round and just issued new currency. And even with the limitations imposed by the Versailles treaty, they were able to recover from the great depression quicker than most other western nations, and they soon became the most powerful nation in Europe. And of course once that happened, World War 2 began.

    On the other hand, we have Rome:


    Constant wars and overspending had significantly lightened imperial coffers, and oppressive taxation and inflation resulted. In the hope of avoiding the taxman, many members of the wealthy classes had even fled to the countryside and set up independent fiefdoms. At the same time, the empire was rocked by a labor deficit. Rome’s economy depended on slaves to till its fields and work as craftsmen, and its military might had traditionally provided a fresh influx of conquered peoples to put to work. But when expansion ground to a halt in the second century, Rome’s supply of slaves and other war treasures began to dry up. A further blow came in the fifth century, when the Vandals claimed North Africa and began disrupting the empire’s trade by prowling the Mediterranean as pirates. With its economy faltering and its commercial and agricultural production in decline, the Empire began to lose its grip on Europe.
     
    And there is the answer to the conundrum: Germany maintained its human capital, and Rome lost it.

    Human capital is the secret sauce. So the question is: with the changing demographics, will the US and Europe be able to maintain the necessary human capital to keep their economies going over the long run? Will they be Germany or Rome?

  31. @dvorak
    Either a country's private sector is productive, robust, with ready customers, or it isn't. For the former, deflation and inflation are mild irritants, and hyperinflation will never happen. For the latter, hyperinflation is a common outcome.

    The USA is in the former category; and our private sector has always recovered from whatever calamity has befallen it.

    I agree.

    The question is: what makes a country robust and productive; or fragile and on the precipice of permanent collapse? In other words, why did Germany recover so quickly from their inflation, but Rome collapsed permanently soon after?

    The great Weimar hyperinflation wasn’t the end of Germany. Germany recovered pretty well from the Weimar inflation. They destroyed the currency, but then they went back round and just issued new currency. And even with the limitations imposed by the Versailles treaty, they were able to recover from the great depression quicker than most other western nations, and they soon became the most powerful nation in Europe. And of course once that happened, World War 2 began.

    On the other hand, we have Rome:

    Constant wars and overspending had significantly lightened imperial coffers, and oppressive taxation and inflation resulted. In the hope of avoiding the taxman, many members of the wealthy classes had even fled to the countryside and set up independent fiefdoms. At the same time, the empire was rocked by a labor deficit. Rome’s economy depended on slaves to till its fields and work as craftsmen, and its military might had traditionally provided a fresh influx of conquered peoples to put to work. But when expansion ground to a halt in the second century, Rome’s supply of slaves and other war treasures began to dry up. A further blow came in the fifth century, when the Vandals claimed North Africa and began disrupting the empire’s trade by prowling the Mediterranean as pirates. With its economy faltering and its commercial and agricultural production in decline, the Empire began to lose its grip on Europe.

    And there is the answer to the conundrum: Germany maintained its human capital, and Rome lost it.

    Human capital is the secret sauce. So the question is: with the changing demographics, will the US and Europe be able to maintain the necessary human capital to keep their economies going over the long run? Will they be Germany or Rome?

    • Replies: @animalogic
    "but Rome collapsed permanently soon after?"
    There is no comparison between Germany & Rome. Rome, you are talking centuries. Germany, roughly 25 years.
    Rome -- a currency ultimately based on precious metals. Germany -- fiat currency.
  32. @Audacious Epigone
    Nominally, there is no limit. This is why it is so hard for me to understand many of the commenters here who think we're entering a deflationary period rather than an inflationary one in consumer prices. Were there a way to create an infinite amount of money while simultaneously managing to avoid inflation, we'd be set. We're about to find out whether or not that is possible.

    But why shouldn’t the effects continue as they have done so for the past 20 years? The printing that the Fed does, little of it seems to go into the consumer’s hands. The mechanics of the Fed process seems to go as such: Fed exchanges junk assets from bank’s balance sheet for cash enabling bank to continue with the game of lending to private equity/hedge funds who pledge assets (that have nowhere to go but down) that will someday drift into junk status. Some of this cash goes to bank/hedge fund/management as bonus payment for rigging up these transactions. A little cash goes into the hands of bank drones (finance, management, IT) who do get paid well, relative to the rest of the economy. But cash paid to drones only has an inflationary effect in localized real estate/labor markets (New York, DC, San Francisco, etc). The vast majority of the country is untouched by this except in the negative sense in that their employer may be squeezed by private equity and forced to outsource production, resulting in unemployment and downward pressure on wages.

    I really do wish that massive inflation would come roaring off the steppe, wiping away all and sundry, but it seems that the Fed/Wall Street axis can continue with their shenanigans for quite a while longer, maybe for the time frame beyond my natural life. The day will come when foreigners no longer buy US Treasuries, but the Fed will just make up the deficit, buying up the surplus. At that point the inner party may as well be playing gin rummy amongst themselves because commerce will have become near pointless. This state of affairs is immoral. The heavens cry out for justice here. But who/what will strike the blow against this evil axis.

    • Replies: @Audacious Epigone
    The Fed is now trapped in an environment where the funds rate can never go above even the most mild measurement of inflation. The reason quantitative flooding worked in 2008 is because the presumption was eventually rates would go back up and the Fed's balance sheet would go back down. The Fed tried, finally, to do this in 2018 and the market instantly collapsed.

    Now, with rates at zero, the market has collapsed anyway. In this sense, we are in uncharted territory. The jig is up. Nobody on the planet thinks any of these treasuries will ever represent an appreciating asset ever again. It's infinite free money forever. If this doesn't break the dollar, then as I've noted previously, I'll happily be completely wrong--happily because it will mean that we've found the secret to perpetual wealth without having to produce anything.

  33. @Rosie

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite.
     
    Demand is most certainly not infinite, at least not for spiritually healthy people who don't feel the need to consume to fill the God-shaped hole in their hearts.

    We don’t become wealthy by consuming, we become wealthy by producing.
     
    Producers don't produce things they can't sell.

    You have everything you want, then?

    • Replies: @Rosie

    You have everything you want, then?
     
    No, but I can provide you with a finite list of things I want, and not only that, but I don't even want those things enough to sacrifice free time for myself and my family. Of course, you could characterize free time as just another desirable good, but then that renders the idea of infinite demand kind of meaningless and trivial, doesn't it?

    There is a gender aspect to this, also. Men have more imagination when it comes to how they would spend X bazillions of dollars, whereas women tend to draw a blank after certain point. (I believe studies have been done on this. )

    But still, the very most acquisitive men are unrepresentative of men as a whole. The Bill Gateses of the world are egotistical megalomaniacs, but here's the thing: Even they do not have unlimited desires, and that's why they go on to do a lot of good as philanthropists later on in life. Here again, this could be reframed as a desire for a legacy and the esteem of society and future generations, but then that is itself an acknowledgment of consumption's diminishing relative returns.

    BTW, the tiny house Mr. Rosie doesn't know yet that he's going to build me:


    https://i.pinimg.com/originals/b4/f8/fb/b4f8fb87f62c051ac42942b457ba6bee.jpg

  34. @Daniel H
    But why shouldn't the effects continue as they have done so for the past 20 years? The printing that the Fed does, little of it seems to go into the consumer's hands. The mechanics of the Fed process seems to go as such: Fed exchanges junk assets from bank's balance sheet for cash enabling bank to continue with the game of lending to private equity/hedge funds who pledge assets (that have nowhere to go but down) that will someday drift into junk status. Some of this cash goes to bank/hedge fund/management as bonus payment for rigging up these transactions. A little cash goes into the hands of bank drones (finance, management, IT) who do get paid well, relative to the rest of the economy. But cash paid to drones only has an inflationary effect in localized real estate/labor markets (New York, DC, San Francisco, etc). The vast majority of the country is untouched by this except in the negative sense in that their employer may be squeezed by private equity and forced to outsource production, resulting in unemployment and downward pressure on wages.

    I really do wish that massive inflation would come roaring off the steppe, wiping away all and sundry, but it seems that the Fed/Wall Street axis can continue with their shenanigans for quite a while longer, maybe for the time frame beyond my natural life. The day will come when foreigners no longer buy US Treasuries, but the Fed will just make up the deficit, buying up the surplus. At that point the inner party may as well be playing gin rummy amongst themselves because commerce will have become near pointless. This state of affairs is immoral. The heavens cry out for justice here. But who/what will strike the blow against this evil axis.

    The Fed is now trapped in an environment where the funds rate can never go above even the most mild measurement of inflation. The reason quantitative flooding worked in 2008 is because the presumption was eventually rates would go back up and the Fed’s balance sheet would go back down. The Fed tried, finally, to do this in 2018 and the market instantly collapsed.

    Now, with rates at zero, the market has collapsed anyway. In this sense, we are in uncharted territory. The jig is up. Nobody on the planet thinks any of these treasuries will ever represent an appreciating asset ever again. It’s infinite free money forever. If this doesn’t break the dollar, then as I’ve noted previously, I’ll happily be completely wrong–happily because it will mean that we’ve found the secret to perpetual wealth without having to produce anything.

    • Replies: @Daniel H
    I’ll happily be completely wrong–happily because it will mean that we’ve found the secret to perpetual wealth without having to produce anything.

    Ha, ha. And such would truly be a pact with the Devil.
  35. @Adam Smith
    It's fascinating how stable the dollars purchasing power was between 1775 and 1933 when the dollar was made of silver and 20 of them were made of gold.

    https://images.vcoins.com/product_image/239/X/6/Xk53s7EZ4GFeE8zQPY6b2zqGiMo39L.jpg

    https://www.usacoinbook.com/us-coins/saint-gaudens-double-eagle-gold-with-motto.jpg

    Imagine paying the same price for bread, wheat, corn, beans, oil, honey, rice, land, shoes, housing, building materials and ice cream as your great grandparents once did.

    No state shall... make any Thing but gold and silver Coin a Tender in Payment of Debts.

    It's equally fascinating to see what happened after Nixon closed the gold window.

    A picture is worth a thousand words. Thanks.

    Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
    And the hearts of the meanest were humbled, and began to believe it was true
    That all is not gold that glitters, and two and two make four
    And the Gods of the Copybook Headings, limped up to explain it once more

    • Thanks: Adam Smith
    • Replies: @Adam Smith
    As I pass through my incarnations in every age and race,
    I make my proper prostrations to the Gods of the Market-Place.
    Peering through reverent fingers I watch them flourish and fall,
    And the Gods of the Copybook Headings, I notice, outlast them all.
  36. @Jmaie
    If China (or anyone else) were to dump their treasuries, they would either sell them om the open market (in which case the Treasury/Fed would be unaffected) or we'd give them dollars, of which we have an apparently infinite supply. So not seeing how this causes any major conflagration. Of course we could always limit the Fed to buyng treasuries from the US Treasury, in which case we're right where we are today.

    One, people and businesses would hold off on purchases as long as possible, since their cash would be growing in value.
     
    For businesses deciding whether to invest in increasing capacity, it's more than just whether they could make more by just letting their dollars' value increase. That increase would at best be a couple of percentage points yearly. Businesses generally expect whatever new money they invest to increase income a multiple of what is spent. If the product I'm retooling to produce will bring in less revenue I'm not going to think it a worthwhile endeavor and I'm not going to invest. Or buy materials, hire new workers, and the economic damage spreads.

    Of course that's basic macro Econ101 and the variety of commercial endeavors will have different tolerances for deflation/inflation.

    The Fed is going to swamp the open market by buying everything. That’s not conspiratorial–it’s what they’re saying they will do!

    • Replies: @Jmaie

    The Fed is going to swamp the open market by buying everything. That’s not conspiratorial–it’s what they’re saying they will do!

     

    Nothing conspiratorial suggested. I've seen where Fed's said they will buy treasures, they did not say they would buy all $24B of outstanding T-bills on the planet. And there's nothing to say they couldn't decline to purchase from foreign governments. (Yes, I know, money and T-bills are fungible but it would still be difficult to hide transactions in that volume.)

    But even if they did buy every last one - as you've said, the Fed can never run out of dollars ;<(

    (By the way, I'm not saying that would good idea. I'm old school, I still don't understand why our massive expansion of the M2 hasn't resulted in much more price inflation (beyond that which is visible to anyone paying attention despite the federal government desperate attempt to hide by chicanery). I've managed to sequester a reasonable amount to live off of in retirement but I fear that these latest developements will unleash inflation outside of equities and other similarfinancial streams.

    A few years back my employer asked us for ideas to improve/expand the options for 401K investments. I suggested a "burying gold in my backyard fund" but they were not asmused.

    Cheers.
  37. Oh, but there has been deflation, but at the other end. Cheap overseas labor and the low value of the Yuan. Its a neat trick, but still unsustainable. Cheap labor can only get so cheap, and you’re seeing that they have to subsidize it with welfare payments here. At the Chinese end there is slave labor, but even that has limitations.

    This is an unstable House of Cards you have here. Massive Inflation here and Massive deflation of cheap labor’s wages. Something’s got to give. This CANNOT GO ON FOR MUCH LONGER.

  38. @Audacious Epigone
    You have everything you want, then?

    You have everything you want, then?

    No, but I can provide you with a finite list of things I want, and not only that, but I don’t even want those things enough to sacrifice free time for myself and my family. Of course, you could characterize free time as just another desirable good, but then that renders the idea of infinite demand kind of meaningless and trivial, doesn’t it?

    There is a gender aspect to this, also. Men have more imagination when it comes to how they would spend X bazillions of dollars, whereas women tend to draw a blank after certain point. (I believe studies have been done on this. )

    But still, the very most acquisitive men are unrepresentative of men as a whole. The Bill Gateses of the world are egotistical megalomaniacs, but here’s the thing: Even they do not have unlimited desires, and that’s why they go on to do a lot of good as philanthropists later on in life. Here again, this could be reframed as a desire for a legacy and the esteem of society and future generations, but then that is itself an acknowledgment of consumption’s diminishing relative returns.

    BTW, the tiny house Mr. Rosie doesn’t know yet that he’s going to build me:

    • LOL: iffen
    • Replies: @Audacious Epigone
    So in your case is it a demand issue or a supply issue, your not having this finite list of things you desire?

    I need you to continue walking into the trap I'm setting for you, so no more digressions!
    , @The Alarmist
    You remind me of my wife's ambitions before I bought the château. Now she has no shortage of design ambitions.
  39. @Audacious Epigone
    The Fed is now trapped in an environment where the funds rate can never go above even the most mild measurement of inflation. The reason quantitative flooding worked in 2008 is because the presumption was eventually rates would go back up and the Fed's balance sheet would go back down. The Fed tried, finally, to do this in 2018 and the market instantly collapsed.

    Now, with rates at zero, the market has collapsed anyway. In this sense, we are in uncharted territory. The jig is up. Nobody on the planet thinks any of these treasuries will ever represent an appreciating asset ever again. It's infinite free money forever. If this doesn't break the dollar, then as I've noted previously, I'll happily be completely wrong--happily because it will mean that we've found the secret to perpetual wealth without having to produce anything.

    I’ll happily be completely wrong–happily because it will mean that we’ve found the secret to perpetual wealth without having to produce anything.

    Ha, ha. And such would truly be a pact with the Devil.

  40. Oil is the hidden hand the maintains the floor under USD which in turn gives US the right to print as much as it wants. For America to fail, USD has to fail, and for that to happen someone like Elon Musk has to succeed, I said someone like him because Elon Musk’s creations today are not game time ready.

  41. @Talha
    I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears. We need to bring manufacturing capacity back and not be so dependent on China.

    Peace.

    Actually I predict that coming out of this shut down, we are going to see turbo charged version of what was wrong before – private equity led by buyouts that load good stable companies with huge debts and send that same money to fat cats, uncontrolled mergers between companies that serve no purpose other than loss of good jobs and enrichment of fat cats, more outsourcing and off shoring of what can’t be outright buy from China, and more bartender and hairdresser jobs for who needs work.

    I hope that I am wrong but the trend going back to W imploring people to shop after 911 points only in one direction.

    BTW, one WASP fat cat Warren Buffet has been curiously quiet in this whole market carnage? He is getting a huge bailout from govt as he is a big shareholder in airlines and rail lines.

    • Replies: @Talha

    I hope that I am wrong
     
    Same here - the scenario you outline is a nightmare.

    Peace.
    , @Daniel H
    uncontrolled mergers between companies that serve no purpose other than loss of good jobs and enrichment of fat cats,

    Headline out there on Drudge. Viacom is planning to issue $2 billion in new debt, on top of the $18 billion debt they are already holding. ALL this debt is due to M and A activity. Viacom is a service/media company. No need for them to ever take on much debt to maintain or expand operations (in an organic way).
  42. I don’t see the price of anything going down.

  43. @Jmaie

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite. We don’t become wealthy by consuming, we become wealthy by producing.
     
    We become wealthy by producing what others wish to consume while simultaneously consuming a bit less of what others produce.

    As to resources being finite, supplies of most things (food, energy and raw materials as example) have steadily increased and become cheaper** for hundreds of years. Wasn't that long ago that we were approaching peak oil, then along came fracking which diverted demand to gas. I can't remember how many times I've heard predictions of global starvation and yet the global food supply is as robust as it's ever been.

    ** This IMHO is why our standard of living has steadily clicked upwards since forever

    Humbug. We get rich by gaming derivatives and asset-stripping.

    • Replies: @Jmaie

    Humbug. We get rich by gaming derivatives and asset-stripping.
     
    A few do, yes. Which is of course not what I meant by "we" as I'm sure you're well aware. Despite being strongly libertarian in nature I'd be OK with of shutting down (or at least greatly reducing) the gambling involved with derivative market.

    But of course your point is pure snark so shame on me for bothering to respond.
  44. @Jmaie

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite. We don’t become wealthy by consuming, we become wealthy by producing.
     
    We become wealthy by producing what others wish to consume while simultaneously consuming a bit less of what others produce.

    As to resources being finite, supplies of most things (food, energy and raw materials as example) have steadily increased and become cheaper** for hundreds of years. Wasn't that long ago that we were approaching peak oil, then along came fracking which diverted demand to gas. I can't remember how many times I've heard predictions of global starvation and yet the global food supply is as robust as it's ever been.

    ** This IMHO is why our standard of living has steadily clicked upwards since forever

    Whose “standard of living”? Tell that to the tent city out on Cheltenham. You must be blind.

    • Replies: @Jmaie

    Whose “standard of living”? Tell that to the tent city out on Cheltenham. You must be blind
     
    I'm curious why you think throwing insults at random internet commenters helps bolster your intellectual credibility? As was quite clear, I was referring to global standard of living on a centuries-long timeline. So are you trolling, being intentionally obtuse or ???
  45. @Audacious Epigone
    The Fed is going to swamp the open market by buying everything. That's not conspiratorial--it's what they're saying they will do!

    The Fed is going to swamp the open market by buying everything. That’s not conspiratorial–it’s what they’re saying they will do!

    Nothing conspiratorial suggested. I’ve seen where Fed’s said they will buy treasures, they did not say they would buy all $24B of outstanding T-bills on the planet. And there’s nothing to say they couldn’t decline to purchase from foreign governments. (Yes, I know, money and T-bills are fungible but it would still be difficult to hide transactions in that volume.)

    But even if they did buy every last one – as you’ve said, the Fed can never run out of dollars ;<(

    (By the way, I'm not saying that would good idea. I'm old school, I still don't understand why our massive expansion of the M2 hasn't resulted in much more price inflation (beyond that which is visible to anyone paying attention despite the federal government desperate attempt to hide by chicanery). I've managed to sequester a reasonable amount to live off of in retirement but I fear that these latest developements will unleash inflation outside of equities and other similarfinancial streams.

    A few years back my employer asked us for ideas to improve/expand the options for 401K investments. I suggested a "burying gold in my backyard fund" but they were not asmused.

    Cheers.

  46. @obwandiyag
    Humbug. We get rich by gaming derivatives and asset-stripping.

    Humbug. We get rich by gaming derivatives and asset-stripping.

    A few do, yes. Which is of course not what I meant by “we” as I’m sure you’re well aware. Despite being strongly libertarian in nature I’d be OK with of shutting down (or at least greatly reducing) the gambling involved with derivative market.

    But of course your point is pure snark so shame on me for bothering to respond.

  47. @obwandiyag
    Whose "standard of living"? Tell that to the tent city out on Cheltenham. You must be blind.

    Whose “standard of living”? Tell that to the tent city out on Cheltenham. You must be blind

    I’m curious why you think throwing insults at random internet commenters helps bolster your intellectual credibility? As was quite clear, I was referring to global standard of living on a centuries-long timeline. So are you trolling, being intentionally obtuse or ???

  48. @Rosie

    You have everything you want, then?
     
    No, but I can provide you with a finite list of things I want, and not only that, but I don't even want those things enough to sacrifice free time for myself and my family. Of course, you could characterize free time as just another desirable good, but then that renders the idea of infinite demand kind of meaningless and trivial, doesn't it?

    There is a gender aspect to this, also. Men have more imagination when it comes to how they would spend X bazillions of dollars, whereas women tend to draw a blank after certain point. (I believe studies have been done on this. )

    But still, the very most acquisitive men are unrepresentative of men as a whole. The Bill Gateses of the world are egotistical megalomaniacs, but here's the thing: Even they do not have unlimited desires, and that's why they go on to do a lot of good as philanthropists later on in life. Here again, this could be reframed as a desire for a legacy and the esteem of society and future generations, but then that is itself an acknowledgment of consumption's diminishing relative returns.

    BTW, the tiny house Mr. Rosie doesn't know yet that he's going to build me:


    https://i.pinimg.com/originals/b4/f8/fb/b4f8fb87f62c051ac42942b457ba6bee.jpg

    So in your case is it a demand issue or a supply issue, your not having this finite list of things you desire?

    I need you to continue walking into the trap I’m setting for you, so no more digressions!

    • Replies: @Rosie

    I need you to continue walking into the trap I’m setting for you, so no more digressions!
     
    A.E., why do you want to play gotcha over monetary policy? Can't we just have a good faith discussion? Anyway, ...


    So in your case is it a demand issue or a supply issue, your not having this finite list of things you desire?
     
    I'm not sure I understand your question, but I think the answer is "demand." If you're going to point out hat it's not healthy to create artificial demand for the sake of stimulating the economy, I certainly agree with you on that.
  49. @indocon
    Actually I predict that coming out of this shut down, we are going to see turbo charged version of what was wrong before - private equity led by buyouts that load good stable companies with huge debts and send that same money to fat cats, uncontrolled mergers between companies that serve no purpose other than loss of good jobs and enrichment of fat cats, more outsourcing and off shoring of what can't be outright buy from China, and more bartender and hairdresser jobs for who needs work.

    I hope that I am wrong but the trend going back to W imploring people to shop after 911 points only in one direction.

    BTW, one WASP fat cat Warren Buffet has been curiously quiet in this whole market carnage? He is getting a huge bailout from govt as he is a big shareholder in airlines and rail lines.

    I hope that I am wrong

    Same here – the scenario you outline is a nightmare.

    Peace.

  50. @Talha
    I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears. We need to bring manufacturing capacity back and not be so dependent on China.

    Peace.

    “I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears.”

    this is simply what’s going to happen though. Biden is going to be President, and that means everything with regard to China goes back exactly to how it was. shrug.

    in no way shape or form is there going to be a reshoring or manufacturing movement in the US. totally the opposite. not only will the tariffs immediately be lifted, the travel restrictions be gone, all million Chinese students right back to the universities, and every Chinese industrial spy returned to their job so they can continue spying and stealing. but the triumphant Democrat monopoly will look to move as much blue collar industry and manufacturing off the continent as they can. the movement to de-industrialize will accelerate, not reverse. college educated white collar Democrat voters have ZERO use for industry.

    if it was possible to grow all the food and mine all the oil and natural gas and generate all the electricity in China too, THEY WOULD DO THAT. they HATE blue collar Republican voting european men who do the heavy lifting and perform the nuts and bolts stuff that keeps a country going. the university educated white collar Democrat alliance with their african, mexican, muslim underclass allies will purge America of their enemy.

    this is the Democrats chance to utterly crush blue collar and middle class european men. i anticipate a de-automobile factory movement next – currently no vehicles made in China are sold here, but under Democrat monopoly, that will change, so that eventually, even GM is pulverized and the US undergoes a de-automobile manufacturing transition.

    • Replies: @Talha
    What you are describing is flat out treason (and I am not being hyperbolic).

    Peace.
  51. @Achmed E. Newman
    Isn't it neat, Stargazer, that one can see economic history in that graph? (Coincidentally, I was looking at it again only 5 minutes ago.)

    You can see the arab oil price shocks in there too. Note, that even back from the end of WWII to that date Dick Nixon screwed the pooch, there was a significant steady rise in the CPI, with a lower slope after 1955.

    It's hard to tell because the graph is so damn steep from 1971 on, but there's an inflection point around 1981, as FED chairman Paul Volcker jacked up interest rates to the sky for a while to fight inflation make up for their earlier screw-ups. The dollar still loses value very quickly, in the big scheme of things, but that's using the BLS inflation numbers. Inflation has been higher than what they've been reporting.

    I like Nixon but he was absolutely calamitous for the US economy.

    • Replies: @Achmed E. Newman
    I never did like him for lots of reasons. Per a recommendation from an unz commenter, I'm reading Pat Buchanan's The Greatest Comeback about the Nixon campaigns in the 1960s (it may go into the '70s). After 1/3 of that book, I appreciate Nixon's savvy but think no better of him at all. As much as Mr. Buchanan liked the guy, Nixon is still described as an opportunist with no principles. Likely, Ronald Reagan will be the hero of the book, whether Mr. Buchanan intended that or not.
    , @Stargazer
    Agree. Nixon guaranteed the ultimate demise of the dollar-based international financial system. I suspect the day of reckoning is not far off, several years not decades. Watch what is and will be happening with gold. Physical gold, not paper gold.
  52. @Audacious Epigone
    So in your case is it a demand issue or a supply issue, your not having this finite list of things you desire?

    I need you to continue walking into the trap I'm setting for you, so no more digressions!

    I need you to continue walking into the trap I’m setting for you, so no more digressions!

    A.E., why do you want to play gotcha over monetary policy? Can’t we just have a good faith discussion? Anyway, …

    So in your case is it a demand issue or a supply issue, your not having this finite list of things you desire?

    I’m not sure I understand your question, but I think the answer is “demand.” If you’re going to point out hat it’s not healthy to create artificial demand for the sake of stimulating the economy, I certainly agree with you on that.

    • Replies: @anon
    Can’t we just have a good faith discussion?

    Discussion with someone like this...

    https://www.echo.net.au/wp-content/uploads/2016/03/woman-with-megaphone-640x394.jpg

    ...rarely worth the trouble.

    lol.
    , @Audacious Epigone
    It's a supply issue. You have the demand, you're just not willing to satisfy it at the prevailing price because of the amount of resources you have to give up to get it. If the supply of the thing tripled, the amount of resources you'd have to give up to get it would drop. You'd feel the trade off now acceptable so you'd make the purchase and acquire the thing, satisfying your demand on account of an increase in supply.
  53. @Rosie

    Today, they are running even larger deficits (~5%) and at even lower interest rates but with little inflation.
     
    Cheap labor. Offshoring would have caused massive deflation without QE.

    Internet and tech also created enormous productivity gains, my theory has been this caused prices to drop so when the Fed goosed the money supply in the late Clinton boom the distortions were hidden, until the tech bubble collapsed and the bubble was exposed.

  54. “Everyone wants dollars and they always will”

    this is going to end this century. it’s a matter of debate exactly when, but the dollar will yield to yuan before 2100. under no circumstances can “muh Fed” just print new dollars for 200 years straight and magically barely anything will change for the average joe. the end of the American empire is within sight, to people alive today probably.

    we don’t know for sure when the US will go down, other than it being certain that it will. but when it happens, it will happen fast, like a sports dynasty winning the championship, then 3 years later not even being able to make the playoffs, after all their great hall of fame players get old around the same time.

    when it does happen, it’s going to be surprising how quickly the US crumbles. forget the surface demographic numbers about the US still being like 65% europeans. they are OLD. those numbers include all the people over 60, and people over 60 don’t do much and don’t account much for a nation’s dynamism. and millions of them are all just a few years from dying. the great boomer die off.

    the reality on the ground is that America is right on the edge of being majority vibrant, in the 20 to 60 year old range, the range where everything of importance happens. european people’s ability to vote their way to good governance (or any kind of reasonable governance at all) is about to end. after that, the slide downhill can be pretty fast. President Adams or her facsimile can ruin things QUICKLY. vibrants produce net negative economic activity, so how will the dollar remain the reserve currency then?

    • Replies: @The Wild Geese Howard
    Prime,

    Just wanted to thank you for another great post. You've been on fire lately.

    I hope that you and yours are safe and secure in these trying times.
  55. @Achmed E. Newman
    I think Mr. Lowe is thinking the same thing that I used to, that interest is only charged due to inflation. That is completely incorrect if he meant it that way (I'm going by "This would destroy private credit."). No, it wouldn't! Interest rates are the "price of money", that is the price of the time value of it to spend now versus in 5 years. He would do himself a favor by reading this old Peak Stupidity post: Inflation and Interest.

    Nominal interest rates would be lower of course in a deflationary economy, but their real rates would still reflect the price of money. The Wall Street Journal used to* put out opinions about how bad deflation would be. It didn't make sense to me then, and it sure doesn't now. That might be bad for Washington, FS and Wall Street (in some way), but it's great for the common man whose life of labor would not be continuously stolen from him over the years, as the inherent value of his savings goes down.

    Inflation is bad; deflation is good. Yes, it IS that simple. It's just that there's barely anyone alive today who can remember a time when a steady erosion of the value of the dollar wasn't a fact of life. That's the real problem.

    .

    * Well, it probably still does, but I just quit reading it over 15 years ago due to their incessant mass-immigration boosterism

    It will be interesting to see what life will be like in a world where there is no time-value to capital. Some might call it capitalism without capital. I figure it is a return to Feudalism.

    • Replies: @Audacious Epigone
    Great point. What happens to finance when the concept of time value of money has been artificially completely eradicated, when there is no discount in the present value?
  56. @indocon
    Actually I predict that coming out of this shut down, we are going to see turbo charged version of what was wrong before - private equity led by buyouts that load good stable companies with huge debts and send that same money to fat cats, uncontrolled mergers between companies that serve no purpose other than loss of good jobs and enrichment of fat cats, more outsourcing and off shoring of what can't be outright buy from China, and more bartender and hairdresser jobs for who needs work.

    I hope that I am wrong but the trend going back to W imploring people to shop after 911 points only in one direction.

    BTW, one WASP fat cat Warren Buffet has been curiously quiet in this whole market carnage? He is getting a huge bailout from govt as he is a big shareholder in airlines and rail lines.

    uncontrolled mergers between companies that serve no purpose other than loss of good jobs and enrichment of fat cats,

    Headline out there on Drudge. Viacom is planning to issue $2 billion in new debt, on top of the $18 billion debt they are already holding. ALL this debt is due to M and A activity. Viacom is a service/media company. No need for them to ever take on much debt to maintain or expand operations (in an organic way).

  57. @Achmed E. Newman
    A picture is worth a thousand words:

    https://www.peakstupidity.com/images/post_761A.jpg

    how much of CPI going up steadily since the 70s is due to getting off the gold standard in the early 70s, versus the flood of immigration since the late 60s? it’s partly both, but would be good to have some calculations.

    • Replies: @Achmed E. Newman
    The flood of immigration lowered wages, but I don't see how it affected inflation. I'd like you to explain, as I'm not trying to argue about it, just wondering what you mean.
  58. @Rosie

    You have everything you want, then?
     
    No, but I can provide you with a finite list of things I want, and not only that, but I don't even want those things enough to sacrifice free time for myself and my family. Of course, you could characterize free time as just another desirable good, but then that renders the idea of infinite demand kind of meaningless and trivial, doesn't it?

    There is a gender aspect to this, also. Men have more imagination when it comes to how they would spend X bazillions of dollars, whereas women tend to draw a blank after certain point. (I believe studies have been done on this. )

    But still, the very most acquisitive men are unrepresentative of men as a whole. The Bill Gateses of the world are egotistical megalomaniacs, but here's the thing: Even they do not have unlimited desires, and that's why they go on to do a lot of good as philanthropists later on in life. Here again, this could be reframed as a desire for a legacy and the esteem of society and future generations, but then that is itself an acknowledgment of consumption's diminishing relative returns.

    BTW, the tiny house Mr. Rosie doesn't know yet that he's going to build me:


    https://i.pinimg.com/originals/b4/f8/fb/b4f8fb87f62c051ac42942b457ba6bee.jpg

    You remind me of my wife’s ambitions before I bought the château. Now she has no shortage of design ambitions.

    • Replies: @Rosie

    You remind me of my wife’s ambitions before I bought the château. Now she has no shortage of design ambitions.
     
    Of course! That's why you go small. Custom mosaic tile is much cheaper in a 5 by 5 than a 10 by 15 bathroom.
  59. @LondonBob
    I like Nixon but he was absolutely calamitous for the US economy.

    I never did like him for lots of reasons. Per a recommendation from an unz commenter, I’m reading Pat Buchanan’s The Greatest Comeback about the Nixon campaigns in the 1960s (it may go into the ’70s). After 1/3 of that book, I appreciate Nixon’s savvy but think no better of him at all. As much as Mr. Buchanan liked the guy, Nixon is still described as an opportunist with no principles. Likely, Ronald Reagan will be the hero of the book, whether Mr. Buchanan intended that or not.

    • Replies: @nebulafox
    Domestic policy, I'd completely agree, but not on foreign policy. The Nixon Doctrine was the last time in US history where we ever put forward a consistent, clear set of guidelines on what we would and would not do for allies in different situations. That kind of predictability is invaluable when dealing with foreign governments. (Personally, I think we'd have all been way better off-and Nixon himself would have been a lot happier-had he been NSC majordomo working in the shadows rather than POTUS.)

    Something like that, adapted for a post-Cold War world, would have prevented a lot of grief. It even could have potentially set the stage for general demilitarization, though granted, that would have also taken the adults beating the empire-fantasists in the early 90s and a subsequent concerted effort against the Blob.

  60. @prime noticer
    how much of CPI going up steadily since the 70s is due to getting off the gold standard in the early 70s, versus the flood of immigration since the late 60s? it's partly both, but would be good to have some calculations.

    The flood of immigration lowered wages, but I don’t see how it affected inflation. I’d like you to explain, as I’m not trying to argue about it, just wondering what you mean.

    • Replies: @Cloudbuster
    I don't know if this is what he means, but immigrants are debt fuel. That's how they can affect inflation. They're not the *cause* of it, but they contribute to the conditions that encourage the people running the financial system to want and be able to float more inflation.
  61. @Achmed E. Newman
    The flood of immigration lowered wages, but I don't see how it affected inflation. I'd like you to explain, as I'm not trying to argue about it, just wondering what you mean.

    I don’t know if this is what he means, but immigrants are debt fuel. That’s how they can affect inflation. They’re not the *cause* of it, but they contribute to the conditions that encourage the people running the financial system to want and be able to float more inflation.

    • Replies: @Kim
    Immigrants are supposed to sustain demand. In Sydney, immigrants have increased the population from four to five million in just the last ten years.

    Of course urban Australia makes nothing, so these immigrants have not enriched the country but immigrants do get loans for houses and apartments and that does enrich the four big banks and the handful of developers who run that nation of alcoholics and mental midgets.

    , @Achmed E. Newman
    OK, so that's more indirectly. Thanks.

    Sorry for the late reply. Ron Unz indirectly told me to "take a break".
  62. some of the CPI calculations are conflated because the economists who setup the numbers and formulas, factor in tech improvements to the items being purchased.

    such that a car sold in 2020 is better than a similar car from 2000, so it’s “fair” that the car also costs $8000 more, and that doesn’t raise the CPI for cars. the problem being, it’s a binary thing for the consumer. yeah, the 2020 car is better, but there’s no option to buy a new from factory year 2000 car with zero miles of wear and tear. so you either pay $8000 more for a car, or you don’t get a car. cars are mechanical and there’s only so much usable life in them. substituting buying a used year 2000 car is not apples to apples.

    so a lot of manufactured stuff really does cost more today, beyond CPI figures. in the car example specifically it’s even worse, since the low end subcompact cars that were around 20 or 30 years ago are now almost all discontinued, so the least expensive new vehicles you can buy are even more expensive today than the CPI cost example above.

    • Agree: Audacious Epigone
    • Replies: @Jmaie

    some of the CPI calculations are conflated because the economists who setup the numbers and formulas, factor in tech improvements to the items being purchased.
     
    The federal government calculates food cost inflation by tracking changes in the price of a basket of items across multiple markets. When they noticed that food prices were dramatically increasing (which they didn't want the public to know) they decided to swap out items in the basket for less expensive alternatives. NY strip became top sirloin as example (because any prudent housewife wouldn't drop $20 a pound for steak).

    Also for fun, look at "seasonally adjusted" Bureau of Labor job numbers. I recall a couple of years back how an ADP monthly print of 11,000 actual new hires was seasonally adjusted to an official increase of 198,000 new jobs. They actually printed both tables side-by-side (but not until deep into the report).

    Government statistics are not published to inform, they are intended to promote whatever message the administration wants pushed.

    , @dfordoom

    some of the CPI calculations are conflated because the economists who setup the numbers and formulas, factor in tech improvements to the items being purchased.
     
    You're surely not suggesting that economists are fudging the figures to deliberately mislead us and make us think we're better off when we're really worse off? I'm shocked. Shocked, I tell you.
  63. @Adam Smith
    It's fascinating how stable the dollars purchasing power was between 1775 and 1933 when the dollar was made of silver and 20 of them were made of gold.

    https://images.vcoins.com/product_image/239/X/6/Xk53s7EZ4GFeE8zQPY6b2zqGiMo39L.jpg

    https://www.usacoinbook.com/us-coins/saint-gaudens-double-eagle-gold-with-motto.jpg

    Imagine paying the same price for bread, wheat, corn, beans, oil, honey, rice, land, shoes, housing, building materials and ice cream as your great grandparents once did.

    No state shall... make any Thing but gold and silver Coin a Tender in Payment of Debts.

    It's equally fascinating to see what happened after Nixon closed the gold window.

    A picture is worth a thousand words. Thanks.

    Thank you for your appreciation for the US Constitution, Adam Smith (where have I heard that name before?) and also for a graphic explanation of real money.

    One thing that amazes people is to explain to them that 2 silver dimes (that is, pre-1965 dimes) can buy in-the-ballpark of a gallon of gas, just as they would have in 1964. The problem is getting a clerk who understands real money and would take them, and switch out in the till with his paper fiat crap … not bloody likely in this Idiocracy.

    Let’s see about right now, since the gas is WAY down. In 1964, those 2 dimes could get about 3 quarts, as duckduckgo came up with ~ 27 cents/gallon. Those 2 dimes, unless worn out a bit, should have 0.072 troy-oz of silver each. At the spot price of $14.5/oz today, they are equivalent to $2.10 of our non-absorbent green rags. At (depending where you live), say $1.60/gallon now, they can get you 1.3 Gallons or over 5 quarts! Just a few weeks ago, they’d have gotten you somewhere between 3 and 4 quarts (note, not valid in tax-happy California).

    So a Circle-K clerk would come out good getting 2 1964 or older dimes per gallon you pump, putting his own fiat money into the register, and keeping the dimes. If he knew that though, he wouldn’t be working at the Circle-K for long – he’d be a Dean of the Austrian School of Economics, somewhere in … like Austria or somewhere.

    Oh, I’ve got my opinion of what real inflation is right now, with examples, for commenter Yahya, but I’m limited to 3 and running out of time for now. It’ll have to be later or tomorrow. Thank you all for the interesting economic discussion.

    • Agree: Talha, Audacious Epigone
    • Thanks: Yahya K.
    • Replies: @Adam Smith
    Dear Achmed,

    Kindest wishes... I hope this letter finds you well...

    Thank you for your interesting and lively discussion as well as your appreciation for the US Constitution, dead letter though it may be.

    Adam Smith (where have I heard that name before?)
     
    No idea... Could be anyone... Smith is a fairly common name 'round here...

    The problem is getting a clerk who understands real money
     
    Or anyone else, evidently...

    https://www.youtube.com/watch?v=bYhTFz_SGw0

    https://www.youtube.com/watch?v=G8qGDun4puM

    and would take them, and switch out in the till with his paper fiat crap …
     
    Indeed, not bloody likely...

    Perhaps you could trade them some chocolate or gummies for some gasomoline...

    'Mericans love candy...

    Completely not off topic, but, Idiocracy is one of my favorite documentaries. Good stuff.

    In 1964, those 2 dimes could get about 3 quarts, as duckduckgo came up with ~ 27 cents/gallon

    Just a few weeks ago, they’d have gotten you somewhere between 3 and 4 quarts (note, not valid in tax-happy California).
     
    Plus ça change, plus c'est la même chose...

    https://www.youtube.com/watch?v=i9dHL7GA1nk

    Peace symbol... Smiley face...
  64. The petrodollar is reaching the End of the Road. Oil is cheap and people are finding too much of it. The petrodollar will crumble once the glut of oil makes the stuff so cheap and plentiful, that it can no longer prop up the profligate spenders in Washington D.C.

    The Renminbi will replace the US Dollar as the World Reserve Currency, and BRICS will take away the Federal Reserve’s spot.

    Russia and China are already dumping dollars. With so much oil, the petrodollar will winnow away.

    • Replies: @Kim
    You are half right but have the details upside down.

    1. This last decade, oil has been very expensive. In 2016 equivalent dollars, the average price of a barrel of oil from 1920 until 1970 was US$24. In recent years, it has floated around US$72. Three times more.

    2. People cannot afford US$72 oil. That is why they can't save, use credit cards, and the Fed is keeping interest rates low.

    3. Very little oil is being found. There has not been a giant oil field found since 1962. The current rate of discovery of conventional oil is one new barrel for every ten barrels we consume.

    Almost the sole new oil that has been added to production since 2008 is shale oil, which, first, isn't even oil (it is gas and condensate and its production is measured in boe, "barrels of oil equivalent"). And second, it is produced at a loss. Consumers can't afford it.

    4. The fall of the oil world will leave no one standing, not the US, not China, no one. We are all going down with this ship together.

  65. @The Alarmist
    You remind me of my wife's ambitions before I bought the château. Now she has no shortage of design ambitions.

    You remind me of my wife’s ambitions before I bought the château. Now she has no shortage of design ambitions.

    Of course! That’s why you go small. Custom mosaic tile is much cheaper in a 5 by 5 than a 10 by 15 bathroom.

  66. @prime noticer
    some of the CPI calculations are conflated because the economists who setup the numbers and formulas, factor in tech improvements to the items being purchased.

    such that a car sold in 2020 is better than a similar car from 2000, so it's "fair" that the car also costs $8000 more, and that doesn't raise the CPI for cars. the problem being, it's a binary thing for the consumer. yeah, the 2020 car is better, but there's no option to buy a new from factory year 2000 car with zero miles of wear and tear. so you either pay $8000 more for a car, or you don't get a car. cars are mechanical and there's only so much usable life in them. substituting buying a used year 2000 car is not apples to apples.

    so a lot of manufactured stuff really does cost more today, beyond CPI figures. in the car example specifically it's even worse, since the low end subcompact cars that were around 20 or 30 years ago are now almost all discontinued, so the least expensive new vehicles you can buy are even more expensive today than the CPI cost example above.

    some of the CPI calculations are conflated because the economists who setup the numbers and formulas, factor in tech improvements to the items being purchased.

    The federal government calculates food cost inflation by tracking changes in the price of a basket of items across multiple markets. When they noticed that food prices were dramatically increasing (which they didn’t want the public to know) they decided to swap out items in the basket for less expensive alternatives. NY strip became top sirloin as example (because any prudent housewife wouldn’t drop $20 a pound for steak).

    Also for fun, look at “seasonally adjusted” Bureau of Labor job numbers. I recall a couple of years back how an ADP monthly print of 11,000 actual new hires was seasonally adjusted to an official increase of 198,000 new jobs. They actually printed both tables side-by-side (but not until deep into the report).

    Government statistics are not published to inform, they are intended to promote whatever message the administration wants pushed.

  67. @Achmed E. Newman
    I never did like him for lots of reasons. Per a recommendation from an unz commenter, I'm reading Pat Buchanan's The Greatest Comeback about the Nixon campaigns in the 1960s (it may go into the '70s). After 1/3 of that book, I appreciate Nixon's savvy but think no better of him at all. As much as Mr. Buchanan liked the guy, Nixon is still described as an opportunist with no principles. Likely, Ronald Reagan will be the hero of the book, whether Mr. Buchanan intended that or not.

    Domestic policy, I’d completely agree, but not on foreign policy. The Nixon Doctrine was the last time in US history where we ever put forward a consistent, clear set of guidelines on what we would and would not do for allies in different situations. That kind of predictability is invaluable when dealing with foreign governments. (Personally, I think we’d have all been way better off-and Nixon himself would have been a lot happier-had he been NSC majordomo working in the shadows rather than POTUS.)

    Something like that, adapted for a post-Cold War world, would have prevented a lot of grief. It even could have potentially set the stage for general demilitarization, though granted, that would have also taken the adults beating the empire-fantasists in the early 90s and a subsequent concerted effort against the Blob.

    • Agree: Achmed E. Newman
  68. @Audacious Epigone
    Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
    And the hearts of the meanest were humbled, and began to believe it was true
    That all is not gold that glitters, and two and two make four
    And the Gods of the Copybook Headings, limped up to explain it once more

    As I pass through my incarnations in every age and race,
    I make my proper prostrations to the Gods of the Market-Place.
    Peering through reverent fingers I watch them flourish and fall,
    And the Gods of the Copybook Headings, I notice, outlast them all.

    • Agree: Audacious Epigone
  69. @prime noticer
    some of the CPI calculations are conflated because the economists who setup the numbers and formulas, factor in tech improvements to the items being purchased.

    such that a car sold in 2020 is better than a similar car from 2000, so it's "fair" that the car also costs $8000 more, and that doesn't raise the CPI for cars. the problem being, it's a binary thing for the consumer. yeah, the 2020 car is better, but there's no option to buy a new from factory year 2000 car with zero miles of wear and tear. so you either pay $8000 more for a car, or you don't get a car. cars are mechanical and there's only so much usable life in them. substituting buying a used year 2000 car is not apples to apples.

    so a lot of manufactured stuff really does cost more today, beyond CPI figures. in the car example specifically it's even worse, since the low end subcompact cars that were around 20 or 30 years ago are now almost all discontinued, so the least expensive new vehicles you can buy are even more expensive today than the CPI cost example above.

    some of the CPI calculations are conflated because the economists who setup the numbers and formulas, factor in tech improvements to the items being purchased.

    You’re surely not suggesting that economists are fudging the figures to deliberately mislead us and make us think we’re better off when we’re really worse off? I’m shocked. Shocked, I tell you.

    • LOL: Talha
  70. @Audacious Epigone
    This idea of "healthy consumer demand" is difficult for me. Human desires--demand, in other words--are infinite. Resources are finite. We don't become wealthy by consuming, we become wealthy by producing.

    “we become wealthy by producing”

    Depends what you mean by “we.” Nations, as a collective entity, become wealthy by producing. But far more often than not, individuals, cliques, and ethnic networks become wealthy not by producing, but by controlling, manipulating, and gaming those who do the producing.

    • Agree: Audacious Epigone
    • Replies: @Kim
    They in fact become wealthy because they cultivate the support of those who control the monopoly of State power. This allows them to commit their crimes with impunity.

    Try to make the guilty swine pay as they should, or teach them a lesson they will never forget, and you will quickly discover the true basis of their wealth.
  71. @Rosie

    I need you to continue walking into the trap I’m setting for you, so no more digressions!
     
    A.E., why do you want to play gotcha over monetary policy? Can't we just have a good faith discussion? Anyway, ...


    So in your case is it a demand issue or a supply issue, your not having this finite list of things you desire?
     
    I'm not sure I understand your question, but I think the answer is "demand." If you're going to point out hat it's not healthy to create artificial demand for the sake of stimulating the economy, I certainly agree with you on that.

    Can’t we just have a good faith discussion?

    Discussion with someone like this…

    …rarely worth the trouble.

    lol.

  72. @prime noticer
    "I really, really hope that The Orange One’s tweet doesn’t signal that the plan is to go back to business as usual vis a vis China once the dust clears."

    this is simply what's going to happen though. Biden is going to be President, and that means everything with regard to China goes back exactly to how it was. shrug.

    in no way shape or form is there going to be a reshoring or manufacturing movement in the US. totally the opposite. not only will the tariffs immediately be lifted, the travel restrictions be gone, all million Chinese students right back to the universities, and every Chinese industrial spy returned to their job so they can continue spying and stealing. but the triumphant Democrat monopoly will look to move as much blue collar industry and manufacturing off the continent as they can. the movement to de-industrialize will accelerate, not reverse. college educated white collar Democrat voters have ZERO use for industry.

    if it was possible to grow all the food and mine all the oil and natural gas and generate all the electricity in China too, THEY WOULD DO THAT. they HATE blue collar Republican voting european men who do the heavy lifting and perform the nuts and bolts stuff that keeps a country going. the university educated white collar Democrat alliance with their african, mexican, muslim underclass allies will purge America of their enemy.

    this is the Democrats chance to utterly crush blue collar and middle class european men. i anticipate a de-automobile factory movement next - currently no vehicles made in China are sold here, but under Democrat monopoly, that will change, so that eventually, even GM is pulverized and the US undergoes a de-automobile manufacturing transition.

    What you are describing is flat out treason (and I am not being hyperbolic).

    Peace.

    • Replies: @The Wild Geese Howard

    What you are describing is flat out treason (and I am not being hyperbolic).
     
    Observing their actions, I don't think our current globalist elite acknowledge treason as anything other than a quaint word found in English dictionaries.
  73. @Achmed E. Newman
    Thank you for your appreciation for the US Constitution, Adam Smith (where have I heard that name before?) and also for a graphic explanation of real money.

    One thing that amazes people is to explain to them that 2 silver dimes (that is, pre-1965 dimes) can buy in-the-ballpark of a gallon of gas, just as they would have in 1964. The problem is getting a clerk who understands real money and would take them, and switch out in the till with his paper fiat crap ... not bloody likely in this Idiocracy.

    Let's see about right now, since the gas is WAY down. In 1964, those 2 dimes could get about 3 quarts, as duckduckgo came up with ~ 27 cents/gallon. Those 2 dimes, unless worn out a bit, should have 0.072 troy-oz of silver each. At the spot price of $14.5/oz today, they are equivalent to $2.10 of our non-absorbent green rags. At (depending where you live), say $1.60/gallon now, they can get you 1.3 Gallons or over 5 quarts! Just a few weeks ago, they'd have gotten you somewhere between 3 and 4 quarts (note, not valid in tax-happy California).

    So a Circle-K clerk would come out good getting 2 1964 or older dimes per gallon you pump, putting his own fiat money into the register, and keeping the dimes. If he knew that though, he wouldn't be working at the Circle-K for long - he'd be a Dean of the Austrian School of Economics, somewhere in ... like Austria or somewhere.

    Oh, I've got my opinion of what real inflation is right now, with examples, for commenter Yahya, but I'm limited to 3 and running out of time for now. It'll have to be later or tomorrow. Thank you all for the interesting economic discussion.

    Dear Achmed,

    Kindest wishes… I hope this letter finds you well…

    Thank you for your interesting and lively discussion as well as your appreciation for the US Constitution, dead letter though it may be.

    Adam Smith (where have I heard that name before?)

    No idea… Could be anyone… Smith is a fairly common name ’round here…

    The problem is getting a clerk who understands real money

    Or anyone else, evidently…

    and would take them, and switch out in the till with his paper fiat crap …

    Indeed, not bloody likely…

    Perhaps you could trade them some chocolate or gummies for some gasomoline…

    ‘Mericans love candy…

    Completely not off topic, but, Idiocracy is one of my favorite documentaries. Good stuff.

    In 1964, those 2 dimes could get about 3 quarts, as duckduckgo came up with ~ 27 cents/gallon

    Just a few weeks ago, they’d have gotten you somewhere between 3 and 4 quarts (note, not valid in tax-happy California).

    Plus ça change, plus c’est la même chose…

    Peace symbol… Smiley face…

    • Replies: @Mr. Rational
    The Hersey bar in its branded wrapper is a known quantity.  Could some random person on the street be lying about the qualities of a silver bar?  Who'd likely be giving things away?

    Did anyone actually take the silver bar, and was that the last example in the series or did this team have more than one 10-ounce silver bar?
  74. @Jmaie

    This idea of “healthy consumer demand” is difficult for me. Human desires–demand, in other words–are infinite. Resources are finite. We don’t become wealthy by consuming, we become wealthy by producing.
     
    We become wealthy by producing what others wish to consume while simultaneously consuming a bit less of what others produce.

    As to resources being finite, supplies of most things (food, energy and raw materials as example) have steadily increased and become cheaper** for hundreds of years. Wasn't that long ago that we were approaching peak oil, then along came fracking which diverted demand to gas. I can't remember how many times I've heard predictions of global starvation and yet the global food supply is as robust as it's ever been.

    ** This IMHO is why our standard of living has steadily clicked upwards since forever

    The issue is not “peak oil” – a really unfortunate misnomer – but peak cheap oil.

    The end of modernity will see lots of oil left in the ground for the simple reason that it costs more to extract than consumers can afford to pay.

    Shale oil is a perfect example of this process. It costs $70/barrel to drill and sells for very much less than that. It is a debt fraud. The junk debt that funds it will never be repaid.

    And it isn’t even oil that they are drilling, it’s a mix of oil and gas that they refer to as boe, “barrels of oil equivalent”.

    The death of the theory of peak (cheap) oil is often announced, but unfortunately real world events keep proving such announcements wrong.

    • Replies: @Jmaie
    The issue is not “peak oil” – a really unfortunate misnomer – but peak cheap oil.

    My use of the term was intended only as a placeholder that folks would recognize. Of course there is oil too costly to collect, meanwhile fracking has increased natgas production to the point where less oil is needed. Electrification of cars further reduces demand for oil. And so on.

    My point is that we have for hundreds of years been able to continuously lower the effective cost of a host of resources and this is what has allowed the average standard of living to increase.

  75. @The Germ Theory of Disease
    "we become wealthy by producing"

    Depends what you mean by "we." Nations, as a collective entity, become wealthy by producing. But far more often than not, individuals, cliques, and ethnic networks become wealthy not by producing, but by controlling, manipulating, and gaming those who do the producing.

    They in fact become wealthy because they cultivate the support of those who control the monopoly of State power. This allows them to commit their crimes with impunity.

    Try to make the guilty swine pay as they should, or teach them a lesson they will never forget, and you will quickly discover the true basis of their wealth.

    • Replies: @Mr. Rational

    Try to make the guilty swine pay as they should, or teach them a lesson they will never forget, and you will quickly discover the true basis of their wealth.
     
    It becomes obvious that there is no workable solution for (((them))).  They have/give neither qualm nor mercy.
  76. @Adam Smith
    Dear Achmed,

    Kindest wishes... I hope this letter finds you well...

    Thank you for your interesting and lively discussion as well as your appreciation for the US Constitution, dead letter though it may be.

    Adam Smith (where have I heard that name before?)
     
    No idea... Could be anyone... Smith is a fairly common name 'round here...

    The problem is getting a clerk who understands real money
     
    Or anyone else, evidently...

    https://www.youtube.com/watch?v=bYhTFz_SGw0

    https://www.youtube.com/watch?v=G8qGDun4puM

    and would take them, and switch out in the till with his paper fiat crap …
     
    Indeed, not bloody likely...

    Perhaps you could trade them some chocolate or gummies for some gasomoline...

    'Mericans love candy...

    Completely not off topic, but, Idiocracy is one of my favorite documentaries. Good stuff.

    In 1964, those 2 dimes could get about 3 quarts, as duckduckgo came up with ~ 27 cents/gallon

    Just a few weeks ago, they’d have gotten you somewhere between 3 and 4 quarts (note, not valid in tax-happy California).
     
    Plus ça change, plus c'est la même chose...

    https://www.youtube.com/watch?v=i9dHL7GA1nk

    Peace symbol... Smiley face...

    The Hersey bar in its branded wrapper is a known quantity.  Could some random person on the street be lying about the qualities of a silver bar?  Who’d likely be giving things away?

    Did anyone actually take the silver bar, and was that the last example in the series or did this team have more than one 10-ounce silver bar?

    • Replies: @Adam Smith

    Did anyone actually take the silver bar, and was that the last example in the series or did this team have more than one 10-ounce silver bar?
     
    Presumably, they would edit out any scenes where someone took the silver.
    We will never know how many silver bars they went through.

    Who’d likely be giving things away?
     
    Some people make money with youtube videos. The first video has 2.7 million views while the second one has 148,000.

    https://us.youtubers.me/mark-dice/youtube-estimated-earnings

    The Hersey bar in its branded wrapper is a known quantity. Could some random person on the street be lying about the qualities of a silver bar?
     
    Yes. Obviously some random person on the street could be offering counterfeit silver bars for free.

    Why take a chance on a free bar of silver when you can have a yummy, yummy Hersey bar, in a branded wrapper, of known quantity.
  77. @Kim
    They in fact become wealthy because they cultivate the support of those who control the monopoly of State power. This allows them to commit their crimes with impunity.

    Try to make the guilty swine pay as they should, or teach them a lesson they will never forget, and you will quickly discover the true basis of their wealth.

    Try to make the guilty swine pay as they should, or teach them a lesson they will never forget, and you will quickly discover the true basis of their wealth.

    It becomes obvious that there is no workable solution for (((them))).  They have/give neither qualm nor mercy.

    • Disagree: Yahya K., Audacious Epigone
    • Replies: @Yahya K.
    Dude, are you serious?
    , @Audacious Epigone
    This sort of talk, using the hyper-inflammatory word "solution" to boot, is repulsive to nearly everyone, including people sympathetic to 'controversial' ideas like white self-determination. Schoolmarm has edited the quote to comply with the ban on "advocation of illegal activity".
  78. @Mr. Rational

    Try to make the guilty swine pay as they should, or teach them a lesson they will never forget, and you will quickly discover the true basis of their wealth.
     
    It becomes obvious that there is no workable solution for (((them))).  They have/give neither qualm nor mercy.

    Dude, are you serious?

    • Replies: @Talha
    I see that you are still surprised by this kind of talk around here. Remember what we discussed earlier, get used to it.

    Wa salaam.
    , @iffen
    Serious Jew-haters are a dime-a-dozen here at TUR. Go read the comment section at Giraldi's column if you want to get a good immersion. The infection rate at AE is much lower than some of the other's.
    , @Mr. Rational
    Maybe I'm just exaggerating for dramatic effect.  But without extremists calling for their heads, the grabblers and nation-wreckers aren't going to pack up and leave.
  79. @Yahya K.
    Dude, are you serious?

    I see that you are still surprised by this kind of talk around here. Remember what we discussed earlier, get used to it.

    Wa salaam.

  80. @Achmed E. Newman
    A picture is worth a thousand words:

    https://www.peakstupidity.com/images/post_761A.jpg

    You chart shows very clearly when the USA reached peak cheap oil. Once that happened, the dollar had to be freed from gold to allow endless credit to support consumer demand for ever-more-expensive oil.

  81. @Cloudbuster
    I don't know if this is what he means, but immigrants are debt fuel. That's how they can affect inflation. They're not the *cause* of it, but they contribute to the conditions that encourage the people running the financial system to want and be able to float more inflation.

    Immigrants are supposed to sustain demand. In Sydney, immigrants have increased the population from four to five million in just the last ten years.

    Of course urban Australia makes nothing, so these immigrants have not enriched the country but immigrants do get loans for houses and apartments and that does enrich the four big banks and the handful of developers who run that nation of alcoholics and mental midgets.

  82. @Audacious Epigone
    Alternatively, there has been plenty of inflation, it just hasn't gone much into consumer prices (yet). It went into asset prices that were presumed to represent claims on future resources but that have turned out to represent nothing at all.

    “Plenty of inflation”.
    True. And yes, most has gone into asset bloat.
    But, as PC Roberts, & others, have often noted, there’s quite a bit of “product” inflation too.
    Modern ways of calculating inflation are deliberately bogus.
    The substitution rule (Apple phones go up, leave it off the list, as consumers will naturally turn to cheaper alternatives.
    Simply don’t count (or under value in the relative basket of goods etc) products (ie food & energy).
    Discount inflation b/c price is equal to quality increases — that Apple phone went up 30 % but is not included b/c there was a 30% increase in productivity value (ie it has a better camera etc).

  83. @Dr. Doom
    The petrodollar is reaching the End of the Road. Oil is cheap and people are finding too much of it. The petrodollar will crumble once the glut of oil makes the stuff so cheap and plentiful, that it can no longer prop up the profligate spenders in Washington D.C.

    The Renminbi will replace the US Dollar as the World Reserve Currency, and BRICS will take away the Federal Reserve's spot.

    Russia and China are already dumping dollars. With so much oil, the petrodollar will winnow away.

    You are half right but have the details upside down.

    1. This last decade, oil has been very expensive. In 2016 equivalent dollars, the average price of a barrel of oil from 1920 until 1970 was US$24. In recent years, it has floated around US$72. Three times more.

    2. People cannot afford US$72 oil. That is why they can’t save, use credit cards, and the Fed is keeping interest rates low.

    3. Very little oil is being found. There has not been a giant oil field found since 1962. The current rate of discovery of conventional oil is one new barrel for every ten barrels we consume.

    Almost the sole new oil that has been added to production since 2008 is shale oil, which, first, isn’t even oil (it is gas and condensate and its production is measured in boe, “barrels of oil equivalent”). And second, it is produced at a loss. Consumers can’t afford it.

    4. The fall of the oil world will leave no one standing, not the US, not China, no one. We are all going down with this ship together.

    • Replies: @Mr. Rational

    The fall of the oil world will leave no one standing, not the US, not China, no one. We are all going down with this ship together.
     
    Not true.  There are substitutes for fossil fuels including petroleum in just about every application they have, and two of them (uranium and thorium) are so wildly abundant compared to our consumption that any country which makes the switchover will be good for longer than any civilization is likely to last.

    Russia, China and perhaps India are pushing in that direction.  Europe (and the USA to a lesser extent) are going backwards.
  84. @Yahya K.
    I agree.

    The question is: what makes a country robust and productive; or fragile and on the precipice of permanent collapse? In other words, why did Germany recover so quickly from their inflation, but Rome collapsed permanently soon after?

    The great Weimar hyperinflation wasn't the end of Germany. Germany recovered pretty well from the Weimar inflation. They destroyed the currency, but then they went back round and just issued new currency. And even with the limitations imposed by the Versailles treaty, they were able to recover from the great depression quicker than most other western nations, and they soon became the most powerful nation in Europe. And of course once that happened, World War 2 began.

    On the other hand, we have Rome:


    Constant wars and overspending had significantly lightened imperial coffers, and oppressive taxation and inflation resulted. In the hope of avoiding the taxman, many members of the wealthy classes had even fled to the countryside and set up independent fiefdoms. At the same time, the empire was rocked by a labor deficit. Rome’s economy depended on slaves to till its fields and work as craftsmen, and its military might had traditionally provided a fresh influx of conquered peoples to put to work. But when expansion ground to a halt in the second century, Rome’s supply of slaves and other war treasures began to dry up. A further blow came in the fifth century, when the Vandals claimed North Africa and began disrupting the empire’s trade by prowling the Mediterranean as pirates. With its economy faltering and its commercial and agricultural production in decline, the Empire began to lose its grip on Europe.
     
    And there is the answer to the conundrum: Germany maintained its human capital, and Rome lost it.

    Human capital is the secret sauce. So the question is: with the changing demographics, will the US and Europe be able to maintain the necessary human capital to keep their economies going over the long run? Will they be Germany or Rome?

    “but Rome collapsed permanently soon after?”
    There is no comparison between Germany & Rome. Rome, you are talking centuries. Germany, roughly 25 years.
    Rome — a currency ultimately based on precious metals. Germany — fiat currency.

  85. @Yahya K.
    Dude, are you serious?

    Serious Jew-haters are a dime-a-dozen here at TUR. Go read the comment section at Giraldi’s column if you want to get a good immersion. The infection rate at AE is much lower than some of the other’s.

    • Replies: @Talha
    No doubt in significant thanks to the care of the watchful eyes of school-marm.

    Peace.
  86. @iffen
    Serious Jew-haters are a dime-a-dozen here at TUR. Go read the comment section at Giraldi's column if you want to get a good immersion. The infection rate at AE is much lower than some of the other's.

    No doubt in significant thanks to the care of the watchful eyes of school-marm.

    Peace.

    • Replies: @iffen
    No doubt.

    I kind of thought that "kill (((them)))" should get a knuckle rapping, then I remembered my suggestions that we need to use the guillotine. Maybe I should stop with such rhetoric since it is not possible for everyone to know the non-seriousness of my suggestion.

    Although: Robespierre suggested that revolutionary leaders should “guide the people by reason and repress the enemies of the people by terror."

  87. @Talha
    No doubt in significant thanks to the care of the watchful eyes of school-marm.

    Peace.

    No doubt.

    I kind of thought that “kill (((them)))” should get a knuckle rapping, then I remembered my suggestions that we need to use the guillotine. Maybe I should stop with such rhetoric since it is not possible for everyone to know the non-seriousness of my suggestion.

    Although: Robespierre suggested that revolutionary leaders should “guide the people by reason and repress the enemies of the people by terror.”

  88. @LondonBob
    I like Nixon but he was absolutely calamitous for the US economy.

    Agree. Nixon guaranteed the ultimate demise of the dollar-based international financial system. I suspect the day of reckoning is not far off, several years not decades. Watch what is and will be happening with gold. Physical gold, not paper gold.

  89. @Mr. Rational
    The Hersey bar in its branded wrapper is a known quantity.  Could some random person on the street be lying about the qualities of a silver bar?  Who'd likely be giving things away?

    Did anyone actually take the silver bar, and was that the last example in the series or did this team have more than one 10-ounce silver bar?

    Did anyone actually take the silver bar, and was that the last example in the series or did this team have more than one 10-ounce silver bar?

    Presumably, they would edit out any scenes where someone took the silver.
    We will never know how many silver bars they went through.

    Who’d likely be giving things away?

    Some people make money with youtube videos. The first video has 2.7 million views while the second one has 148,000.

    https://us.youtubers.me/mark-dice/youtube-estimated-earnings

    The Hersey bar in its branded wrapper is a known quantity. Could some random person on the street be lying about the qualities of a silver bar?

    Yes. Obviously some random person on the street could be offering counterfeit silver bars for free.

    Why take a chance on a free bar of silver when you can have a yummy, yummy Hersey bar, in a branded wrapper, of known quantity.

    • Replies: @Achmed E. Newman
    I agree with both your reply here and Mr. Rational's comment, Mr. Smith. Those types of videos put people on the spot. Even from very first experience with the Lyin' Press at a young age, I realize that they can make you sound like you have the opposite opinion (what they did) or make you look stupid, unless you are very careful and already savvy in dealing with the bastards. Anyone with a camera on me is already suspect. I'd ask to go to a coin shop with the guy and have it assayed, before I took what might be a silver-coated piece of lead.

    Thank you for the reply yesterday. I was making a joke referring to THE Adam Smith, the famous Scottish economist. I would have bet a couple of silver dimes that that was who you had based your handle on. I guess I'd be out 2.10 of our pieces of green fiat paper right now.
  90. @Adam Smith

    Did anyone actually take the silver bar, and was that the last example in the series or did this team have more than one 10-ounce silver bar?
     
    Presumably, they would edit out any scenes where someone took the silver.
    We will never know how many silver bars they went through.

    Who’d likely be giving things away?
     
    Some people make money with youtube videos. The first video has 2.7 million views while the second one has 148,000.

    https://us.youtubers.me/mark-dice/youtube-estimated-earnings

    The Hersey bar in its branded wrapper is a known quantity. Could some random person on the street be lying about the qualities of a silver bar?
     
    Yes. Obviously some random person on the street could be offering counterfeit silver bars for free.

    Why take a chance on a free bar of silver when you can have a yummy, yummy Hersey bar, in a branded wrapper, of known quantity.

    I agree with both your reply here and Mr. Rational’s comment, Mr. Smith. Those types of videos put people on the spot. Even from very first experience with the Lyin’ Press at a young age, I realize that they can make you sound like you have the opposite opinion (what they did) or make you look stupid, unless you are very careful and already savvy in dealing with the bastards. Anyone with a camera on me is already suspect. I’d ask to go to a coin shop with the guy and have it assayed, before I took what might be a silver-coated piece of lead.

    Thank you for the reply yesterday. I was making a joke referring to THE Adam Smith, the famous Scottish economist. I would have bet a couple of silver dimes that that was who you had based your handle on. I guess I’d be out 2.10 of our pieces of green fiat paper right now.

    • Replies: @Adam Smith
    You're right. A video like that does put people on the spot, and they can twist it to make you look like you support the opposite of what you said, or simply look like a fool.

    But some of those people's responses were honest (unless they're acting or there was some real smooth editing). They really have no idea what to do with a bar of silver or what it is worth. They really would rather have the chocolate.

    I’d ask to go to a coin shop with the guy and have it assayed, before I took what might be a silver-coated piece of lead.
     
    In one of those videos he's standing near a coin shop and offers to do just that. It's a good idea, but hardly seems necessary as it's free. It might indeed be a chunk of tungsten wrapped with a candy coating. I don't know what kind of silver bar he had in the video (Englehard, JM, APMEX, etc.) Some counterfeits do look more legitimate than others. (Counterfeit gold I understand, but counterfeit silver seems like it wouldn't be worth the hassle, especially in a small quantity.) Plenty of people are skeptical about someone giving something away for free. But, even if it is a 10 oz bar of lead, it is still more valuable than a chocolate bar.

    I would have bet a couple of silver dimes that that was who you had based your handle on.
     
    You would not be wrong. I didn't put much thought into the handle at the time, (It's been years since I've read the wealth of nations) just a quick seemingly anonymous name in honor of one of my favorite philosophers. I suppose I could have picked Veblen, Bakunin, Alex Lifeson or someone else just the same. Seems like you put more imagination into your handle than I did, and it rocks.

    I was making a joke referring to THE Adam Smith, the famous Scottish economist.
     
    I know, seemed so obvious. What was meant as a lighthearted joke didn't quite translate. I thought you'd catch it too. Sometimes I forget how poorly sarcasm conveys in a text box. Many people do not catch it even in real life. Maybe I should be more careful commenting after midnight.

    Anyone with a camera on me is already suspect.
     
    Agreed... I'm camera shy too.

    A saber tooth tiger is a beautiful animal, and I'm sure it's an endangered species...

    Maybe these people are actors.(?)

    https://www.youtube.com/watch?v=Gc4Mi4ocyDw
  91. @Yahya K.
    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what's going to happen, though lots of people pretend to know. And no you can't just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

    Like a number of other commenters here, or just astute Americans in general, I don’t believe the numbers out of the creative green-eyeshade boys at the BLS (Bureau of Labor Statisitcs – the group that seems to have taken on the calculating and publishing of economics numbers). One can go to the Shadow Stats site to get a lot more info. than I could possible tell you.

    However, the Peak Stupidity site has the topic key Inflation (sorry, you’ll have to scroll down). I’ve got lots of real numbers for everyday must-purchase items. One could tell me that I’m just picking and choosing, but you read some of these and tell me they don’t add up to a big portion of the “basket” of goods and services that most Americans spend their money on.

    BTW, I agree also with the commenter about the difficulty of comparing apples to oranges. Hell even that basket with the goods and services in it is made in China and will fall apart in 6 months. ;-} There is the term we pretend-economists use, called “Hedonics”. Read, if you’ve got time (and I’d appreciate it) some here: Measuring Inflation: Hooked on Hedonics, The Solution for Dilution is Substitution, Hedonics – Pleasure from Products and Services, and Hedonics in the Current Era of Cheap China-made Crap.

    I went long here – another comment is coming on my inflation examples.

  92. @Yahya K.
    Economics is a peculiar subject. What happens in one decade may not be true the next decade.

    For example, the US government ran large deficits (2.5-4%) during the 1970s and had so much inflation that they needed the federal reserve (Paul Volcker) to step in and curb it. Today, they are running *even* larger deficits (~5%), and at *even* lower interest rates, but with little inflation thus far.

    So you never know what's going to happen, though lots of people pretend to know. And no you can't just build a math model to predict these things. Its false precision.

    Ultimately the prudent thing to do is err on the side of safety and not print too much money. Because the consequences of currency collapse are just too dangerous. (See: Rome, Weimar Germany)

    Okay, Yahya:

    – Food: I could give you many examples from memory, as I bought food for myself for many years. If I give specific examples, it’d be considered cherry picking, so you’d have to read my site.

    – Building materials: Read this post, with its emphasis on the reductions in dimensions too. Anyway: framing lumber – up 200- 300% since the mid-1990s (with compounding, that’s between 4 and 5 % average yearly increases). Roofing shingles – in same time period, up from $6.50 a bundle to $22 now, if you’re lucky (yes, they contain oil product) – that’s 5% compounded annually. PVC piping and fittings, if you still use them – way up.

    – Utility bills – taking it straight out of this post, over a 22 year period with all the calculations (incl. compounded interest, again, of course) there:

    **************************************
    Annual percentage inflation rates for these utilities:

    WATER/SEWER:

    Base Fee – 6.9%
    Price per ft^3 – 4.2%

    ELECTRICITY:

    Base Fee – 4.5%
    Price per kW-hr – 2.6%
    **************************************

    – Insurance bill on same house and vehicles and same companies, with (amazingly for me!) no tickets or accidents (on record): From $1,150 yearly to $1,500 over 8 years – that’s 3.5% and not exactly apples-to-apples, as I increased the deductible on the house to keep the bill down.

    – Health insurance and Education have had a whole nother level of inflation that would take too long to cover.

    – Autos and auto parts. That post is specifically on batteries, which now last 4 years if you’re lucky, vs. 10. When you include the durability factor, well these inflation numbers would go WAY UP.

    These are all things Americans must buy and big parts of their budgets, Yahya. When you go from official numbers of 1.5-2% up to 3.5-6%, well your money is being stolen MORE THAN twice as fast. When you account for the shorter lifetimes of the Cheap-ass China-made products, well, why save in dollars? You may be better off living paycheck-to-paycheck and praying for Bernie!

    I’ll write about gasoline prices in reply to commenter EldnahYm later on.

    • Thanks: Yahya K.
    • Replies: @Yahya K.
    Thanks for the reply Mr. Newman.

    I always wondered why Americans complain so much about their economic situation, when by all indicators their living standards are the highest in the world and it keeps improving every year.

    Now I understand maybe the indicators aren't depicting the reality here.
  93. @Achmed E. Newman
    I agree with both your reply here and Mr. Rational's comment, Mr. Smith. Those types of videos put people on the spot. Even from very first experience with the Lyin' Press at a young age, I realize that they can make you sound like you have the opposite opinion (what they did) or make you look stupid, unless you are very careful and already savvy in dealing with the bastards. Anyone with a camera on me is already suspect. I'd ask to go to a coin shop with the guy and have it assayed, before I took what might be a silver-coated piece of lead.

    Thank you for the reply yesterday. I was making a joke referring to THE Adam Smith, the famous Scottish economist. I would have bet a couple of silver dimes that that was who you had based your handle on. I guess I'd be out 2.10 of our pieces of green fiat paper right now.

    You’re right. A video like that does put people on the spot, and they can twist it to make you look like you support the opposite of what you said, or simply look like a fool.

    But some of those people’s responses were honest (unless they’re acting or there was some real smooth editing). They really have no idea what to do with a bar of silver or what it is worth. They really would rather have the chocolate.

    I’d ask to go to a coin shop with the guy and have it assayed, before I took what might be a silver-coated piece of lead.

    In one of those videos he’s standing near a coin shop and offers to do just that. It’s a good idea, but hardly seems necessary as it’s free. It might indeed be a chunk of tungsten wrapped with a candy coating. I don’t know what kind of silver bar he had in the video (Englehard, JM, APMEX, etc.) Some counterfeits do look more legitimate than others. (Counterfeit gold I understand, but counterfeit silver seems like it wouldn’t be worth the hassle, especially in a small quantity.) Plenty of people are skeptical about someone giving something away for free. But, even if it is a 10 oz bar of lead, it is still more valuable than a chocolate bar.

    I would have bet a couple of silver dimes that that was who you had based your handle on.

    You would not be wrong. I didn’t put much thought into the handle at the time, (It’s been years since I’ve read the wealth of nations) just a quick seemingly anonymous name in honor of one of my favorite philosophers. I suppose I could have picked Veblen, Bakunin, Alex Lifeson or someone else just the same. Seems like you put more imagination into your handle than I did, and it rocks.

    I was making a joke referring to THE Adam Smith, the famous Scottish economist.

    I know, seemed so obvious. What was meant as a lighthearted joke didn’t quite translate. I thought you’d catch it too. Sometimes I forget how poorly sarcasm conveys in a text box. Many people do not catch it even in real life. Maybe I should be more careful commenting after midnight.

    Anyone with a camera on me is already suspect.

    Agreed… I’m camera shy too.

    A saber tooth tiger is a beautiful animal, and I’m sure it’s an endangered species…

    Maybe these people are actors.(?)

    • Replies: @Achmed E. Newman
    Oh, OK on the name and sarcasm. I was really trying to detect it, but it would have been funny in person with a facial expression attached. You seemed too knowledgeable to NOT know Adam Smith.

    I hate to tell you, but I didn't make up this handle. I'd seen it somewhere a short while before I started commenting here. I inserted into the form when I first commented just as a test, as to whether this site needed to email me back, sign my ass up on Facebook, or what have you. After a few dozen posts, I was stuck with it for continuity. I like it, but I can't claim it as original.

    Also, I didn't watch your videos on this thread, as I'd seen these before, so I forgot details like their being outside a coin shop. Oh, and for free, of course I'd take it but still probably be wondering whether there was some practical joke involved. Your basic point, that a large majority of people don't know squat about real money, stands.
  94. The way I understand credit/debt is that the debtor is anticipating future income. So if the future income doesn’t show up he is screwed. That is why deflation is worse than inflation.

    The other thing is that when politicians pile up debt they are not betting their future. They are betting your future.

    • Replies: @res

    The way I understand credit/debt is that the debtor is anticipating future income. So if the future income doesn’t show up he is screwed. That is why deflation is worse than inflation.
     
    The better way to express it is that the debtor is screwed by deflation because he is paying back the debt with more expensive dollars than expected. The debtor benefits from inflation because he is paying back the debt with less expensive dollars than expected. (an inflation expectation is baked into current interest rates, previous statements imply fixed rate loans)

    Obviously, the reverse is true for the creditor.

    To borrow a phrase from iSteve, consider "Who, Whom?" here. Which groups do you think are going to be relatively more concerned about deflation vs. inflation?

    For a good practical example from American political history, see the free silver movement.
    https://en.wikipedia.org/wiki/Free_silver

    P.S. I sometimes wonder if adding silver to the standard would have been better than the approach we chose in the long run--fiat money not tied to any standard.

    , @Audacious Epigone
    Deflation is worse than inflation for the debtor, but not for the creditor--a category that includes anyone who saves--or for people on fixed incomes.
  95. @Kim
    The issue is not "peak oil" - a really unfortunate misnomer - but peak cheap oil.

    The end of modernity will see lots of oil left in the ground for the simple reason that it costs more to extract than consumers can afford to pay.

    Shale oil is a perfect example of this process. It costs $70/barrel to drill and sells for very much less than that. It is a debt fraud. The junk debt that funds it will never be repaid.

    And it isn't even oil that they are drilling, it's a mix of oil and gas that they refer to as boe, "barrels of oil equivalent".

    The death of the theory of peak (cheap) oil is often announced, but unfortunately real world events keep proving such announcements wrong.

    The issue is not “peak oil” – a really unfortunate misnomer – but peak cheap oil.

    My use of the term was intended only as a placeholder that folks would recognize. Of course there is oil too costly to collect, meanwhile fracking has increased natgas production to the point where less oil is needed. Electrification of cars further reduces demand for oil. And so on.

    My point is that we have for hundreds of years been able to continuously lower the effective cost of a host of resources and this is what has allowed the average standard of living to increase.

    • Replies: @Jmaie
    Which is not to imply I think the party can/will go on forever...
  96. @Cloudbuster
    I don't know if this is what he means, but immigrants are debt fuel. That's how they can affect inflation. They're not the *cause* of it, but they contribute to the conditions that encourage the people running the financial system to want and be able to float more inflation.

    OK, so that’s more indirectly. Thanks.

    Sorry for the late reply. Ron Unz indirectly told me to “take a break”.

  97. @Jmaie
    The issue is not “peak oil” – a really unfortunate misnomer – but peak cheap oil.

    My use of the term was intended only as a placeholder that folks would recognize. Of course there is oil too costly to collect, meanwhile fracking has increased natgas production to the point where less oil is needed. Electrification of cars further reduces demand for oil. And so on.

    My point is that we have for hundreds of years been able to continuously lower the effective cost of a host of resources and this is what has allowed the average standard of living to increase.

    Which is not to imply I think the party can/will go on forever…

  98. @Adam Smith
    You're right. A video like that does put people on the spot, and they can twist it to make you look like you support the opposite of what you said, or simply look like a fool.

    But some of those people's responses were honest (unless they're acting or there was some real smooth editing). They really have no idea what to do with a bar of silver or what it is worth. They really would rather have the chocolate.

    I’d ask to go to a coin shop with the guy and have it assayed, before I took what might be a silver-coated piece of lead.
     
    In one of those videos he's standing near a coin shop and offers to do just that. It's a good idea, but hardly seems necessary as it's free. It might indeed be a chunk of tungsten wrapped with a candy coating. I don't know what kind of silver bar he had in the video (Englehard, JM, APMEX, etc.) Some counterfeits do look more legitimate than others. (Counterfeit gold I understand, but counterfeit silver seems like it wouldn't be worth the hassle, especially in a small quantity.) Plenty of people are skeptical about someone giving something away for free. But, even if it is a 10 oz bar of lead, it is still more valuable than a chocolate bar.

    I would have bet a couple of silver dimes that that was who you had based your handle on.
     
    You would not be wrong. I didn't put much thought into the handle at the time, (It's been years since I've read the wealth of nations) just a quick seemingly anonymous name in honor of one of my favorite philosophers. I suppose I could have picked Veblen, Bakunin, Alex Lifeson or someone else just the same. Seems like you put more imagination into your handle than I did, and it rocks.

    I was making a joke referring to THE Adam Smith, the famous Scottish economist.
     
    I know, seemed so obvious. What was meant as a lighthearted joke didn't quite translate. I thought you'd catch it too. Sometimes I forget how poorly sarcasm conveys in a text box. Many people do not catch it even in real life. Maybe I should be more careful commenting after midnight.

    Anyone with a camera on me is already suspect.
     
    Agreed... I'm camera shy too.

    A saber tooth tiger is a beautiful animal, and I'm sure it's an endangered species...

    Maybe these people are actors.(?)

    https://www.youtube.com/watch?v=Gc4Mi4ocyDw

    Oh, OK on the name and sarcasm. I was really trying to detect it, but it would have been funny in person with a facial expression attached. You seemed too knowledgeable to NOT know Adam Smith.

    I hate to tell you, but I didn’t make up this handle. I’d seen it somewhere a short while before I started commenting here. I inserted into the form when I first commented just as a test, as to whether this site needed to email me back, sign my ass up on Facebook, or what have you. After a few dozen posts, I was stuck with it for continuity. I like it, but I can’t claim it as original.

    Also, I didn’t watch your videos on this thread, as I’d seen these before, so I forgot details like their being outside a coin shop. Oh, and for free, of course I’d take it but still probably be wondering whether there was some practical joke involved. Your basic point, that a large majority of people don’t know squat about real money, stands.

    • Agree: Talha
    • Replies: @Adam Smith

    a large majority of people don’t know squat about real money
     
    Plenty of people who should know better do not understand the nature of coin or credit.

    This is most unfortunate, and has very real consequences for the people of the world.

    Interesting times.
  99. @prime noticer
    "Everyone wants dollars and they always will"

    this is going to end this century. it's a matter of debate exactly when, but the dollar will yield to yuan before 2100. under no circumstances can "muh Fed" just print new dollars for 200 years straight and magically barely anything will change for the average joe. the end of the American empire is within sight, to people alive today probably.

    we don't know for sure when the US will go down, other than it being certain that it will. but when it happens, it will happen fast, like a sports dynasty winning the championship, then 3 years later not even being able to make the playoffs, after all their great hall of fame players get old around the same time.

    when it does happen, it's going to be surprising how quickly the US crumbles. forget the surface demographic numbers about the US still being like 65% europeans. they are OLD. those numbers include all the people over 60, and people over 60 don't do much and don't account much for a nation's dynamism. and millions of them are all just a few years from dying. the great boomer die off.

    the reality on the ground is that America is right on the edge of being majority vibrant, in the 20 to 60 year old range, the range where everything of importance happens. european people's ability to vote their way to good governance (or any kind of reasonable governance at all) is about to end. after that, the slide downhill can be pretty fast. President Adams or her facsimile can ruin things QUICKLY. vibrants produce net negative economic activity, so how will the dollar remain the reserve currency then?

    Prime,

    Just wanted to thank you for another great post. You’ve been on fire lately.

    I hope that you and yours are safe and secure in these trying times.

  100. @Talha
    What you are describing is flat out treason (and I am not being hyperbolic).

    Peace.

    What you are describing is flat out treason (and I am not being hyperbolic).

    Observing their actions, I don’t think our current globalist elite acknowledge treason as anything other than a quaint word found in English dictionaries.

    • Agree: Mr. Rational
  101. @Achmed E. Newman
    Oh, OK on the name and sarcasm. I was really trying to detect it, but it would have been funny in person with a facial expression attached. You seemed too knowledgeable to NOT know Adam Smith.

    I hate to tell you, but I didn't make up this handle. I'd seen it somewhere a short while before I started commenting here. I inserted into the form when I first commented just as a test, as to whether this site needed to email me back, sign my ass up on Facebook, or what have you. After a few dozen posts, I was stuck with it for continuity. I like it, but I can't claim it as original.

    Also, I didn't watch your videos on this thread, as I'd seen these before, so I forgot details like their being outside a coin shop. Oh, and for free, of course I'd take it but still probably be wondering whether there was some practical joke involved. Your basic point, that a large majority of people don't know squat about real money, stands.

    a large majority of people don’t know squat about real money

    Plenty of people who should know better do not understand the nature of coin or credit.

    This is most unfortunate, and has very real consequences for the people of the world.

    Interesting times.

  102. @Yahya K.
    Dude, are you serious?

    Maybe I’m just exaggerating for dramatic effect.  But without extremists calling for their heads, the grabblers and nation-wreckers aren’t going to pack up and leave.

  103. @Kim
    You are half right but have the details upside down.

    1. This last decade, oil has been very expensive. In 2016 equivalent dollars, the average price of a barrel of oil from 1920 until 1970 was US$24. In recent years, it has floated around US$72. Three times more.

    2. People cannot afford US$72 oil. That is why they can't save, use credit cards, and the Fed is keeping interest rates low.

    3. Very little oil is being found. There has not been a giant oil field found since 1962. The current rate of discovery of conventional oil is one new barrel for every ten barrels we consume.

    Almost the sole new oil that has been added to production since 2008 is shale oil, which, first, isn't even oil (it is gas and condensate and its production is measured in boe, "barrels of oil equivalent"). And second, it is produced at a loss. Consumers can't afford it.

    4. The fall of the oil world will leave no one standing, not the US, not China, no one. We are all going down with this ship together.

    The fall of the oil world will leave no one standing, not the US, not China, no one. We are all going down with this ship together.

    Not true.  There are substitutes for fossil fuels including petroleum in just about every application they have, and two of them (uranium and thorium) are so wildly abundant compared to our consumption that any country which makes the switchover will be good for longer than any civilization is likely to last.

    Russia, China and perhaps India are pushing in that direction.  Europe (and the USA to a lesser extent) are going backwards.

  104. @Achmed E. Newman
    Okay, Yahya:

    - Food: I could give you many examples from memory, as I bought food for myself for many years. If I give specific examples, it'd be considered cherry picking, so you'd have to read my site.

    - Building materials: Read this post, with its emphasis on the reductions in dimensions too. Anyway: framing lumber - up 200- 300% since the mid-1990s (with compounding, that's between 4 and 5 % average yearly increases). Roofing shingles - in same time period, up from $6.50 a bundle to $22 now, if you're lucky (yes, they contain oil product) - that's 5% compounded annually. PVC piping and fittings, if you still use them - way up.

    - Utility bills - taking it straight out of this post, over a 22 year period with all the calculations (incl. compounded interest, again, of course) there:

    **************************************
    Annual percentage inflation rates for these utilities:

    WATER/SEWER:

    Base Fee - 6.9%
    Price per ft^3 - 4.2%

    ELECTRICITY:

    Base Fee - 4.5%
    Price per kW-hr - 2.6%
    **************************************
     
    - Insurance bill on same house and vehicles and same companies, with (amazingly for me!) no tickets or accidents (on record): From $1,150 yearly to $1,500 over 8 years - that's 3.5% and not exactly apples-to-apples, as I increased the deductible on the house to keep the bill down.

    - Health insurance and Education have had a whole nother level of inflation that would take too long to cover.

    - Autos and auto parts. That post is specifically on batteries, which now last 4 years if you're lucky, vs. 10. When you include the durability factor, well these inflation numbers would go WAY UP.

    These are all things Americans must buy and big parts of their budgets, Yahya. When you go from official numbers of 1.5-2% up to 3.5-6%, well your money is being stolen MORE THAN twice as fast. When you account for the shorter lifetimes of the Cheap-ass China-made products, well, why save in dollars? You may be better off living paycheck-to-paycheck and praying for Bernie!


    I'll write about gasoline prices in reply to commenter EldnahYm later on.

    Thanks for the reply Mr. Newman.

    I always wondered why Americans complain so much about their economic situation, when by all indicators their living standards are the highest in the world and it keeps improving every year.

    Now I understand maybe the indicators aren’t depicting the reality here.

  105. @Rosie

    I need you to continue walking into the trap I’m setting for you, so no more digressions!
     
    A.E., why do you want to play gotcha over monetary policy? Can't we just have a good faith discussion? Anyway, ...


    So in your case is it a demand issue or a supply issue, your not having this finite list of things you desire?
     
    I'm not sure I understand your question, but I think the answer is "demand." If you're going to point out hat it's not healthy to create artificial demand for the sake of stimulating the economy, I certainly agree with you on that.

    It’s a supply issue. You have the demand, you’re just not willing to satisfy it at the prevailing price because of the amount of resources you have to give up to get it. If the supply of the thing tripled, the amount of resources you’d have to give up to get it would drop. You’d feel the trade off now acceptable so you’d make the purchase and acquire the thing, satisfying your demand on account of an increase in supply.

    • Replies: @Rosie

    It’s a supply issue. You have the demand, you’re just not willing to satisfy it at the prevailing price because of the amount of resources you have to give up to get it. If the supply of the thing tripled, the amount of resources you’d have to give up to get it would drop. You’d feel the trade off now acceptable so you’d make the purchase and acquire the thing, satisfying your demand on account of an increase in supply.
     
    Or, one might say that, at price X, there is no demand for product Y.

    In any case, it seems to be a question of semantics. If that is all that is meant by the claim that human desire is infinite, then fine.
  106. @The Alarmist
    It will be interesting to see what life will be like in a world where there is no time-value to capital. Some might call it capitalism without capital. I figure it is a return to Feudalism.

    Great point. What happens to finance when the concept of time value of money has been artificially completely eradicated, when there is no discount in the present value?

    • Replies: @The Alarmist
    I had a pension actuary tell me there is a mathematical case to continue to "discount" pension obligations with negative rates if it comes to that, which is absurd, as that means valuing the obligations at an amount greater than the actual commitment under scheme rules. The world is being run by idiots.
  107. @Mr. Rational

    Try to make the guilty swine pay as they should, or teach them a lesson they will never forget, and you will quickly discover the true basis of their wealth.
     
    It becomes obvious that there is no workable solution for (((them))).  They have/give neither qualm nor mercy.

    This sort of talk, using the hyper-inflammatory word “solution” to boot, is repulsive to nearly everyone, including people sympathetic to ‘controversial’ ideas like white self-determination. Schoolmarm has edited the quote to comply with the ban on “advocation of illegal activity”.

    • Replies: @Mr. Rational
    Advocacy without a specific threat is not illegal activity.  Talking about advocacy (especially the sort of Antifa and SJW lynch mobs already directed at us on social media) is a further level removed from that.

    The left is winning because they don't shoot their own extremists.  There is no way to get a peaceful solution to this if there isn't a credible threat of a non-peaceful solution if the opposition doesn't come to the table.  We need the "bad cop" or the good cop has no leverage.
  108. @Audacious Epigone
    Great point. What happens to finance when the concept of time value of money has been artificially completely eradicated, when there is no discount in the present value?

    I had a pension actuary tell me there is a mathematical case to continue to “discount” pension obligations with negative rates if it comes to that, which is absurd, as that means valuing the obligations at an amount greater than the actual commitment under scheme rules. The world is being run by idiots.

    • Agree: Audacious Epigone
    • Replies: @res
    Like this discussion?
    https://www.ipe.com/pensions-in-germany-the-joys-of-negative-rates/10012506.article
  109. @Christopher Chantrill
    The way I understand credit/debt is that the debtor is anticipating future income. So if the future income doesn't show up he is screwed. That is why deflation is worse than inflation.

    The other thing is that when politicians pile up debt they are not betting their future. They are betting your future.

    The way I understand credit/debt is that the debtor is anticipating future income. So if the future income doesn’t show up he is screwed. That is why deflation is worse than inflation.

    The better way to express it is that the debtor is screwed by deflation because he is paying back the debt with more expensive dollars than expected. The debtor benefits from inflation because he is paying back the debt with less expensive dollars than expected. (an inflation expectation is baked into current interest rates, previous statements imply fixed rate loans)

    Obviously, the reverse is true for the creditor.

    To borrow a phrase from iSteve, consider “Who, Whom?” here. Which groups do you think are going to be relatively more concerned about deflation vs. inflation?

    For a good practical example from American political history, see the free silver movement.
    https://en.wikipedia.org/wiki/Free_silver

    P.S. I sometimes wonder if adding silver to the standard would have been better than the approach we chose in the long run–fiat money not tied to any standard.

    • Replies: @Rosie

    The debtor benefits from inflation because he is paying back the debt with less expensive dollars than expected.
     
    And if he is unable to do so, the bank gets his car, house, or business.

    I don't see any reason why populists would support that.

    Obviously out of control inflation isn't good either. Price stability is ideal, though it is better to err on the side of inflation than deflation.

  110. @The Alarmist
    I had a pension actuary tell me there is a mathematical case to continue to "discount" pension obligations with negative rates if it comes to that, which is absurd, as that means valuing the obligations at an amount greater than the actual commitment under scheme rules. The world is being run by idiots.
    • Replies: @The Alarmist
    Yep. The investing side is easy; you just hold your nose and buy the best hedge of your obligations you can stomach, knowing you are locking in a bit of a loss income-wise but still protected against even farther falls in rates by capital appreciation that follows the movement in the obligations. In a sane world, when rates go further negative, your hedge really starts to pay off in capital gains while, at least in a sane world, your obligations stop growing at zero, so your funded status can only improve. By the reckoning of some actuaries, however, you never get a break.
  111. @Audacious Epigone
    It's a supply issue. You have the demand, you're just not willing to satisfy it at the prevailing price because of the amount of resources you have to give up to get it. If the supply of the thing tripled, the amount of resources you'd have to give up to get it would drop. You'd feel the trade off now acceptable so you'd make the purchase and acquire the thing, satisfying your demand on account of an increase in supply.

    It’s a supply issue. You have the demand, you’re just not willing to satisfy it at the prevailing price because of the amount of resources you have to give up to get it. If the supply of the thing tripled, the amount of resources you’d have to give up to get it would drop. You’d feel the trade off now acceptable so you’d make the purchase and acquire the thing, satisfying your demand on account of an increase in supply.

    Or, one might say that, at price X, there is no demand for product Y.

    In any case, it seems to be a question of semantics. If that is all that is meant by the claim that human desire is infinite, then fine.

  112. @res

    The way I understand credit/debt is that the debtor is anticipating future income. So if the future income doesn’t show up he is screwed. That is why deflation is worse than inflation.
     
    The better way to express it is that the debtor is screwed by deflation because he is paying back the debt with more expensive dollars than expected. The debtor benefits from inflation because he is paying back the debt with less expensive dollars than expected. (an inflation expectation is baked into current interest rates, previous statements imply fixed rate loans)

    Obviously, the reverse is true for the creditor.

    To borrow a phrase from iSteve, consider "Who, Whom?" here. Which groups do you think are going to be relatively more concerned about deflation vs. inflation?

    For a good practical example from American political history, see the free silver movement.
    https://en.wikipedia.org/wiki/Free_silver

    P.S. I sometimes wonder if adding silver to the standard would have been better than the approach we chose in the long run--fiat money not tied to any standard.

    The debtor benefits from inflation because he is paying back the debt with less expensive dollars than expected.

    And if he is unable to do so, the bank gets his car, house, or business.

    I don’t see any reason why populists would support that.

    Obviously out of control inflation isn’t good either. Price stability is ideal, though it is better to err on the side of inflation than deflation.

    • Replies: @res

    And if he is unable to do so, the bank gets his car, house, or business.
     
    Not sure what your point is given that inflation typically makes repayment easier--the dollars are worth less. And remember that inflation typically goes along with low unemployment.

    I don’t see any reason why populists would support that.
     
    You don't see why populists advocating on behalf of (net) debtors would support inflating away the cost of the debt repayment?! Are we talking past each other somehow?
  113. @Audacious Epigone
    This sort of talk, using the hyper-inflammatory word "solution" to boot, is repulsive to nearly everyone, including people sympathetic to 'controversial' ideas like white self-determination. Schoolmarm has edited the quote to comply with the ban on "advocation of illegal activity".

    Advocacy without a specific threat is not illegal activity.  Talking about advocacy (especially the sort of Antifa and SJW lynch mobs already directed at us on social media) is a further level removed from that.

    The left is winning because they don’t shoot their own extremists.  There is no way to get a peaceful solution to this if there isn’t a credible threat of a non-peaceful solution if the opposition doesn’t come to the table.  We need the “bad cop” or the good cop has no leverage.

  114. @Rosie

    The debtor benefits from inflation because he is paying back the debt with less expensive dollars than expected.
     
    And if he is unable to do so, the bank gets his car, house, or business.

    I don't see any reason why populists would support that.

    Obviously out of control inflation isn't good either. Price stability is ideal, though it is better to err on the side of inflation than deflation.

    And if he is unable to do so, the bank gets his car, house, or business.

    Not sure what your point is given that inflation typically makes repayment easier–the dollars are worth less. And remember that inflation typically goes along with low unemployment.

    I don’t see any reason why populists would support that.

    You don’t see why populists advocating on behalf of (net) debtors would support inflating away the cost of the debt repayment?! Are we talking past each other somehow?

    • Replies: @Rosie

    You don’t see why populists advocating on behalf of (net) debtors would support inflating away the cost of the debt repayment?! Are we talking past each other somehow?
     
    Not at all. I meant to say that populists should not support deflationary policies. I think we are in agreement.
  115. @res
    Like this discussion?
    https://www.ipe.com/pensions-in-germany-the-joys-of-negative-rates/10012506.article

    Yep. The investing side is easy; you just hold your nose and buy the best hedge of your obligations you can stomach, knowing you are locking in a bit of a loss income-wise but still protected against even farther falls in rates by capital appreciation that follows the movement in the obligations. In a sane world, when rates go further negative, your hedge really starts to pay off in capital gains while, at least in a sane world, your obligations stop growing at zero, so your funded status can only improve. By the reckoning of some actuaries, however, you never get a break.

  116. @res

    And if he is unable to do so, the bank gets his car, house, or business.
     
    Not sure what your point is given that inflation typically makes repayment easier--the dollars are worth less. And remember that inflation typically goes along with low unemployment.

    I don’t see any reason why populists would support that.
     
    You don't see why populists advocating on behalf of (net) debtors would support inflating away the cost of the debt repayment?! Are we talking past each other somehow?

    You don’t see why populists advocating on behalf of (net) debtors would support inflating away the cost of the debt repayment?! Are we talking past each other somehow?

    Not at all. I meant to say that populists should not support deflationary policies. I think we are in agreement.

    • Replies: @Audacious Epigone
    In a sound money system, deflation is a consequence of gains in productivity, in wealth creation. It's good as long as wages don't decline as well.
  117. Debt Jubilee! Debt Jubilee! Debt Jubilee! Debt Jubilee!

    • Agree: Talha
    • Disagree: Achmed E. Newman
  118. Hyperinflation is similar to a debt jubilee, except for the messy riots, violence and shortages.

    Its what you can expect if they keep printing monies to cover the losses of rampant GREED.

    • Replies: @Achmed E. Newman
    Doctor, I think you're right that debt jubilee doesn't result in riots. The more responsible people are the ones who get screwed, and they are not the rioting type ... yet. It has a more insidious effect on society, which is what my [Disagree] to Iffen was about - I meant to write to him, but I'll put it here:

    This would not be your Father's debt jubilee, as in the Bible. That was to be accomplished every 50 years, which is known ahead of time. That's an important difference, as lenders and borrowers could plan accordingly. Lenders would probably charge high enough rates near the jubilee to make it worth it or just make short-term loans.

    A debt jubilee for borrowers and lenders who didn't plan accordingly in the beginning creates a moral hazard. I want to ask Iffen how he'd feel about it if he had been the guy who's paid off his house diligently by carefully avoiding unnecessary spending on vacations and new cars for years, as the others get bailed out. How about if you were that 1 in 5 or 10 college students who did not live large on school loan money, working in the summer and evenings to pay for most of college, while living at home, while his spendthrift, partying classmates get their loans forgiven?

    I'll tell you what my thought would and will be: F__k this system! From now on I'm not gonna be the responsible one. It doesn't pay. I got screwed this time, and I won't fall for that again. That's how you get even farther from a 1st world country. Nice going!

    Forgive me, Bernie, for I have sinned.

  119. @Christopher Chantrill
    The way I understand credit/debt is that the debtor is anticipating future income. So if the future income doesn't show up he is screwed. That is why deflation is worse than inflation.

    The other thing is that when politicians pile up debt they are not betting their future. They are betting your future.

    Deflation is worse than inflation for the debtor, but not for the creditor–a category that includes anyone who saves–or for people on fixed incomes.

  120. @Rosie

    You don’t see why populists advocating on behalf of (net) debtors would support inflating away the cost of the debt repayment?! Are we talking past each other somehow?
     
    Not at all. I meant to say that populists should not support deflationary policies. I think we are in agreement.

    In a sound money system, deflation is a consequence of gains in productivity, in wealth creation. It’s good as long as wages don’t decline as well.

    • Replies: @Rosie

    In a sound money system, deflation is a consequence of gains in productivity, in wealth creation. It’s good as long as wages don’t decline as well.
     
    That depends. Deflation in asset prices is also bad. You can wind up underwater on your mortgage even though you put 20% down and did everything the right way as your elders advised.

    You are talking to a Gen Xer who got hurt very badly, though it could have been much worse, in the housing market crash.

    Housing prices were too high, yes, but it would have been much better for wages to go up than for house prices to crash, ruining the financial lives of all sorts of young couples wanting to start families so old people (many of whom made out like bandits in the best economy ever in human history BTW) don't have to get a smaller place to live or something. Heaven forbid!

    Sorry. Zero f**** given.

  121. @Dr. Doom
    Hyperinflation is similar to a debt jubilee, except for the messy riots, violence and shortages.

    Its what you can expect if they keep printing monies to cover the losses of rampant GREED.

    Doctor, I think you’re right that debt jubilee doesn’t result in riots. The more responsible people are the ones who get screwed, and they are not the rioting type … yet. It has a more insidious effect on society, which is what my [Disagree] to Iffen was about – I meant to write to him, but I’ll put it here:

    This would not be your Father’s debt jubilee, as in the Bible. That was to be accomplished every 50 years, which is known ahead of time. That’s an important difference, as lenders and borrowers could plan accordingly. Lenders would probably charge high enough rates near the jubilee to make it worth it or just make short-term loans.

    A debt jubilee for borrowers and lenders who didn’t plan accordingly in the beginning creates a moral hazard. I want to ask Iffen how he’d feel about it if he had been the guy who’s paid off his house diligently by carefully avoiding unnecessary spending on vacations and new cars for years, as the others get bailed out. How about if you were that 1 in 5 or 10 college students who did not live large on school loan money, working in the summer and evenings to pay for most of college, while living at home, while his spendthrift, partying classmates get their loans forgiven?

    I’ll tell you what my thought would and will be: F__k this system! From now on I’m not gonna be the responsible one. It doesn’t pay. I got screwed this time, and I won’t fall for that again. That’s how you get even farther from a 1st world country. Nice going!

    Forgive me, Bernie, for I have sinned.

    • Replies: @Talha
    How about a nice compromise - repudiation of all interest payments on any outstanding debt and only allowing the principle to remain?

    Peace.

    https://i.redd.it/tfyzocoj8b011.jpg
  122. @Audacious Epigone
    In a sound money system, deflation is a consequence of gains in productivity, in wealth creation. It's good as long as wages don't decline as well.

    In a sound money system, deflation is a consequence of gains in productivity, in wealth creation. It’s good as long as wages don’t decline as well.

    That depends. Deflation in asset prices is also bad. You can wind up underwater on your mortgage even though you put 20% down and did everything the right way as your elders advised.

    You are talking to a Gen Xer who got hurt very badly, though it could have been much worse, in the housing market crash.

    Housing prices were too high, yes, but it would have been much better for wages to go up than for house prices to crash, ruining the financial lives of all sorts of young couples wanting to start families so old people (many of whom made out like bandits in the best economy ever in human history BTW) don’t have to get a smaller place to live or something. Heaven forbid!

    Sorry. Zero f**** given.

    • Replies: @res

    You can wind up underwater on your mortgage even though you put 20% down and did everything the right way as your elders advised.
     
    Something that gets far too little attention in financial education (for regular citizens) is the danger/opportunity created by the financial leverage used when investing in real estate with a substantial mortgage. For most people, buying their primary residence with a mortgage is the only leveraged investment they will ever make. And the typical 5x (20% down) and up leverage for mortgages is substantial.

    Sorry you got burned. Hopefully things turned out basically OK when the market came back (but I know that varied dramatically by location). A friend of mine had a similar experience. She was able to hang on and come out OK in the end though. The people who REALLY got burned are the ones who could not keep up payments and had to sell out near the lows locking in their losses.

    , @Achmed E. Newman
    When you have a mortgage on a house, you are a borrower. You do not own that asset, the bank does. Is it an investment vehicle for you, or is it an asset? Yeah, with deflation, this investment doesn't do so well, and the bank can come out badly when you send them their jingle-mail (real estate people's term for just sending back the keys and saying "see ya!")

    If you actually own the house, there's nothing wrong with some deflation. After all, you still own the house, and your property tax assessment (sometimes a huge monthly amount) won't go up, meaning your tax should not rise (hahahaaa! I cracked myself up, but they won't be able to raise it as quickly, at least). What the hell does this "underwater" thing mean, if you own it? Again, was it really an investment or the biggest asset you may have, as you spend 1/2 your life there?

    If you want to move, well, the next house ought to be lower in price too, so what's the problem? Just make sure you have a husband, to take care of and watch out for water and electrical problems, the biggest enemies of wooden houses ... oh, excepting the Government (Section 8).
  123. @Achmed E. Newman
    Doctor, I think you're right that debt jubilee doesn't result in riots. The more responsible people are the ones who get screwed, and they are not the rioting type ... yet. It has a more insidious effect on society, which is what my [Disagree] to Iffen was about - I meant to write to him, but I'll put it here:

    This would not be your Father's debt jubilee, as in the Bible. That was to be accomplished every 50 years, which is known ahead of time. That's an important difference, as lenders and borrowers could plan accordingly. Lenders would probably charge high enough rates near the jubilee to make it worth it or just make short-term loans.

    A debt jubilee for borrowers and lenders who didn't plan accordingly in the beginning creates a moral hazard. I want to ask Iffen how he'd feel about it if he had been the guy who's paid off his house diligently by carefully avoiding unnecessary spending on vacations and new cars for years, as the others get bailed out. How about if you were that 1 in 5 or 10 college students who did not live large on school loan money, working in the summer and evenings to pay for most of college, while living at home, while his spendthrift, partying classmates get their loans forgiven?

    I'll tell you what my thought would and will be: F__k this system! From now on I'm not gonna be the responsible one. It doesn't pay. I got screwed this time, and I won't fall for that again. That's how you get even farther from a 1st world country. Nice going!

    Forgive me, Bernie, for I have sinned.

    How about a nice compromise – repudiation of all interest payments on any outstanding debt and only allowing the principle to remain?

    Peace.

    [MORE]

    • Replies: @Achmed E. Newman
    This sound pretty reasonable, Talha, but it still doesn't solve the problem of the moral hazard. What I mean is, the borrowers now have that money for as long as they'd like, to invest or lend out, at the taxpayer's expense (there is a time value of money). That's a head start above the frugal college students.

    Are they really going to make payments now, with no urgency. You could have penalties, I suppose, but Bernie doesn't take too kindly to that. ;-}
  124. @Rosie

    In a sound money system, deflation is a consequence of gains in productivity, in wealth creation. It’s good as long as wages don’t decline as well.
     
    That depends. Deflation in asset prices is also bad. You can wind up underwater on your mortgage even though you put 20% down and did everything the right way as your elders advised.

    You are talking to a Gen Xer who got hurt very badly, though it could have been much worse, in the housing market crash.

    Housing prices were too high, yes, but it would have been much better for wages to go up than for house prices to crash, ruining the financial lives of all sorts of young couples wanting to start families so old people (many of whom made out like bandits in the best economy ever in human history BTW) don't have to get a smaller place to live or something. Heaven forbid!

    Sorry. Zero f**** given.

    You can wind up underwater on your mortgage even though you put 20% down and did everything the right way as your elders advised.

    Something that gets far too little attention in financial education (for regular citizens) is the danger/opportunity created by the financial leverage used when investing in real estate with a substantial mortgage. For most people, buying their primary residence with a mortgage is the only leveraged investment they will ever make. And the typical 5x (20% down) and up leverage for mortgages is substantial.

    Sorry you got burned. Hopefully things turned out basically OK when the market came back (but I know that varied dramatically by location). A friend of mine had a similar experience. She was able to hang on and come out OK in the end though. The people who REALLY got burned are the ones who could not keep up payments and had to sell out near the lows locking in their losses.

    • Replies: @The Alarmist

    Something that gets far too little attention in financial education (for regular citizens) is the danger/opportunity created by the financial leverage used when investing in real estate with a substantial mortgage.
     
    Yeah, what makes me feel like a schmuck for paying cash is that levered borrowers undoubtedly made me cough up more to buy my houses. OTOH, I’ve never needed to worry about losing a home, and my employer, knowing I reached my FYIGM point years ago, has consistently coughed up more green each year than they give to the indebted wage-slaves sitting in the open plan space. When you are a small-time debtor, everyone has you by the short hairs; debt only works for those TBTF, like Buffet, Gates, and Trump.
  125. @Rosie

    In a sound money system, deflation is a consequence of gains in productivity, in wealth creation. It’s good as long as wages don’t decline as well.
     
    That depends. Deflation in asset prices is also bad. You can wind up underwater on your mortgage even though you put 20% down and did everything the right way as your elders advised.

    You are talking to a Gen Xer who got hurt very badly, though it could have been much worse, in the housing market crash.

    Housing prices were too high, yes, but it would have been much better for wages to go up than for house prices to crash, ruining the financial lives of all sorts of young couples wanting to start families so old people (many of whom made out like bandits in the best economy ever in human history BTW) don't have to get a smaller place to live or something. Heaven forbid!

    Sorry. Zero f**** given.

    When you have a mortgage on a house, you are a borrower. You do not own that asset, the bank does. Is it an investment vehicle for you, or is it an asset? Yeah, with deflation, this investment doesn’t do so well, and the bank can come out badly when you send them their jingle-mail (real estate people’s term for just sending back the keys and saying “see ya!”)

    If you actually own the house, there’s nothing wrong with some deflation. After all, you still own the house, and your property tax assessment (sometimes a huge monthly amount) won’t go up, meaning your tax should not rise (hahahaaa! I cracked myself up, but they won’t be able to raise it as quickly, at least). What the hell does this “underwater” thing mean, if you own it? Again, was it really an investment or the biggest asset you may have, as you spend 1/2 your life there?

    If you want to move, well, the next house ought to be lower in price too, so what’s the problem? Just make sure you have a husband, to take care of and watch out for water and electrical problems, the biggest enemies of wooden houses … oh, excepting the Government (Section 8).

  126. @Talha
    How about a nice compromise - repudiation of all interest payments on any outstanding debt and only allowing the principle to remain?

    Peace.

    https://i.redd.it/tfyzocoj8b011.jpg

    This sound pretty reasonable, Talha, but it still doesn’t solve the problem of the moral hazard. What I mean is, the borrowers now have that money for as long as they’d like, to invest or lend out, at the taxpayer’s expense (there is a time value of money). That’s a head start above the frugal college students.

    Are they really going to make payments now, with no urgency. You could have penalties, I suppose, but Bernie doesn’t take too kindly to that. ;-}

    • Replies: @Talha

    You could have penalties
     
    Debtor's jail, indentured servitude...c'mon man, this has all been done before.

    Just kidding - I'm sure there are ways to incentivize payments. Anything from a limited time for the grace period to penalties (like you mentioned).

    Peace.
  127. @Achmed E. Newman
    This sound pretty reasonable, Talha, but it still doesn't solve the problem of the moral hazard. What I mean is, the borrowers now have that money for as long as they'd like, to invest or lend out, at the taxpayer's expense (there is a time value of money). That's a head start above the frugal college students.

    Are they really going to make payments now, with no urgency. You could have penalties, I suppose, but Bernie doesn't take too kindly to that. ;-}

    You could have penalties

    Debtor’s jail, indentured servitude…c’mon man, this has all been done before.

    Just kidding – I’m sure there are ways to incentivize payments. Anything from a limited time for the grace period to penalties (like you mentioned).

    Peace.

  128. @res

    You can wind up underwater on your mortgage even though you put 20% down and did everything the right way as your elders advised.
     
    Something that gets far too little attention in financial education (for regular citizens) is the danger/opportunity created by the financial leverage used when investing in real estate with a substantial mortgage. For most people, buying their primary residence with a mortgage is the only leveraged investment they will ever make. And the typical 5x (20% down) and up leverage for mortgages is substantial.

    Sorry you got burned. Hopefully things turned out basically OK when the market came back (but I know that varied dramatically by location). A friend of mine had a similar experience. She was able to hang on and come out OK in the end though. The people who REALLY got burned are the ones who could not keep up payments and had to sell out near the lows locking in their losses.

    Something that gets far too little attention in financial education (for regular citizens) is the danger/opportunity created by the financial leverage used when investing in real estate with a substantial mortgage.

    Yeah, what makes me feel like a schmuck for paying cash is that levered borrowers undoubtedly made me cough up more to buy my houses. OTOH, I’ve never needed to worry about losing a home, and my employer, knowing I reached my FYIGM point years ago, has consistently coughed up more green each year than they give to the indebted wage-slaves sitting in the open plan space. When you are a small-time debtor, everyone has you by the short hairs; debt only works for those TBTF, like Buffet, Gates, and Trump.

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