12-Aug-10 News -- Wall Street turns pessimistic

[John]

12-Aug-10 News -- Wall Street turns pessimistic

** 12-Aug-10 News -- Wall Street turns pessimistic
** http://www.generationaldynamics.com/cgi ... 12#e100812




Contents:
"Markets fall as pessimistic mood takes hold"
"World Health Organization declares that swine flu pandemic is over"
"Additional links"
Antibiotic 'superbug' bacteria is spreading
World grain prices, up 70%, may cause street riots
Israel will stop future aid flotillas, with bullets if necessary
Ramadan beings in Pakistan, as floods grow worse
Australia is being overrun by rabbits.

[vincecate]

Another issue is the debate between those who are prediction deflation and those who are predicting hyperinflation. It's so obvious that we're in a deflationary spiral that I can only ascribe predictions of hyperinflation to human perversity.

In the 1930s prices went down about 30% over 3 years and then started going up when they went off gold in 1933. However, that was as people took gold out of the Fed Ponzi Gold System which had 2.5 paper dollars for every 1 dollar of gold and claimed every paper dollar could be exchanged for gold. How much longer do you expect this current deflationary pressure to last? At one time you were expecting something similar to this 30% drop in prices to happen this time. Do you still expect this? Do you know of any historical cases where prices went down 30% under a pure fiat money?

Couldn't we have a short period of deflation and then hyperinflation? There seems to be precedents for this.

We might be wrong, by why ascribe hyperinflation predictions to human perversity?

http://pair.offshore.ai/38yearcycle/#hyperinflation

[mannfm11]

Deflation is going to go on for a long time. They had a solution in 1933 and they didn't prop the prices of everything for 15 years as they have done this time. Once China begins to deflate, commodities are going to fall to a level that is going to put many of the commodity producing countries on the ropes. Increased lending and debt expansion in the private sector is what causes trend inflation. We have been inflating for nearly 80 years now. It will be devastating, as there is much more than what the Fed puts out, which is really nothing but another liability in return for a liability owned by the banking system. The capital base of the banking system is going to erode.

I find it quite interesting the advertising in the WSJ that John posted. There is only one place to have significant money, treasury bills. The mentioned threat if inflation is enough that buying bonds is a real crapshoot. More so will be the default risks that might arise in the meantime. My feeling is that government will make it through, but will be forced to preserve its credit rating. Thus, they will default themselves on many guarantees made on a variety of paper. The FDIC, which stands for Federal Deposit Insurance Corporation could very well go broke. Notice it didn't say, United States of America deposit guarantee, but Federal Deposit Insurance Corporation. The best guess is that government will take the debts and provide a marginal amount of currency in return. In truth, the depositors own the banks.

People don't feel free to spend money when their retirement is melting like a cube of ice on a Dallas street in August. Wages will decline. Just like we had a good 20 years of high inflation from 1970 to 1990, the United States also had 20 years of high inflation between 1895 and 1920. People will dispute this, but look it up. Gold standard or not, an expanded amount of gold and credit inflation raised the price level quite a bit during that time. I found that data on some excel tables Robert Shiller put together for his book Irrational Exhuberance. What evidently occurs is a sizable amount of credit produces demand and a build up of debt over a period of years. Then, after debt reaches a certain level, the extra credit kind of hits a wall, because the portion of the population in debt takes their income and services their debts rather than spends it. More and more debt is needed to float the economy and more and more money games come about. As the cycle matures, there is massive income coming out of piles of debt and the business turns to a debt business. In the end, the debtors are over run with expenses and the system melts. The reason government can't bail it out is because you can't get out of debt by piling more of it up and the private sector is much larger than the government. At the peak, 25% of aggregate demand was driven by new debt. Once the process reverses, the massive industries that were making huge profits out of debt lose their income then their capital and those that are living off interest lose their incomes and assets. Fully 25% of US corporate profits were being derived out of banking and bank related income. The remaining companies were deriving most of their profits out of credit driven demand. Incomes fall and demand and prices with it.

What causes hyperinflation? The best explanation I have read is a move out of a particular money. In Zimbabwe, the populace started taking their money and buying dollars immediately. thus you couldn't give it away fast enough. There is no real exit out of the dollar. In fact, should hte Euro collapse, credit in Europe and much of the credit that has been generated by European banks would disappear altogether. True demand for currency comes from the need of it to pay debts. The harder debts are to pay, the less of it is available. I am a landlord, at least indirectly. The tenants have to pay their rents. If our houses weren't free and clear, we would have to have the rents to pay the notes and the taxes. Once this process starts, we are going to see a lot of foreclosures and a lot of property on the market. Very few people are going to come out of this with any money. Free financing as we have seen over the past 70 years or so will not be available, nor will many people be aching to get back into debt.

[ridgel]

I realized in 2002 that we were headed for a new 1930s style Great Depression when I was eating lunch at the mall reading the Boston Globe, and I saw a graph of the Dow Industrials going back to the early 1900s. I took one look at it and said, "Ohmigod, the stock market is going to crash." It was that obvious, just from the graph. (See "Updating the 'real value' of the stock market.")

I was ridiculed for many years, but I must say that I almost never hear any ridicule these days.

Let's see. Eight years later, in the middle of a huge recession, the DOW is still higher than it was in 2002. Nasdaq significantly higher. So you don't deserve ridicule, but no one's exactly going to invite you to manage their hedge fund either.

What you're missing is that the yardstick - the U.S. dollar - is constantly shrinking. Graph DOW vs. Gold over historical time periods. In the 1930s it was about 2:1. In 1960 it was 25:1 In 1980 it was close to 1:1. in 2000 it was about 40:1. Now it's about 8:1. Here's an ugly graph that shows the relationship: http://www.gold-eagle.com/editorials_05 ... 71906.html

World grain prices up 70% this year. Chinese striking for, and receiving big wage increases. Time to honestly revisit the deflation idea - unless you're buying houses in Riverside, it's just not happening. And convincing people to hold the fiat currency of a corrupt government with a printing press doesn't do your readers any favors. History doesn't repeat, it rhymes.

[vincecate]

What you're missing is that the yardstick - the U.S. dollar - is constantly shrinking. Graph DOW vs. Gold over historical time periods.
[...]
World grain prices up 70% this year. Chinese striking for, and receiving big wage increases. Time to honestly revisit the deflation idea - unless you're buying houses in Riverside, it's just not happening. And convincing people to hold the fiat currency of a corrupt government with a printing press doesn't do your readers any favors. History doesn't repeat, it rhymes.

Well said. John seems to think of the value of the dollar as a constant. When the value of a dollar was the value of an ounce of silver, it was rather constant for more than 100 years. But since 1914 this dollar measuring stick of value is just not constant any more. So measuring the value of the stock market, or anything else, is extra confusing.

"When those who are honestly mistaken learn the truth, they will either cease being mistaken or cease being honest." - Unknown

[Mykho Chan]

A team of researchers from the Massachusetts Institute of Technology have developed a “Superdrug” that may be able to heal any virus from the common cold to Dengue fever. The narcotic, which is an estimated decade from production, works by attacking the genetic structure of viruses. MIT makes Superdrug that could be capable to kill all viruses.