Is the coming financial collapse going to be inflationary or deflationary? Are we headed for rampant inflation or crippling deflation? This is a subject that is hotly debated by economists all over the country. Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation. Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts. So what is the truth? Well, for the reasons listed below, I believe that we will see both. The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis. This will happen so quickly that many will get “financial whiplash” as they try to figure out what to do with their money. We are moving toward a time of extreme financial instability, and different strategies will be called for at different times.So why will we see deflation first? The following are some of the major deflationary forces that are affecting our economy right now… Continue reading »
The issue of inflation is complex everywhere. Official rates are disputed. People can’t reconcile them with what they see at the store. There are different formulas and data sets, resulting in different rates, and everyone picks and chooses what suits their needs. But nowhere is the issue as “complex,” infested with lies, and shrouded in obscurity as in Argentina.
With the shadow (or blue) market for Argentina Pesos already devalued by an incredible 50%, it is little surprise that the population is bidding for any store of value. Demand for luxury cars is soaring (BMW sales up 30% in the last 20 months) and Bitcoin activity is often discussed as the population transfer increasingly worthless Pesos into a fungible “currency” or domestic CPI protection; but it is USD that are the most-cherished item (despite a ban on buying USD) as hyperinflation hedges. But as Bloomberg Businessweek reports, a lot of US Dollar bills are tucked away somewhere in Argentina (in stacks of $100 bills since the number in circulation has risen from 58% of the total to 62% since 2008). One table is a 2012 Fed paper on demand abroad for US currency shows net inflows to Russia and Argentina has increased by 500% since 2006 (compared to US demand up around 10%). In fact, demand for large dollar transfers to Argentina since 2006 has outstripped demand for dollar cash overall in the world. It is safe to surmise from the data (that is relatively well guarded by the government) that over $50bn is being hoarded in Argentina (or well over one in every fifteen dollars). It is little wonder that the government is furiously digging at the country’s undeclared (stashed under the mattress) wealth. Continue reading »
While Argentina’s recent extraordinary attempts at central planning have been widely documented, ranging from freezing supermarket prices in a (failed) attempt to control inflation, to banning advertising in a (failed) attempt to weaken the private media, so far nothing has worked at stabilizing the economy and preventing the collapse in the domestic currency (if leading to such humorous viral videos as #mequieroir). Ironically, this is both good and bad news. It is good news because as we showed two days ago, even the ludicrous speed rise in the Nikkei has been a snail’s pace compared to that other unknown “Nation 1.” We can now reveal that while Japan is Nation 2, Nation 1 is that inflationary basket case Argentina, and specifically its Merval stock index. Continue reading »
“Inflation is a state of affairs in which there is too much money,” Jim Grant notes in this Bloomberg TV interview, however, “It’s not too much money chasing too few goods,” he corrects the misnomer, “the thing this money chases is variable.” Whether it is Iowa farmland, housing, stocks, or bonds, central banks are stuffing us with it. Yes, equities are high, but Grant explains, “beneath the surface of things or not so far beneath the surface of things,” it is not at all good, adding that, “Central bank ‘original sin’,” is akin to Revolutionary France, and he shows no concerns over Gold’s recent dip, noting “a general fatigue animus towards gold,” that seems predicated on more confidence in central bankers; to Grant, “that confidence is utterly misplaced!”
Yesterday, on CNBC’s Squawk Box, Peter Schiff explained how the Fed’s stimulus has only delayed the real recession that will ultimately trigger a dollar collapse, and why Japan is stewing in the same brew of bad money.
“The bottom will drop out of the dollar. The US dollar is going to lose a lot of value. Not only against goods, but against other fiat currencies. The dollar is going to go down, that’s going to push prices up higher in the United States, consumer prices. Eventually the Fed is going to have to turn off the presses in order to save the dollar and that’s when the real fun begins, because that’s when this whole bubble economy implodes…”
Following today’s flashback to the most euphoric and irrationally exuberant days of market peaks (and bubbles) gone by, driven entirely by the now constant central-planner dilution of current and future wealth, these selected excerpts from Seth Klarman’s latest letter to investors is just the cold water of common sense everyone needs:
From Seth Klarman of Baupost:
Is it possible that the average citizen understands our country’s fiscal situation better than many of our politicians or prominent economists?
Most people seem to viscerally recognize that the absence of an immediate crisis does not mean we will not eventually face one. They are wary of believing promises by those who failed to predict previous crises in housing and in highly leveraged financial institutions. Continue reading »