We still have markets teetering lower with various rates and amounts of deflation, but all are solidly deflated:
- Housing is down 30% from peak
- Oil down 50% from peak
- Gold down 10% from peak
- Silver down 75% from peak
- Corn down 60% from peak
- Dow down 35% from peak with 10 new components
- Nasdaq down 65% from peak
- S&P down 30% from peak
- Treasury yields are pinned near 0%
If you adjust for buying power using gold dollars, the same way they did in 1932, we're down about 85% on average.
Now, one could make an interesting argument that, hey, large asset prices are only down 40%-ish and adjusting for gold dollars indicates a much steeper decline in standard of living. So there is some muting of deflation due to inflationary policies.
To that I respond, deflation is still the dominant force in play, and we've yet to witness the end game. My belief is that this tremendously wasteful, debt laden, irrational fight to alter a very clear realty, only exhausts desperately needed resources . So while the downward spiral is delayed, deflation is ultimately exacerbated by this giant misallocation of resources. So the end result will be more, not less deflation, when we live through the final capitulation at lows most people have yet to imagine. That should take decades given the scale of the market top that is now in place, but there is no formal time requirement. The floor could drop out.
So these "inflationary policies" aren't inflationary at all if they have (1) have failed to stem deflation, and (2) ultimately make the deflation worse.
They are deflationary policies.
So, deflation measured from the top is only detrimental to those that bought at the top. I consider myself quite average. I make over 100k but under 200k. I recently bought a home, as I have a wife and kid. I had no problem getting a loan from JPM Chase, I suppose really from the FED via FNM/FRE. Rent is about the same price as owning and I don't have to worry about moving my family, as I can stay in the home for as long as I want. My income went up this year as it has every year for cost of living increases from my employer of 6%. My stock portfolio is higher every year even though the market is down, because I did not buy only the top but every quarter for years, so I have some buys at the bottom as well. Since I don't buy index funds I am not subject to the averages. Individual stocks have done great in this deflationary collapse, and quite honestly if i did not read this blog or turn on the tv I would have no idea there was deflation going on. I can't suppose people said that in the 1930's, but maybe it did only affect those without education then as it is now. I enjoy reading your blog and will wait to see if your predictions come true, good luck
ReplyDeleteIf you are looking for signs of deflation, as a farmer, I can show you that they are everywhere, and as we are at the bottom of the food chain so to speak, I think these are real indicators of the economy as a whole.
ReplyDeleteFertilizer, Potash is off by 60%, with Nitrogen and Phosphorus in close pursuit.
Fuel costs about half.
Machinery costs, new and used both dropping, (partly due to the relative strength of our CAD$)
New pickup truck, price dropping daily.
Labour, for the first time in years it is now possible for a farmer to compete with industry ( in our case energy) for hired labour due to all the unemployment, result lower labour costs.
Grain prices, Barley is exactly half of its peak today. Corn you already mentioned.
Cattle, pigs both at low prices unheard of in decades, inspite of record low numbers of livestock.
The only shoe left to fall here is land prices, which are mysteriously still rising in our area.
"We still have markets teetering lower with various rates and amounts of deflation, but all are solidly deflated."
ReplyDeleteAnd yet the inflationary screed seems to have reached a particularly keening, feverish pitch, with untold numbers of Dollars (or should I say electronic credit facsimiles) hurtling into the hungry maw of the precious metal/commodities/equities complex at the speed of light, based on nothing more than misguided faith in an obsolete system and an economic future that no longer exists.
We are in the final stages of Denial. The Anger surely to follow will be most interesting (especially for all you politicians, mainstream economic muckety-mucks and other assorted "pompous prognosticators," professional obfuscators and pernicious prevaricators who have been incessantly and nauseatingly cheering on this Potemkin Village recovery.
And yes, I am a big fan of V and his first speech in the movie.
"If you are looking for signs of deflation, as a farmer, I can show you that they are everywhere, and as we are at the bottom of the food chain so to speak, I think these are real indicators of the economy as a whole."
ReplyDeleteIt's interesting that the 1930s were devastating for farmers, mostly because they regularly relied on debt to run the business, and deflation invalidated that business model. They were some of the loudest voices in DC during the their Great Depression.
Thanks for posting a view from the trenches and thanks for feeding us.
Best of luck to you.
Carnival cruise lines shows strong bookings and raises fares 5%
ReplyDeleteFdr you say ;
ReplyDelete"That should take decades given the scale of the market top that is now in place, but there is no formal time requirement"
So it is your view helicopter Ben has managed to kick the can for a few more decades?
ALmost every country in the world is in debt, almost every state, and almost every town within the states, and each individual consumer is also in debt, along with individual corporations.....
who exactly funds the debt, if everyone is in debt???....it's my understanding that due to fractional reserve lending, money is basically created out of thin air..but now that more people aren't requesting more money (except for the government) the house is falling down....but in my mind the government seems to be able to print blindly without any consequences, after all money is just a concept that people put faith in. Unless everyone just "quits" and decides not to work anymore "faith" will remain in the system and things will continue to be bought. As long as people can eat they can be pacified. If we have huge army, tons of arable land, and nukes...who exactly is going to end "out way of life"
FDRAoA:
ReplyDeleteHave you seen the new Missile Defense Agency logo?
www.mda.mil
Foretelling . . .
I've seen no indication of deflation in my area (Silicon Valley) whatsoever, aside from home prices.
ReplyDeleteWell, sure, there's been very mild deflation of some prices relative to the peak, but that's the easiest way to "prove" the existence of deflation. That's like saying that the market is surely going down when the prices aren't the absolute highest they've ever been. In other words, that means of measuring deflation is a lie.
Mostly what I've seen here are prices that have essentially flatlined.
Oil is down 50% from peak, huh? Then why is gasoline here down only 25% from peak?
Food prices are essentially unchanged. If the costs to food suppliers have dropped so much as has been claimed above, why have food prices remained stable?
Why have power prices remained unchanged?
Why are automobile prices essentially unchanged (the Ford Mustang GT price is a good example of this)?
Deflation seems like a fairy tale from here. How do you explain that, FDR?
"Carnival cruise lines shows strong bookings and raises fares 5%"
ReplyDeleteFunny you say that, they just offered me a free 7 day cruise.
"Oil is down 50% from peak, huh? Then why is gasoline here down only 25% from peak?
ReplyDeleteFood prices are essentially unchanged. If the costs to food suppliers have dropped so much as has been claimed above, why have food prices remained stable?
Why have power prices remained unchanged?
Why are automobile prices essentially unchanged (the Ford Mustang GT price is a good example of this)?
Deflation seems like a fairy tale from here. How do you explain that, FDR?"
I would say you've proven the opposite, that inflation is a fairy tale. Prices are lower and falling given 0% rates for years.
In Aug 2007, I insisted that lower Fed interest rates were coming (it was INCREDIBLY obvious since the 3-M T had dropped from 6% to 3%, and Bernanke was still asleep at 6%--the guy really has no clue).
I pointed out that lower Fed rates ALWAYS, foretell lower stock prices, and that there had never been an exception to that rule since the Fed was created. People freaked out, regurgitating what the Fed taught them in public and private school, that low rates are severely inflationary.
Boy, whey were wrong.
The truth is always simple. Jim Rogers is correct, the Fed is irrelevant. That's it.
Fed rates are not inflationary or deflationary. They simple follow the market and they are utterly helpless to control it, just like everyone else.
FDR wrote: "Fed rates are not inflationary or deflationary. They simple follow the market and they are utterly helpless to control it, just like everyone else."
ReplyDeleteI'm not disputing that at all.
What I'm disputing is that there's massive price deflation occurring right now. I see scant evidence of it anywhere except in home prices, and even those have stabilized for the moment.
Maybe it happens to be occurring where you live, and maybe it's happening in the rest of the nation. But it is certainly not happening here, and I've not noticed it happening at online retailers such as Amazon.
For such a widespread and hard hitting event as you claim it is, it is well-hidden.
Oh, one more thing...
ReplyDeleteStock prices? Who cares? They're not an indicator of anything anymore.
Stock prices are a psychological game, nothing more. Their value is only what the players believe it should be and nothing more, because there is no mechanism tying their price back to anything else. Stocks that pay dividends are the sole exception to that, and they are vastly outnumbered by those that don't.
So yes, we may see deflation in stock prices, but that is entirely unrelated to prices of goods and services here in the real world, which are the only ones that really matter in the end.