Sunday, July 25, 2010

Inflation, It's There Somewhere

We went to Berkeley last week to see where my son will be going to college. The two pictures below are of a parking meter that was a block from the campus.

Notice the rates in the second picture. Two minutes for a nickel and a dime is good for 4 minutes (minimum transaction is 30 cents). The thing that surprised me was that it also accepts credit cards. Three of the cars parked in front of this "Revenue Raising Tax God" had handicapped tags swinging from the rear view mirror. If you're handicapped, you don't have to pay. Notice the bicycler chained his bike to the machine.

You have to wonder about this 12 minute minimum charge. The nearest public restroom is a 6 minute walk (if you know where it is).

30 years ago, a quarter would have bought an hour of time on the meter. Now it buys 12 minutes. So the quarter buys only 1/5th of what it used to. Put another way, our dollar has lost 80 percent of its value in 30 years.

The dollar's devaluation has been very gradual and spread out over time. California is about to raise the state sales tax to around 10%. If you study history, you'll notice that the sales tax was started during the Great Depression as was Social Security. These two taxes are approaching absurd levels and now we will face a health care tax.

Here we sit arguing over whether or not we are going into inflation or deflation and the real question is; have we had enough of incompetent government yet? The Mayor of Bell California was getting $787,000 until it was put in the press. The price tag for running a photo red light in California is $400, thats enough to start a divorce among young newlywed couples.

I would like to suggest that the reason we haven't seen any inflation is because of the obscene salaries of many people, they can't spend it that fast so they put it in the bank. As long as it is in the bank, there is no inflation effect, if the bank can't find anyone credit worthy to loan it to. Of course the little people like you and me don't have to worry about how to keep $250,000K FDIC insured in a bank (we don't have it to begin with).

Bernanke's goal is to stave off deflation. It's kind of like him going into a "house of ill repute" and slashing rates 50% and claiming it will bring in more business. He's right, but he's wrong. You'll get more business, but it is business you never wanted to see in a lifetime. Common sense rules when you have to work for a dollar the hard way. It is a shame that the government doesn't do it's COLAS off of hooker revenue. Minimum Social Security might approach 100K a year.

Copyright 2010 All rights reserved


dearieme said...

If you were sending him to Cambridge (UK) he'd find that parking costs 3 dollars per hour in the town centre. On the other hand, undergraduates aren't allowed to bring cars, and bike parking is free.

dearieme said...

"California is about to raise the state sales tax to around 10%.....approaching absurd levels..": you ain't seen nothin' yet. The equivalent of a sales tax in the UK, "VAT", goes up to 20% on January 4th.

frakrak said...

If he was going to the Queensland Institute of Technology, he would be paying 10 dollars per hour at the parking meter in the city.

Twenty two percent unemployment is deflationary Jim, that alone may be keeping a lid on inflation?? Get your point about the wages of the rich and perhaps not so famous, but inflation may require the average tax payer to be in an endless cycle of wage - price increases.

Griffin T. said...

I'm all for higher parking costs, as it provides an incentive to find alternative transportation.

Jim in San Marcos said...

Hi Dearieme

I'm just guessing, but I'll bet Haaarrvard (Harvard pronounced with a stuffed nose) is charging a dollar more just to not be outdone by Cambridge;>)

The UK also has income taxes to go along with the VAT taxes doesn't it? You have to be paying 55% of your income in taxes. That's not good.

A 20% VAT tax here in the US would shut down the auto industry. Instead of buying a new car every 3 years, you'd make do with the old one.

Raising taxes doesn't necessarily increase revenue, it could lead to more people gaming the system. Working "under the table" at a lower wage is a viable alternative to a lot of folks.

It will be interesting to see how this pans out.

If you're going to buy a car in UK, now's the time!

Take care

Jim in San Marcos said...

Hi Frakrak

10 dollars an hour sound more like a fine than metered parking costs. I guess they don't want you parking there.

I think that there are two stages to unemployment. In the first stage, you get benefits, and that is inflationary. In the second stage, when you run out, that's deflationary--you sell everything you own for 10 cents on the dollar. At that point you are undercutting the retailers.

I think that the real inflation will show up in food, health care, gas, cigarettes, utilities and government services.

I see the same thing at the bottom of the ladder as you do, work harder and get less in return. We are going to tax those rich people until the poor people revolt--go figure!

Jim in San Marcos said...

Hi Griffin T

What you say sound logical, but it tends to overlook reality.

I went to McDonald's today and there were a good 20 cars queued up to the drive up window. I got out of my vehicle and walked in and bought two double cheeseburgers (nobody ahead of me in line) and walked out. I walked in front of the same car waiting in line to get to my parking spot.

I'd be willing to bet that half of our problems with heart disease revolve around the advent of the automobile--my neighbor will drive 500 feet to the mailbox--hard to imagine--well, maybe not.

Henry Ford is somewhat responsible for killing public transportation--"Everyone needs to drive their own car." Maybe we will return to the idea of mass transportation like they had in San Francisco Circa 1910.

Anonymous said...

JinSM"If you're going to buy a car in UK, now's the time!"

Its never been a good time to buy a new car, immediate 17.5% depreciation as you drive it off the forecourt.

If you have the option, buy a second hand well cared for ex fleet vehicle, the original owner made the 17.5% (soon to be 20% in the UK) loss, your new vehicle has a fully documented maintenance history, and may still be in warranty.

dearieme said...

We bought our car at 18 months old and we have it still, at 16 years. I say "still" but it's undergoing its roadworthiness test this morning, so prayer may be advisable.

dearieme said...

@frakrak: "Queensland Institute of Technology" - is that beside the Botanic Gardens in Brisbane?

Tyrone said...

I went to McDonald's today and there were a good 20 cars queued up to the drive up window.

I wonder if companies will have to use carbon credits to offer drive-through. I would be intersted in knowing how much energy we (not me) use waiting in drive-throughs to stuff our fat faces with toxic food.

frakrak said...

Yes dearieme, the Bot gardens are still there (of sorts), the Brisbane City Council has now rellocated the BG to Toowong. QIT is now QUT (oops), it has been upgraded to university status about 20 years ago :-). Griffith University gives you all day parking for five bucks.

All utilities in Brisbane have seen enormous hikes in price over the past two years, I pay about $400 per two month cycle for electricity.

Jim I guess when I think of inflation I think of the free market forces, the items you named are the ones I would pick also. I can understand the government raising taxes to pay for debt, but food and utilities? Well lets pick food prices, one would assume their input costs to be falling with real wages falling in the U.S. so why the increases? Also assuming demand is either stable or falling??

AIM said...

Sorry guys. Too much debt destruction from the stock market and housing for there to be inflation. The deleveraging/debt payoff going on in the private sector and the saving that the boomers know they need to do will also prevent inflation. We are in a soft core long term deflationary spiral. Bernanke is powerless. Even if he launched his money helicopters the money won't get into the economy via loans and will have no velocity. Thus, no inflation for a good while.

AIM said...


can you say DEPRESSION? I knew you could.

This is a deflationary depression. America didn't wake up to it and admit it until 1932 in the last one. You can expect the same this time. In another year or two everyone will hear and then know it... "this is a depression".

Recovery? That's a joke.

We need to hit bottom (but government won't allow it) and then we need innovation and new technology for new jobs. And we need small businesses and the rich to not be taxed so they can be free to expand and create jobs.

How long do you think that will take?

Japan is about to finish up it second lost decade. We will follow in their path.

Fasten your seat belts. It is going to be a LONG bumpy ride.

Anonymous said...

Went to the vet yesterday, to buy some perscription cat food.
The bag is now about 20% less in cost, then the one from 6 months ago. (Contents of the bag is also smaller). I have noticed this in the grocery store, also.
People have less money, so mfgs.
are selling smaller quantities, so that people can still afford to buy it.

Anonymous said...

AIM: "..and the saving that the boomers know they need to do will also prevent inflation."

Yes, that is an often overlooked aspect of the situation.

Just as the 'boombers' are expecting to live off the income from their investments in the stock market or bank savings, they will find there aren't any.

Everyone claims to be seeing inflation and apparently Deflation cannot happen. I draw the paralell with the 'phoney war' in 1939, not a shot fired for a couple of months, then ... all hell breaks loose.

AIM said...

Don't understand how you or anyone looking at our situation can be concerned about inflation. Look what we have...

Excess capacity; wealth destruction; deleveraging; falling home prices and a weak housing market; unemployment (high and chronic); consumer confidence at an all time low; government spending and regulating like crazy in an attempt to stimulate and prop up an economic model that is unworkable and unsustainable; people saving; people not spending; high level bankruptcies and foreclosures and other debt defaults; bank failures; business failures; retail sector crashing ("see through" office buildings and retail centers); slow to no growth; deficit to GDP and debt to GDP ratios the highest ever (debt that is too big to ever repay); banks hiding their deflating assets with false accounting backed by the government; government is borrowing all the money and taking resources from small business which prevents them from expanding and hiring (although they don't want to do so right now anyway); etc. etc.

Some prices going up here and there is not inflation. That can be a symptom of inflation but not always. Inflation is a huge increase in the money supply and credit that gets injected into the real economy with velocity which then begins to drive cost up (more dollars and credit out there in ratio to the products and services available). This ain't happening, and won't for a long time.

Deflation is an aggregate decrease in demand. This keeps businesses from having any pricing power. Businesses have to get smaller, lay off and become more efficient, lower prices or disappear.

We've got a lot to burn through before we have to worry about inflation.

The bond vigilantes are the true inflation watchers. They aren't acting as if inflation is here.

How can anyone be concerned about inflation if they are looking at the current economic scenario we are actually in?

Anonymous said...

The reality is that there is only so much disposible income available to be spent into the economy by the average comsumer. You can make both arguments in regards to inflation vs. deflation but over the next four or five years the essential monthly expenses are going to increase leaving less money for everything else. If manufacturers want to keep selling they will have to drop prices or find new markets. This is one of the underlying reasons for WW1 and WW2. I just hope our leaders find diferrent solution this time to this problem.


Jim in San Marcos said...


I see no wealth destruction, millions of people bought a house with no money down and now they're giving it back to the bank. The government is printing money to cover the losses.

As for unemployment, you get two years of unemployment now. That's not bad for being paid to produce nothing.

My question is this, why do we have to pay taxes if the government can print money and fix all of our problems?

Bankruptcy's and defaults, are just a way of saying, "I spent it and can't pay it back and what can you do about it. The answer: nothing. The government is covering all bank losses.

I think that you will see the velocity of money increase when people figure out that there is no incentive to save money at these low rates. The government has printed the money that has been lost. These dollars are just as good as the ones you earned, the trouble is, everyone is hording them and not spending them. This keeps up the appearance of gradual inflation.

Remember in the hyperinflation of the German Republic, you took your cash and bought anything because a day later it would cost twice as much.

The government can print money but ask yourself one question: do they produce anything we would want to buy?

A farmer grows food, have you ever seen them print vegetables? Common sense suggests that the printing of dollars only increases the cost of the real items. Normally this printing is on a very small scale so the inflation is "tolerable." In this case they have hooked up a jet engine to the printing presses and are going for broke.

Real things that we need, have tripled in price in the last 3 years. Of course if you want to buy a house, people exclaim, my God we have had massive deflation. I don't think so. The government now owners them all and is trying to sell them to some sucker.

AIM said...

All good points... viewing things from a different perspective.

The losses in the stock market; the big institutional losses from investing in all the toxic derivative vehicles; the residential and commercial builders that have and are going belly up; all the other housing related industries that are dying off; all the other retail businesses and wholesalers going belly up; all the home equity that has disappeared for owners; all the downpayments and mortgage payments on homes that have been foreclosed upon; all the small regional banks whose commercial loans are being defaulted on; etc. etc. I would classify this as wealth destruction and asset deflation.

I think when people are scared and uncertain they hold onto their dollars and save. That will keep velocity down.

The Fed can't get the money into the real economy. They can't get it out through the banks as credit either (the majority of inflation comes from credit not paper dollars). People don't want to borrow now. Banks don't want to lend now.

The Fed has to figure out how to get money into the hands of the public and get them spending it. Tough row to hoe if you ask me.

If global demand for oil continues to dwindle energy costs will be lower thus food and products will get cheaper. Businesses all have to cut prices to be competitive and stay afloat now, so prices will go even lower.

Inflation is inevitable as the solution if you refer to history. How long before the inflationary cycle really hits and begins is the real question. I don't see it happening for a while.

Or will we have a complex mix of deflations, recessions, inflations, stagflations, etc. happening in mini-cycles for the next few decades?

Things are different than at any other time in history. We have economic factors that have never existed before. We'll just have to hope for the best and prepare for the worst and see how it this unpredictable game plays out.

I say deflation for another few years.

B. Ritholtz said...

The Inflation/Deflation debate seems to be constantly coming up — from clients, institutional accounts, and the media. Let’s look at a few points on this:

Deflation is a fact. It is happening now, it is real, and we see it in the actual data.

Inflation does not exist presently. It is, at best, an opinion. It might happen in the future, or it might not — but it does not exist, at least on a measurable form, presently.

What about deficits? Debt? Overspending? QE/ZIRP/Low rates?

Well, Japan cut rates, wildly overspent, borrowed like loons — and they had a decade plus of deflation, not inflation. We may not be Japan, but they are the 2nd largest economy in the world, and represent an actual economy that behaved, well, the way the US is.

Until the slack in the labor market is reduced — near record low weekly hours, 16% U6 unemployment, etc. — inflation simply is not a threat.

The 10 year Treasury Bond is at record low yields, so bond buyers are looking for more economic softness, not inflation.

The first heads up about inflation you will see will be when the Bid to Cover ratio of the Treasury Bonds — how many buyers are there relative to bonds for sale at US auction — right now, its oversubscribed 3X. Once buyers start insisting on greater yield, the Treasury department will have to start raising the bond rates they offer — we will know that Bonds are a short, due to impending inflation.

That will be your early inflation warning.

But now? Its nowhere in sight . . . .

Anonymous said...

It's not deflation that you should be worried about. It is the Keynesian and Monetarist attempts to prevent it that is what will do you in. The housing bubble and its dire effects and Japan's two decade slump should be enough evidence for you of that. Not allowing the correction is what creates a long term depression. Which then breeds war. History repeats itself.

Anonymous said...

It was actually the City manager of Bell that made $747K salary. He resigned but is eligible for $600+ K retirement from the state pension. Same for the police chief.
The mayor and most of the remaining council will "resign" later mainly because their pensions will kick in by then. My advise for productive Californians --- get out as soon as you are able.

La Sauciere Folle (The Mad Sauce Chef) said...

This is a cool blog and I salute your generosity of spirit when it comes to sharing your view point so vehemently. I am not so courageous and choose only to speak on inconsequential subjects. keep up the good work. Sincerely La Sauciere Folle

frakrak said...

Jim what say the U.S. goes thru hyperinflation, wouldn't one then reasonably expect the "green back" to be absolutely worthless as an international currency of exchange? If this is the case then we are back to a deflationary scenario because, the U.S. would be defaulting on loan obligations long before a wheelbarrow would be used for a wallet, even a miserly devaluation in your currency right now would bring on deflationary apocolypse??

Anonymous said...

The argument over whether we have inflation or deflation is really a moot point if you have no money. I speak from experience because 10 years ago I was out of work and last thing on my mind was the announced CPI on the news.


Anonymous said...

I can relate to Aim's point:
"And we need small businesses and the rich to not be taxed so they can be free to expand and create jobs.

I was going to start a small hand-craft business, but since I already have a job, the tax rate on the income would be 60%+. I concluded that I am better to just work for myself and my family, since they can't tax me for reconditioning my own furniture, or painting the house walls, etc.

Anonymous said...

Anon Aug.1- You are correct not to start a business. We ran a business for 10 years in CA.
Taxes and Fees included-
State Income Tax
State Corp. tax on gross sales
City tax on gross sales
State Corp. license
State Business license
City Business license
County annual tax on possessions in office- desk, computers, etc.
State tax on purchases made out of state.
Parcel tax to fund local schools.
There are probably a few more, but you get the idea.
You would have to be INSANE to start a business in CA.

Jim in San Marcos said...

Hi Sauciere Folle

Thank you, I'm glad you enjoy the blog

take care

frakrak said...

Jim think I got the devaluation thing, quite a bit backward :-)

SPECTRE of Deflation said...

The money you talk about in the banks exists only in the digital world. The currency does not exist, and it never will. That's why pork chops were a nickel a lb. and nobody could afford them during the first Depression.. We have an overwhelming amount of defaults yet to come which will crush your digital dollars in said banks to something resembling dust.

Just as the private sector companies are said to be flush with cash, yet it's never mentioned that they have been raising debt to a new record to do so. The liability side of the balance sheet looks like crap just like J6P.

Your child's tuition is proof enough that we have had our inflation over the last 35 to 40 years and have reached as a society a point of debt saturation. You cannot have an exponential growth to infinity. Every organism be it a person or a company has a maximum potential which once reached must decline.

Jim in San Marcos said...

Hi Frakrak

Sorry for the lag time to respond. My wife won a trip to Hawaii and we have been gone a week.

Everyone has the fear that the deflation of the 1930's is about to overtake us. I tend to differ in that no real money has been lost like back then. The money that could have been lost has been printed by the government and used to guarantee and replenish your bank deposits.

Your dollar in the bank is as good as mine. Since we have had no massive loss of wealth, there is so much cash awash in the system that the interest rate is zero. Nobody want to borrow money and if they do, they can't qualify for the loan.

Right now we are seeing consumption, but bear in mind if you're not getting any interest on your savings, why not spend it? The inflation is real, but the incentive to save is gone.

With 20% unemployment, you are about to see savings accounts and IRA's drained. Add in unemployment insurance, and ask yourself where is the deflation? We now have tremendous consumption with no new production to speak of.

If you take the year 2002 and compare prices to then, I would be willing to bet that prices are still 20% higher today. Real estate is a good example even though it has dropped dramatically, it is no where near being real (price-wise).

So from here, I see massive consumption with little production. At some point, you will have to pay more to consume product if the supply drops. We are not going to run out of money, we are going to run out of things to buy.

I'm not sure that answers your question, but this is just the way I am reading the tea leaves.

Take care

SPECTRE of Deflation said...

The savings rate is pushing 6% if memory serves me right. Consumption with no production is what we have already been living for quite a while. No money lost by anyone is not correct unless the American Citizenry counts as nothing.

frakrak said...

A few days ago I spoke to my elderly mother about her recollection of living thru the Great Depression, and she made the point that it hit Australia later and deeper than it did in the U.S.

Australia at that time was a primary producing economy (sheep, wheat and coal mines), although at the turn of last century we had the highest standard of living in the developed world (before the depression). Australia didn’t have any or much of an industrial base at that time.

It does parallel presently certain aspects of developed economies, where the industrial base has been uprooted to countries like China and India; The deflationary scenario could make the 1930’s episode look like an entrĂ©e to the deprivation the West could face on the extreme downside.

And if we reflect on further differences with the then and now, we have figures that conservatively estimate the global derivative market at 250T, ticking away just waiting to be pricked, I don’t think Hoover faced that challenge? I read recently when Lehman went T#Ts up it took 13T to fill that particular hole in the derivatives market. No wonder President Obama can’t quit smoking :-)

Financial Services in developed economies have grown exponentially in twenty years, in the U.K. it accounts for over 40 percent of their GDP, and yet this country exports very little else, but a financial casino.

A report on Australia’s 1 T superannuation industry (released yesterday), showed that it actually has cost the government more in superannuation incentives than it would have to provide the retirement pension estimated to cost 26 B. Fund managers have gouged nearly 30 B from these funds over the past twenty years, a lot of funds have actually gone backwards. Over twenty years they have averaged about 1.5 percent return per anum.
I love the concept of free markets, conservative governments, but I would like even more to be able to live when I retire, capitalism seems to be getting too expensive for the average tax payer :-)
Hoping for inflation, you have a near perfect score so far :-) Aloha to you and your wife ….

Jim in San Marcos said...

Hi Spectre

What I am referring to is the 90 percent hair cut of the 1930's. There has been no massive loss of wealth this time around. These people that went out and bought million dollar homes with no money down didn't lose a dime, they gave them back to the banks. The banks didn't lose any depositors money, the government printed more of it.

Lose your job and get a government paycheck for two years.

Our money is still intact. The question is; is there enough product to buy with the savings that is in the bank? I tend to believe that there is a ton of money chasing very few goods. With everyone saving dollars, it just isn't obvious yet.

Jim in San Marcos said...

Hi Frakrak

I guess I'll get around to posting again on Saturday. Still chasing loose ends and catching up on what has happened.

Your discussion with your mother strikes a harmonic cord. I talked to several people of that era and everyone saw it a little bit different. The only thing everyone agreed on was that they lost a lot of money and jobs were hard to find. People found a way to make do.

I think that the real big difference between the last catastrophe and the present one, is that in the first one, a run on the banks "destroyed" the savings of the country. It was not like the money was there, it was gone and the run on the bank proved it.

This time, the money is gone and the Fed will print cash to keep each bank account at full value. There is no reason to have a run on the bank, "your money is still there!" You can't get to it because your not at retirement age yet and of course, penalties if you do. The question arises, is it really your money or the governments? They are going to tell you when you can spend it.

The thing that confuses me,is the money printed to ameliorate the present situation. 99.99 percent of the time, you receive wages for producing product. Once you short circuit that assumption, the laws of economics dictate that something has to give.

What happens from here, will make this depression different in some respects from the last. Notice though, the government is still addressing this as a recession and they are not wrong technically, but it seems a tad bit more to me, maybe it's just my imagination running amok again.

Take care

SPECTRE of Deflation said...

Jim, that million dollar home you mention was levered up 40 to 1 by the banks. How exactly do we squeeze 30 to 40 million out of a house that has a present worth of 1/2 million dollars? You forget about all those diveratives that must be marked to reality at some point. The national debt just went north of 13 Trillion Dollars, and if you don't see a loser in all this, I'm not sure I can help with the big picture. The losers are us my friend. That would also include our children and grandchildren who have no way to pay for our follies.

Anonymous said...

I believe it is very wrong to say there hasn't been debt destruction and loss of wealth. It doesn't matter if the money is just digital numbers because it is still money in our fiat system. People lost their down payments and the money they put into their houses that were foreclosed on; banks lost money on those loans; people lost money in their stocks and bonds; banks and investors have lost a lot on all of the derivative and toxic assets that Wall St. created. It may all be numbers but those numbers are on their balance sheets and their balance sheets show what their net worth is. If someone has 1.5M in assets on their balance sheet they can sell those and use the 1.5 to buy something else, doesn't matter if it is digital money or dollar bills. It is whatever is accepted as currency in our country. People have lost money and wealth. Asset deflation does mean something. It is wealth deflation. If your apartment bldg is currently worth 30% less than it was worth in 2006 and your rental income is only 20k instead of the 37k it was in 2006 you have lost money and wealth. Deflating assets and debt destruction is what is keeping inflation from running rampant (the banks aren't lending or putting money out because they know they need all that money to deal with the aftermath of all of their asset deflation (their loans).
The agreed upon point of wealth are those digital dollars, numbers on the computer screen and figures on your balance sheet.

Rob said...

Unless these houses are burning to the ground upon foreclosure there has been no loss one way or the other. As for all the derivatives it is an end sum game. Nothing is produced by them and consequently nothing is lost. I suppose if you are on wrong end of the deal you would disagree. Those derivatives are, when it's boiled down, just bets between Hedge funds Big banks and other corporations. Someone wins but someone also loses. I'm just an average joe, the people with all the toys can play Russian Roulette as long as they want.

The deflationists seem to think the government at some point will have to stop printing money. I have to ask why would a politician do something like that? What is to stop the government from sending everyone a cheque for a couple of hundred grand? We have been running deficits in Western Europe and North America for last thirty years. Why stop now?


Jim in San Marcos said...

Hi Rob

Your first comment gave me a chuckle 'The argument over whether we have inflation or deflation is really a moot point if you have no money.' It reminds me of the real estate salesman saying you can deduct your interest on your home from you income taxes. If you don't have a job, deduct it from what?

Your last comment sums it up, the government is not going to stop printing money any time soon.

Jim in San Marcos said...

Hi Spectre

I have no disagreement about the national debt, its a bubble. It's kind of like a close relative borrowing your life savings and squandering it on vacations, cars and women. Once you realize that they are not going to pay it back, your retirement future would look rather grim. That relative is our government.

Some people suggest that we are passing these debts onto our children, I suggest that is what is called a "car salesman close" just as is the statement that the government is doing this to ward off deflation. If you accept either one, you're denying the existence of a ponzi scheme run by Uncle Sam.

Our government has borrowed all of our savings (17 trillion) and spent it and is paying us 2% interest, what a deal!

Bear in mind, these are just my thoughts, there is no right and wrong here. If we all thought the same, we'd all be driving the same model cars.

Jim in San Marcos said...

Hi Anon 11:27

I have no disagreement with your statement "I believe it is very wrong to say there hasn't been debt destruction and loss of wealth"

I would argue that we have had no massive debt destruction as occurred in the Great Depression. Losing 90 percent is a very vast amount of savings and that has not happened--yet.

The argument now revolves around how this debt destruction will occur. The government can print itself out of existence or promise fabulous benefits to all of the retirees and go bankrupt.

The Kondratieff wave theory suggests that there will be a great redistribution of wealth. Once you lose your cash reserves, the formerly rich then have trouble supporting their asset base with taxes and the like.

The only reason gold and silver were a lousy bet in the past was because they paid no interest. Well getting 2% interest in the bank and having 6% inflation, the precious metals look pretty good. Once people figure this out, look for government to ban gold ownership. That's already happened in Thailand.

frakrak said...

Jim, my mum was making the point about Australia doing worse than the U.S. only in the unemployment area, our society back then did not have the industrial base the U.S. did. Obviously when you are starving it goes beyond making comparisons!!

Rob I liked your point about derivatives, that has also crossed my mind, I wonder if Obama passed legislation that outlawed the nearly "unexplainable" derivative if it would call the bankers bluff??

Jim shadow stats has articles on the potential of a "hyperinflationary depression," hey, if it keeps everyone happy at different ends of the debate, then we can all have solidarity as we adjust to our new found poverty:-)

Rob in NS said...


Your last statement made me made me laugh. There is an old saying "misery loves company". When the dust settles and we are all a little poorer at least everyone will be able to say "I told you so". That might make the promise sandwiches the politician are making right now taste a little better.


AIM said...

When the bottom falls out (high inflation) there is no currency to go into to protect your wealth (every country is fiat based... I think Switzerland is the only one not 100% paper... it backs its currency with 30% gold.).

Gold could be confiscated or highly regulated as Jim pointed out. They did it back in the '30s here in the USA. We're more socialistic or fascistic now then before so you can guarantee stringent government interventions when the bottom falls out.

The only thing to do to avoid losing your wealth is to invest your capital and reserves into hard assets at the appropriate time.

To me that would be shelter, food, water and energy. In other words apartments, farms, wells, oil/elec/solar companies or the like.