T Nation

Deflation vs Inflation


#1

JEATON lets make this the tread for our little wager.


#2

Here's the problem. Wages are going down, not up. Housing prices are going down, not up. Spending is down by about 33% - it's not going up. Prices can go up, but supply and demand still apply. When prices go up, demand decreases.

A lot of these gold bugs, including Schiff, have a vested interest in gold going up which is why they keep trumpeting inflation. Almost everyone regards gold as a not-so-good inflation hedge. Peter Schiff has a wide audience right now and has a lot of interest in gold going up, so it's good for him to promote it.

The fact is that the Fed has printed money (quantitative easing, they're calling it), but it hasn't made it into the economy because we've reached a critical ratio of debt (public and private) to GDP.

In other words, debt has trumped quantitative easing. Banks are not lending any of the money out that they've gotten from the Fed because they know about all of the bad paper on their balance sheets in the forms of mortgages and consumer debt. In fact, credit has been contracting, which is a contraction of the money supply, not an expansion.


#3

Read this also:

http://www.businessweek.com/investor/content/sep2009/pi2009097_042500.htm

Anyone willing to buy gold now that it's at $1000? Anyone? I've got cash and it scares me.


#4

Just saw it John.

Friday close on the DXY (dollar index future-spot price) ended at 76.61
78.70 looks to be the magic number. A close above that and it looks like the bottom is in.

Looks like gold ended Friday at 1005.7
On one hand, just from a "chartists" perspective, I could feel comfortable with today's high of 1012 being the end of the run (hows that for going out on a limb?). If not, I see 1030 being to top.

Blast away....


#5

I guess we will find out monday.


#6

You do have some good points, but you are forgetting one thing. 0-.5% ARM's. What happens when all of these turn over? You are also forgetting China is about to dump the dollar. You are also forgetting that banks haven't taken off most of these toxic mortgages.

Anyways this should be a exciting couple of months.


#7

Check this out. Very shocking, considering "cash for clunkers" etc.

http://finance.yahoo.com/news/On-Consumer-Credit-zacks-2211769069.html?x=0&.v=1


#8

I'm not forgetting any of these things. The banks have to eat all of those losses, which will cause a further contraction in credit and lending. In fact, the banks don't know who is solvent and who isn't at this point, so they're scared of lending any money. We just had something like 300 banks fail, didn't we?


#9

Yes we did have 300 fail, and it was because they let to much money out. We can see with the housing bubble re-emerging that banks are not keeping the money horded they are spreading it so they can stay alive for a little bit longer.

If we would have just let the banks fail we would have seen a deflation, but because these banks have this money when they get ready to fail they will spend it. That is going to cause inflation.


#10

Housing bubble re-emerging? lolwut? Prices are still going down as inventory continues to climb even in SoCal. We saw a slight drop in inventory towards the end of summer, but that happens every year: families like to buy houses before the school year starts. You're not getting your housing info from the same people you got it from in 2006, are you?

Meanwhile, consumer credit continues to contract:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAYZpSNGocVM


#11

This is the story I linked to above. Can you imagine this continuing for a few more months? It would be like falling off a cliff.


#12

It has to continue - we've got several more waves of ARM resets to go. Oh, and 30 yr fixed mortgage defaults are way up also. The banks know they're in for it, which is why that TARP money isn't being lent.


#13

Ok, daily update.
Looks like the dollar ended the day at 76.66. Good spike up out of the open, but then sold off.
One thing that catches my attention is that there are just 4% Dollar Bulls via the DSI. This is an extreme that usually marks a turning point.

Gold ended up at roughly $1000. Looks like the $1012 mark is holding for now. I see potential for as high as $1030, but don't know if it gets there.

BTW John,
Have you been working on the language for your "losers" post? I know you have eight weeks, but time has a tendency to get away from you :wink:


#14

The ARM's are being built back up. Then add in all the ones that the banks did not clear off there sheets, The bubble is back.


#15

Of course there is going to be resistance, the dollar is going to be propped up for a bit. Why do you think I asked you to extend this to 8 weeks.(was originally going to ask for 12 weeks but figured you wouldn't be ok with that.)

What is catching my attention right now is the tariff dispute going on between China and us. I expect Gold to top 1,050 by the end of 8 weeks.

Now I could be wrong and people will buy into the dollar, but all that will do is delay this for another 6 months tops.


#16

They have no way of building the ARMs back up because no one is buying mortgage-backed securities and collateralized debt obligations anymore. Everyone figured out the scam. There are no more Greater Fools to sell these products to overseas.

I have hard data to back up my claims. What do you have?


#17

I just watched "The Arrivals" on Youtube, and there is not way the Illuminati will let that happen. The Chinese are not in the club.
(God, I feel dirty just joking about that stuff)


#18

I would like to see your data that states no one is getting these 0-.5% ARMS. The numbers don't have to be big, all you need to add is a little more already on top of whats already there.

http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/2009/09/adjustablerate_mortgage_resets_1.html

I could very well be wrong and there is not a single ARM being bought.


#19

One thing I would like to have explained by people who claim we are about to enter deflation.

You can not deny that a massive amount of money has been printed. How can Inflation not happen?

Edit*

I am seeing inflation in effect everyday at work.


#20

You made the claim that they're blowing up another bubble by issuing more ARMs. I was asking what data you had to support that assertion. The link you gave me supported mine: that there are more waves of ARMs waiting to reset to carry more people into default.

The banks have to actually lend that money to the economy for the money to be in circulation. They're not doing so b/c there's too much bad debt out there and they need a certain amount of cash on hand to keep from going under.

Also, if inflation does start to happen, the Fed can just raise interest rates, causing people to save more and thus shrinking the money supply.