Topic: Deflationary M2 Explosion

[charlesoakwood]

What’s going on here?

[blockquote]

Amidst the financial flight-wave to safety, with stocks plunging, gold soaring, andTreasury bond rates collapsing — and all the European banking fears which go with that — there’s an important sub-theme developing: An almost-forgotten monetary indicator, M2, which is mostly cash, demand-deposit checking accounts, savings deposits, and retail money-market funds, has been soaring.
...
So contrary to monetarist theory, the M2 explosion seems more closely related to a deflation/recession risk.

[/blockquote]

[rickl]

That's where my money is.  And I would greatly prefer deflation over inflation, since I have savings and no debt.

[ToddF]

That's where my money is.  And I would greatly prefer deflation over inflation, since I have savings and no debt.

Except food and energy aren't counted, and they're commodity based and are soaring.  I own my house, so my 'savings' is dropping and the only things I have to buy are soaring. 

I don't like the current so-called 'deflation.'

[Libertas]

The euro angle makes sense for M2, that people see our banks as a safe haven makes me chuckle just a little, but the housing collapse more than anything is going to ensure the rampant lending to people who cannot afford to own homes (despite the lack of regulatory reform or closing financial toxic waste dumps like F/F) is the only thing keeping risk off our balance sheets.  There are disconnects in the system, all exacerbated by clueless Keynesian's in the WH, running the Fed and at Treasury.  As long as the economy remains in the toilet it is in a perverse way preventing items currently experiencing inflation from going completely apesh*t.  Can you imagine increased growth and aggresive demand and what it might mean to certain commodities?  We might get more demand pressures anyway in food and such if shortages are exacerbated due to production falloff's as a result of a stagnant economy.  The government needs to get its fiscal house in order and pare down the debt and spending or we're screwed any way you turn.  Only then can we start to grow our way out.

[Weisshaupt]

The euro angle makes sense for M2, that people see our banks as a safe haven makes me chuckle just a little, but the housing collapse more than anything is going to ensure the rampant lending to people who cannot afford to own homes (despite the lack of regulatory reform or closing financial toxic waste dumps like F/F) is the only thing keeping risk off our balance sheets.  There are disconnects in the system, all exacerbated by clueless Keynesian's in the WH, running the Fed and at Treasury.  As long as the economy remains in the toilet it is in a perverse way preventing items currently experiencing inflation from going completely apesh*t.  Can you imagine increased growth and aggresive demand and what it might mean to certain commodities?  We might get more demand pressures anyway in food and such if shortages are exacerbated due to production falloff's as a result of a stagnant economy.  The government needs to get its fiscal house in order and pare down the debt and spending or we're screwed any way you turn.  Only then can we start to grow our way out.

That is not fair to Keynes.. he never said you could borrow to prosperity. He said the government should save up a pile of money in good times and use it to jump start the economy when bad things happened. The people in the White House are Neo-Keynesian. That take the part of Keynes they like and forget the rest.

This is not a deflationary cycle. This is stagflation.  Prices for assets typically bought with borrowed money go down ( houses, cars etc)  and prices for daily living go up . IN the end QE3 will simply have to be implemented, officially or unofficially, or the US will have a hard default/repricing of its debt -- but no politician will accept the  responsibility for the latter - be it a domestic ( no more SS/Medicare for 90% of Americans)  or an external (treasury owners)  default.

And look at the treasuries go - they have negative real yields now, and people are still buying them.

[charlesoakwood]

"Neo-Keynesian", Buffet-Keynesian or bluntly - totalitarian Marxist. Michelle is getting impatient, you know.


Barclays Capital looks for gold to remain underpinned, with exchange-traded product inflows of 145 metric tons for the third quarter to date the strongest level since the second quarter of 2010, when initial concerns over European sovereign debt materialized. “In our view, the continuation of central-bank net buying coupled with the return of investment demand following the heightening of economic and financial market uncertainty is set to drive prices to yet new highs,” Barclays says. The bank later concludes: “We expect prices to average $1,800/oz in H2 11 and $2,000/oz in 2012.”

By Allen Sykoraof

[Libertas]

The euro angle makes sense for M2, that people see our banks as a safe haven makes me chuckle just a little, but the housing collapse more than anything is going to ensure the rampant lending to people who cannot afford to own homes (despite the lack of regulatory reform or closing financial toxic waste dumps like F/F) is the only thing keeping risk off our balance sheets.  There are disconnects in the system, all exacerbated by clueless Keynesian's in the WH, running the Fed and at Treasury.  As long as the economy remains in the toilet it is in a perverse way preventing items currently experiencing inflation from going completely apesh*t.  Can you imagine increased growth and aggresive demand and what it might mean to certain commodities?  We might get more demand pressures anyway in food and such if shortages are exacerbated due to production falloff's as a result of a stagnant economy.  The government needs to get its fiscal house in order and pare down the debt and spending or we're screwed any way you turn.  Only then can we start to grow our way out.

That is not fair to Keynes.. he never said you could borrow to prosperity. He said the government should save up a pile of money in good times and use it to jump start the economy when bad things happened. The people in the White House are Neo-Keynesian. That take the part of Keynes they like and forget the rest.

This is not a deflationary cycle. This is stagflation.  Prices for assets typically bought with borrowed money go down ( houses, cars etc)  and prices for daily living go up . IN the end QE3 will simply have to be implemented, officially or unofficially, or the US will have a hard default/repricing of its debt -- but no politician will accept the  responsibility for the latter - be it a domestic ( no more SS/Medicare for 90% of Americans)  or an external (treasury owners)  default.

And look at the treasuries go - they have negative real yields now, and people are still buying them.

If you say Neo-Keynesian peoples eyes will glaze over...others will drool like morons as they try ot figure it out what it means...and leftists will attack anybody uttering Keynesian or Neo-Keynsian in a disparaging way toward a proglodyte brother or sister.

Agree on staglfation, but QE should be avoided as all that does is postpone judgement day and further add impetus toward devalued currency.  Paring down debt and spending and removing regulatory burden and tax disincentive is the only real way out.  But we know most if not all of that will not happen so betting on stupid will pay off again for those betting that way.

Ride the PM wave and watch the turmoil engulf the rest of the markets.

[Libertas]

"Neo-Keynesian", Buffet-Keynesian or bluntly - totalitarian Marxist. Michelle is getting impatient, you know.


Barclays Capital looks for gold to remain underpinned, with exchange-traded product inflows of 145 metric tons for the third quarter to date the strongest level since the second quarter of 2010, when initial concerns over European sovereign debt materialized. “In our view, the continuation of central-bank net buying coupled with the return of investment demand following the heightening of economic and financial market uncertainty is set to drive prices to yet new highs,” Barclays says. The bank later concludes: “We expect prices to average $1,800/oz in H2 11 and $2,000/oz in 2012.”

By Allen Sykoraof

That seems conservative to me.  But either way, the trend as nothing but blue skies ahead of it...

[charlesoakwood]

A correction is inevitable.  It is also inevitable this administration/fed/bernank/timmy/europe will take it to the pooch again.  It's a solid trend.

[Weisshaupt]

Agree on staglfation, but QE should be avoided as all that does is postpone judgement day and further add impetus toward devalued currency.  Paring down debt and spending and removing regulatory burden and tax disincentive is the only real way out.  But we know most if not all of that will not happen so betting on stupid will pay off again for those betting that way.

I did the math on "growing our way out"  - its no longer an option. The numbers are just too damn big, and the damage to the currency is already too severe. You can't solve this without "entitlement reform" - which is just another way of saying "partial domestic default" - because that means Not paying what was promised. Legally, its the low hanging fruit, because you aren't entitled to anything. the Supreme Court found SS/Medicare etc were "taxes" and there was no legal  contract in any form binding the government to provide anything in return.  Even "means testing" is just a form of default.. its just that the person getting screwed can "afford" to loose the money.  However, I am pretty sure the people expecting that payout feel its a binding agreement, so politically, that is NOT low hanging fruit, and its our political leaders who will be doing the reaching, and they will probably prefer external default, or default by inflation - or "QE to infinity"  Some form of default is simply inevitable at this point.  All you can do is guess at the form of the destroyer they will chose.
 
Ghostbusters Stay Puft Man

Given that, QE is a fine solution. It results in a gradual, and mostly predictable decline if done right. There remains some risk there will be a sudden panic, but most of the dollar holders (including us) will support it, because it gives them  a chance to unload those dollars in a quasi-predictable environment. I my case that means buying PV systems, Greenhouses, ATVS, wood stoves, wood splitters etc,  and in the case of foreign creditors it means buying oilfields and rare earth mineral mines. It allows us a graceful exit before things go kaboom

Ghostbusters Containment Unit Shutdown: Putts Law in Action


 


 .
 

[Libertas]

I would include entitlements in my broad sense of spending reductions.  There is an intelligent way to phase out SS and to that regard the Ryan plan was the best template available to get there.  But in a sick and ironic twist of reality that the MFM is a too willing accomplice to push, the real destroyers of old people accused Ryan and his supporters of wanting to kick old folks to the curb.  After the political discouse was so thoroughly fouled by leftist lies and abandoned by sissies in the GOP the Ryan plan became DOA.  So the destroyers win again and We the People are once more raped and blamed.  There was nowhere to go but down the drain after this.  I disagree that a growth plan is too late if the Ryan plan was part of it, but now we are on the road to ultimate demise.  In the end you may be right, but only because of a complete lack of leadership on our side and a willingness of a majority of citizens to agree to the way out and demand that it be done and both parties stay the course and do no deviate.  Tall order, not impossible but growing ever so with each passing day...

[Weisshaupt]

I would include entitlements in my broad sense of spending reductions. 

Sure. But any entitlement reform is a defacto default on our obligations - the only difference is on who is getting screwed. The point is someone is going to be - even under the Ryan plan. There is no scenario under which everyone we owe gets paid.

[Libertas]

I would include entitlements in my broad sense of spending reductions. 

Sure. But any entitlement reform is a defacto default on our obligations - the only difference is on who is getting screwed. The point is someone is going to be - even under the Ryan plan. There is no scenario under which everyone we owe gets paid.

Somehow the idea that some is as bad as all was lost in translation.

Now we have everybody losing.

I'm sure everyone will feel much better about that.

Shared misery types especially...

 

I never counted on receivng any of that anyway, so I guess I am one of the few who realized early on the ponzi scheme would unravel.  Doesn't mean I shouldn't ask for what was stolen from me back (or stolen from employers!), but that has zero chance under any option right now, doesn't it?

The anger I have for and the retribution awaiting those who perpetuate this scheme will soon be paid in full.

[Weisshaupt]

I never counted on receivng any of that anyway, so I guess I am one of the few who realized early on the ponzi scheme would unravel. 

Yeah, I never counted on it either, but the boomers are the most spoiled, narcissistic generation to ever live on this planet- and would rather get paid - even if it is on the backs of their children and grandchildren - who will most likely never get to retire - ever. SS or no, and will really be the first generation to ever do worse than their parents.  Even if they did the right thing, many of us would be taking in and supporting parents who decided they didn't need to plan for retirement, or who simply saved less because they counted on SS making up the difference. Granted, a real entitlement reform (domestic default) would save the nation from bankruptcy, but I think the worldwide  confidence in the dollar has been shattered, and other nations will continue to push for a new reserve, or at least the establishment of an alternate. The era of American domination has ended.   
 

[Pandora]

I would include entitlements in my broad sense of spending reductions. 

Sure. But any entitlement reform is a defacto default on our obligations - the only difference is on who is getting screwed. The point is someone is going to be - even under the Ryan plan. There is no scenario under which everyone we owe gets paid.

Somehow the idea that some is as bad as all was lost in translation.

Now we have everybody losing.

I'm sure everyone will feel much better about that.

Shared misery types especially...

 

I never counted on receivng any of that anyway, so I guess I am one of the few who realized early on the ponzi scheme would unravel.  Doesn't mean I shouldn't ask for what was stolen from me back (or stolen from employers!), but that has zero chance under any option right now, doesn't it?

The anger I have for and the retribution awaiting those who perpetuate this scheme will soon be paid in full.

Neither Gunsmith nor I ever counted on it either.

I have to say this, though, about "promises made" should be promises kept.  No one has the right -- no one -- to promise the future productivity of anybody, today or tomorrow, to anybody else.  These are promises, obligations placed on some for the benefit of others, that never should have been made and, as such, I have no problem with them being broken.

[Weisshaupt]

"Suppose Louis XV and his contemporary generation had said to the money lenders of Genoa, give us money that we may eat, drink, and be merry in our day; and on condition you will demand no interest till the end of 19 Years, you shall then forever after receive an annual interest of 12 Percent. The money is lent on these conditions, is divided among the living, eaten, drank, and squandered. Would the present generation be obliged to apply the produce of the earth and of their labour to replace their dissipations? Not at all."  Jefferson to To James Madison, Paris, September 6,1789

Or the same sentiment expressed over 20 years later.

"It is a wise rule and should be fundamental in a government disposed to cherish its credit, and at the same time to restrain the use of it within the limits of its faculties, “never to borrow a dollar without laying a tax in the same instant for paying the interest annually, and the principal within a given term; and to consider that tax as pledged to the creditors on the public faith.” On such a pledge as this, sacredly observed, a government may always command, on a reasonable interest, all the lendable money of their citizens, while the necessity of an equivalent tax is a salutary warning to them and their constituents against oppressions, bankruptcy, and its inevitable consequence, revolution. But the term of redemption must be moderate, and at any rate within the limits of their rightful powers. But what limits, it will be asked. Does this prescribe to their powers? What is to hinder them from creating a perpetual debt? The laws of nature I answer. The earth belongs to the living, not to the dead. The will and die power of man expire with his life, by nature’s law. Some societies give it an artificial continuance, for the encouragement of industry; some refuse it, as our aboriginal neighbors. Whom we call barbarians. The generations of men may be considered as bodies or corporations. Each generation has the usufruct of the earth during the period of its continuance. When it ceases to exist, the usufruct passes on to the succeeding generation, free and unencumbered, and so on, successively, from one generation to another forever. We may consider each generation as a distinct nation, with a right, by die will of its majority, to bind themselves, but none to bind the succeeding generation, more than the inhabitants of another country. Suppose that majority, on the first day of the year 1794, had borrowed a sum of money equal to the fee-simple value of the State, and to have consumed it in eating, drinking and making merry in their day; or, if your please, in quarrelling and fighting with their unoffending neighbors. Within eighteen years  and eight months, one half of the adult citizens were dead. Till then, being the majority, they might rightfully levy the interest of their debt annually on themselves and their fellow- revelers, or fellow-champions. But at that period, say at this moment, a new majority have come into place, in their own right, and not under the rights, the conditions, or laws of their predecessors. Are they bound to acknowledge the debt, to consider the preceding generation as having had a right to eat up the whole soil of their country, in the course of a life. To alienate it from them, (for it would be an alienation to the creditors,) and would they think themselves either legally or morally bound to give up their country and emigrate to an- Other for subsistence? Every one will say no; that the soil is die gift of God to the living, as much as it had been to the deceased generation; and that the laws of nature impose no obligation on 11 them to pay this debt. And although, like some other natural rights, this has not yet entered into any declaration of rights, it is no less a law, and ought to be acted on by honest governments. It is, at the same time, a salutary curb on the spirit of war and indebtment, which, since the modern theory of the perpetuation of debt, has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating. Had this principle been declared in the British bill of rights, England would have been placed under the happy disability of waging eternal war, and of contracting her thousand millions of public debt. In seeking, then, for an ultimate term for the redemption of our debts, let us rally to this principle, and provide for their payment within the term of nineteen years at the farthest." -- Jefferson To John Wayles Eppes, Monticello, June 24,1813

And of course, this:

"I own it to be my opinion that good will arise from the destruction of our credit. I see nothing else which can restrain our disposition to luxury, and the loss of those manners which alone can preserve republican government. As it is impossible to prevent credit, the best way would be to cure it’s ill effects by giving an instantaneous recovery to the creditor; this would be reducing purchases on credit to purchases for ready money. A man would then see a poison painted on everything he wished but had not ready money to pay for."  - Jefferson To Archibald Stuart, Paris, Jan. 2S, 1786

It should be noted that Jefferson was continually in debt, and never learned to handle his own credit well..

[Pandora]

Well.  Don't great minds think alike and all that. 

On the other hand, Pandora has rarely been in debt and uses credit properly and sparingly.

In all seriousness, it is possible to proscribe, in the strongest terms, against faults one recognizes in oneself.

After the fall, we will not be the same country, but I don't count the US out in another rise to prominent greatness if there are enough of us around who remember this principle (and others) espoused by Jefferson and can influence others to it as well.