Posted on 06/18/2009 5:33:51 AM PDT by SeekAndFind
During a recent speech, money manager Van Hoisington, president of Hoisington Investment Management, asked his audience of sophisticated investors to raise hand if they thought inflation was going to be a problem sooner or later.
Everyone raised a hand -- except Hoisington.
This "inflationist view of the world," which he outlines in his firm's recent quarterly review and outlook, stems from Milton Friedman's observation that "inflation is always and everywhere a monetary phenomenon." Hoisington goes on to say that "the Fed has expanded money supply dramatically, and since inflation is too much money chasing too few goods," people think inflation is inevitable. But he thinks they're wrong.
For starters, Hoisington believes the economy will continue to be weak for years. And with unemployment at such high levels, companies won't be raising wages, and consumers won't be increasing their spending. That means demand for commodities and other goods will be muted, so there will be no upward pressure on prices. Overall, he sees the economy being no bigger in 2012 than it is today.
Even if inflation and interest rates were to rise in this recession or the beginning of a recovery, the economy would quickly stall. "With unemployment widespread, wages would seriously lag inflation," he writes. "Thus, real household income would decline truncate any potential gain in consumer spending."
What about all the money the government is pumping into the system? That's not by itself inflationary, he says, pointing to the work of economist Irving Fisher (who died in 1947).
Fisher believed that gross domestic product is equal to money times its turnover, or velocity, which is basically, the speed with which people spend it. In the last two quarters, money supply has grown at 14% but velocity has declined by about 17%, so nominal (non inflation-adjusted) GDP fell 4.5%.
(Excerpt) Read more at money.cnn.com ...
The main argument is this ( and note, he already took into account the government pumping money):
One reason the speed with which people spend money is down is that people would rather repay debt than go out and buy a lot of new stuff. People are more interested in trying to get out of debt than increasing it, which means the economy cannot grow. If there’s no increase in demand, there can be no increase in prices.
Hence the conclusion -— THE NEXT DECADE WILL BE A PERIOD OF DISINLFATION.
Throughout history, we’ve always had really bright folks explaining how we could go ahead and do what was convenient, that this time is different, the problems that had always been caused before won’t happen this time.
And they’ve always been wrong.
China has a bunch of our dollars and ARE looking for a way/place to spend it. Hoisington is an idiot to not see inflation coming.
Are you saying that Van Hosington ( the man arguing against inflation) is wrong in his assessment ?
I would be inclined to agree with the fellow who was the subject of this article. But one thing seems to keep nagging at me. I think of the experiences of Germany during the Depression and of Zimbabwe, currently. I believe both of those countries experienced very weak economies with very high unemployment. Yet, they had runaway iflation. Our path seems more like that of Germany and Zimbabwe....we throw money at a weak economy thinking that will make it strong.
Hasn’t this jerk ever heard of the 1970’s and stagflation?
That’s the problem with reading financial advice. You will find someone predicting EVERY POSSIBLE OUTCOME. When an outcome eventuates, that particular predictor is crowned a genius. The genius crown gets passed around randomly.
One other thing: the value of the dollar compared with other currencies.
We get most of our stuff from somewhere else.
I think that he may be right on the lack of consumerism because consumerism was running rampant.
The young families that I know have so much crap they don’t have enough storage space to hold it all. Mom, dad and all the kids have Ipods, cell phones, computers, CDs, DVDs, TVs. In a bad economy when one of those things dies it will be less likely that it will be replaced because food and utilities will be more important.
[Fisher believed that gross domestic product is equal to money times its turnover, or velocity, which is basically, the speed with which people spend it. In the last two quarters, money supply has grown at 14% but velocity has declined by about 17%, so nominal (non inflation-adjusted) GDP fell 4.5%.]
That is my opinion as well, after a great deal of thought.
That doesn’t mean the Trillions in money being printed and astronomical deficits aren’t hugely damaging, just that the bad things they cause can show up as decreased monetary velocity, or stagflation, instead of hyperinflation alone. Either way we are screwed, but you just can’t count on it all coming out as hyperinflation because it’s a two variable equation.
I don’t know about you fellers... but I’ll put my money on Milton Friedman and the Hayek school of economics.
When the dust settles, the Chinese won't have hardly any dollars in their pockets and they people that took their dollars for hard assets will be kicking themselves for not selling mines, etc. for a more valuable currency.
And if it takes a mere decade for that to happen, that's not a problem for the Chinese. They think in a VERY long term manner about their financial and economic future.
What do they have, $1 trillion? How long are they going to take to spend it? Versus how big our GDP is, how much inflation do you feel that will cause?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.