Replies

Utter nonsense...individual investors play no role whatsoever in Treasury pricing during Quantitative Easing.

Instead, the Fed is buying up all of the Treasury’s new debt.

This drives interest rates lower, making income harder to come by.

Deflation.

But don’t take my word for it. Simply look at what Japan has seen after doing the same thing every year since 1989.

Deflation.

We are copying Japan.

Japan has deflation and near 0% interest rates, the opposite of what the author of your article pretends should happen.

Reality is a beyotch.

A better way to put it is inflation decreases the buying power of your money in increments. You may be able to survive it if your capital gains earn more interest than inflation takes away. But your dollar’s buying power, even though you may have more of them, is diminished. Not too many people go broke because of regular inflation over a one year period. However a number of years of relatively high inflation can really erode a person’s stored up wealth.

With hyperinflation, pretty much everyone becomes poor very quickly with the possible exception of the mega-rich, large millionaires and billionaires. Even their wealth is seriously eroded, but compared to what happens to everyone else, they still have a lot. It’s the fastest way to kill an economy as the price of goods soars 800-1000% or more quickly, usually more than once, but wages and investments cannot match the cost of goods, which become scarce, and the money becomes worthless.

Regular inflation eats away at your earnings in small chunks, hyperinflation takes it all at once, relatively speaking.

blam, too much of that article is based on the idea that "asset managers" act on signals, and not on a very accurate view of what's going on in the world.

The second you start accounting for the Internet in these scenarios, the arguments fall apart.

One thing none of them face is the fact that home prices fell back to about 2004. That year was pretty good actually.

Other assets have done pretty much the same, and given subsequent natural gas discoveries the present higher price for oil is fairly well offset.

I was watching this TV show the other day about this company in the US that makes CUSTOM FITTED RUNNING SHOES.

They have a very automated computer driven line. About the only work people do there is to fit the base material on a last cut to the customer's specs.

The rest of the job is essentially automated.

They sell those tennies for less than their world competitors.

I can see this business expanding as other people decide they'd like custom tennies. They should last longer, be more comfortable, and reduce accidents while engaging in athletic events. If the price comes down more, these people could be putting China and India out of the shoe business. Millions of people would suddenly be unemployed.

That is called deflation but when it's caused by automation we end up with surplus workers with nothing to do.

Obviously we have to do something.

The Chicoms have put people on HALF DAYS. Everybody in a city is employed, but you share your job with another person. India has traditionally used a village based system that assigns people body servants according to their wealth. You make too much money you get a house full of servants ~

The whole point of these approaches to employment is to gainfully employ as many people as possible.

BTW, that shoe factory had what seemed to be just a few hundred people. The computer even addresses the boxes with the shoes in them! I presume it runs a box stacking machine too that's already sorted to UPS standards.

Here's the way one of my aunt's (8 of 'em) husbands (only 1) worked it. He had heart trouble. However, the best way to deal with it required regular exercise ~ deep knee squats were good because they forced the blood back up his system to the heart.

So, he went to the grocery store where he'd worked for years until he retired and asked them if he could just load and unload stuff ~ and he signed on at something like minimum wage so he could put in half days, and be insured on the site, and all that sort of thing.

They were happy to have him ~ because he knew the business.

Well, he did that for several years and then one weekend he died suddenly of PNEUMONIA.

You can't plan for everything, but in a tight market for jobs he figured out how to get one and did so. He bid down the price of labor in that town from about $14 an hour to $5.75, or whatever minimum wage is. He'd done it for free, but insurance companies cover employees on the docks ~ not the customers. This is another way deflation works ~ doesn't even matter if there's more money out there ~ if the price of labor collapses, you can get deflation. That's rarely discussed because the economists want you to believe companies never lower prices.

How Hyperinflation Will Happen:

America Adds $210 Billion In Gross Debt In August, Rolls $620 Billion In Bills And Notes
As per the August 31 DTS statement, the US ended the month with a new all time record of $13.45 trillion in debt, and increase of $210 billion from the beginning of the month (or $225 billion in public debt, net of intragovernmental holdings). With just 30 days left in fiscal year 2010, the US has added $1.54 trillion in the eleven months ended August 31, a monthly average increase of $140 billion. As a point of reference, the US has received $1.53 trillion in withheld income tax over the same period, confirming that the US continues to issue more than one dollar in debt for every dollar it receives via income tax revenue. This balance will likely be tipped soon courtesy of changes to the tax law, which will adversely impact the withheld tax line, implying even more funding has to come in the form of debt.
For the 11 months ending August 30, the US has paid $180 billion in interest expense in a time of record low interest rates.
At the current rate, we expect that the statutory, and completely irrelevant, debt limit of $14.3 trillion will be breached in the first two months of 2011. At that point total federal debt as a % of US GDP will be roughly 100% in its purest definition, and the inevitable greenlighting by Congress to raise the ceiling then will means that America is fully sliding into a debt-to-GDP ratio of >1.

Other sobering thoughts:

The $620 billion short term debt roll can disappear overnight leaving the U.S. no option other than printing money. The U.S. will have to fund another $200 billion each month thereafter in expenditures by printing money. The U.S. will have to fund another $150 billion in maturing debt each month thereafter by printing money.
Each one percent increase in the cost of borrowing adds about $140 billion to the annual deficit. This must be funded by printing money.
A few months ago, Greece's cost of borrowing shot up about 20 percent in one week before the EEU intervened.
Total U.S. national income is about $800 billion.
A rule of thumb is that a debt to GDP ratio of more than 60 percent is unmanageable.