This puts forth the deflation points in a straight forward manner. My counterpoints:
Money supply growth: I was fooled on this for a long time too. However, it's the GSEs that drives this train in the bubble set-up, not so much the banks. Doug Noland describes it best in his analysis. The credit gets created mostly out of inflated assets, and then a half trillion bucks gets sent overseas as excessive demand to drive a worldwide inflation. Then the BOJ and China prints money and adds even more inflation. Following narrow US money supply can be very misleading.
Wage growth: I've maintained all along that this inflation is driven by Fed's (and their symbiotic buddies, the BOJ, and China) Fully Funded Inflation Program (F3IP), easy credit and easy borrowing, with wages being secondary. This inflation is backed by the $750 billion a year in extra consumer debt and borrowing, not the $100 billion a year in wage growth. Borrowing/F3IP has been trumping wages by 7.5 to 1 over the last two and half years.
Excess capacity/output gap: This is the weakest part of their argument. The kind of F3IP Train Wreck inflation I've been describing (and that they acknowledge) destroys capacity, wrecks it. If you can't secure input goods at reasonable prices, or at all, you're history, kaput, "excess" capacity in the imagination only. Shelves empty out, inventories are alway low, production keeps drifting down, customers ask, "What good are you, why does it take forever to get my order?" When I go back to Wal Mart next time I'm going to ask them why they don't have more than a few bags of dog food, etc, etc. Why is there only one chrome percalator? What happened to the stainless steel scissors? This is happening now in spades I'll bet, and is hardly even mentioned. Lacy Hunt and many others need to get out of their Ivory Towers more. Hopefully people here can post more of these stories? |
