Date: Tue Sep 21 2004 14:55
trotsky (frustrated) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
the key to understanding the situation is in realizing that in the modern fiat money era, such cycles have lenghtend, and their amplitude has declined.
for instance, in the previous K-winter, the initial stock market drop was almost 90% off the highs. the Nasdaq managed only 80% this time.
also, aggregate price deflation was in the high single digits for two years in the early 30's, a feat unlikely to be repeated nowadays. it is more likely that we will eventually see very mild price deflation, but it should persist for a longer period.
essentially, interventionist policy making lessens the short term impact of the K-cycle recessions, but lengthens the overall season.
note that a stagnant or declining money supply coupled with declining velocity does not mean that SOME prices can't rise.
if you assume an ideal world with a completely stagnant money supply, prices of goods and services in the aggregate would decline persistently over time. but there would still be sectors where e.g. a sudden supply shortage ( such as has recently happened in crude oil ) forces certain prices higher. however, all other prices, or at least SOME other prices would have to decline to compensate if the money supply stays fixed.
that's why i argue that in a deflationary era, rising commodity prices are unlikely to percolate through the price structure of the entire economy. i do however agree that at least in part, the commodity price rises we have seen are due to central banks misguidedly overstimulating the money supply to 'fight deflation'.
in the global context one must also consider how the mercantilist policies of the Asian export nations play a part - their export earnings bring a flood of dollars onshore which contribute to local money supply expansion , such as has happened in China ( which has seen a huge credit boom over the past few years ) .
Date: Tue Sep 21 2004 14:31
trotsky (frustrated, 13:50) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i am so convinced by two major reasons:
1. the K-cycle - clearly all indications are that the K winter season has begun, and it's a deflationary period.
2. the huge levels of private sector debt, much of which is unproductive, i.e. debt incurred for consumption purposes.
inflation requires a continued expansion of this debt mountain, and i don't believe that's possible. even though the central bank has lots of potential options in a fiat system to 'force' inflation, its traditional modus operandi can not be brought to bear on consumers and businesses that refuse to borrow more. this is what has happened in Japan - the CB has been flooding the money markets with liquidity, and freed up bank reserves and bought up all sorts of financial assets ( stocks and bonds ) . while that has indeed allowed for modest money supply growth, money velocity as well as bank loans outstanding have been persistently declining, and price deflation has gripped many sectors of the economy.
iow, not even 'unconventional' measures by the BoJ were able to stem the K-winter tide.
in the stagflationary 70's, labor had pricing power, businesses had pricing power, and the debt mountain was still very small compared to today's, so an inflationary policy by the CB was all that was needed to lead to further debt expansion and the famed 'wage-price spiral'.
all of these factors have completely reversed.
Date: Tue Sep 21 2004 13:22
trotsky (frustrated, 13:02) ID#377387:
absolutely. the mortgage credit bubble is faltering, and that pressures money supply growth rates.
Date: Tue Sep 21 2004 12:39
trotsky (strat 9:37) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"The biggest thing the dollar has going for it..
...is higher interest rates."
interest rates across the maturity spectrum, except the FF rate and and the t-bill yield, are at a new 6 month low.
Date: Tue Sep 21 2004 12:33
trotsky (religion and economics) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
Gary North, who is a Christian and has written extensively on the topic of economics in a biblical context, sets his faithful brethren straight about the role of capitalism in creating prosperity:
click here ...
lewrockwell.com
here we have one more important voice that counters the Catholic Church's claim that the bible teaches socialism. |
