Of course I've chimed in on this ad nauseam, but I have never seen you even address or acknowledge my primary argument, and that's the whole USD as a valued money issue. And I'm going to stick to task and use the Webster's definition of value : "equivalent worth in money, material, or service". In fact as far as I'm concerned , I don't feel we've really had a debate on inflation, because you're debating something else (usually economic conditions), and I'm debating what should be debated and that's what is the value of the US Dollar according to Webster's definition?. I don't think you really debate Puplava either on the proper definitions. Webster's also defines inflation, and if you don't mind, why don't we just use that definition? It's "a steady rise in the level of prices, and a resulting loss in the value of currency." Most everything else you go into is a non sequitur until you address this primary fundamental definition.
The question becomes, will holders of US Dollars continue to have faith and confidence in it as valued money? There really is no other question as far as the inflation/deflation question. If they lose confidence and want to get rid of it, then as money or currency it loses it's value. It all gets down to day to day decisions by people all over the world. Simplified some to illustrate this price discovery psychology, would they rather hold a big baskets of goods and services in the real economy (not synthetic, and I now put houses in the later, along with bonds, etc), or 100 US Dollars. Or alternatively would they hold a promise by someone to pay back 100 Dollars in ten years at some nominal interest rate like 4.0%? If next year they would rather hold 95 Dollars over the same basket of goods or services, or a promise to pay in the real economy, then that defines deflation. If they they require 105 Dollars for those goods that's inflation. 100 Dollars is Goldilocks. Does the last three years on this chart on page 18 (Adobe page) look like Goldilocks or deflation?
nybot.com
Not according to Websters, in my view.
So let's for the sake of argument fast forward to 2006, and the appointment of Ben Bernanke as Fed Chairman. We've already seen what Bush latest FOMC hack, Fischer looks like BTW. Let's presume we are in our big economic downturn (where we both agree).
I can't predict the future but let's presume Ben greets us with coupon passes, and debt monetization nearly every day. Part of that process involves the heavy hand of CBs in the marketplace, buying securities. Question one, would CBs buying say 50% of all new Treaury auctions be correct price discovery? In otherwords is the real market determining price? My answer is no, and that's why I don't feel 4.0% 10 year is correct price discovery or a real price. Question two, in the scenario (flood of new Bucks) I've described, would you still be willing to hold the same basket of goods and services for 100 Dollars? I wouldn't, and I hope there are still plenty of deflationists and Goldilockers around to dump my worthless USD's on in exchange for something of real value.
We could run the same scenario under a Paul Volcker regime though, and I might give you a completely different answer, or possibly even come around to your point of view. In fact the great German hyperinflation in the 20's was dramatically corrected by replacing a Bernanke type with a Volcker, so it's not impossible to put the cat back in the bag, nothing is in stone, but would you really be willing to bet big that way at this point? |
