Posted on 08/28/2011 8:21:50 AM PDT by blam
August 27 2011: Et tu, Commodities?
August 27,2011
Detroit Publishing Co. Apocalypse Then April 18, 1906 "Looking up Market Street from near Ferry", San Francisco in the aftermath of the earthquake and fire
Stoneleigh: Our most consistent theme here at The Automatic Earth has been the developing deflationary environment and the knock-on effects that will follow as a result. Now that the rally from March 2009 appears to be well and truly over, it is time to revisit aspects of the bigger picture, in order for people to prepare for a full-blown liquidity crunch. October 2007-March 2009 was merely a taster.
As we have explained before, inflation and deflation are monetary phenomena - respectively an increase and decrease in the supply of money plus credit relative to available goods and services - and are major drivers of price movements. They are not the only price drivers, to be sure, but they are usually the most significant. People generally focus on nominal prices, when understanding price drivers is far more important. A focus merely on nominal price also obscures what is happening to affordability - the comparison between price and purchasing power.
We have lived through some 30 years of inflationary times, since the financial liberalization of the early 1980s under Reagan and Thatcher initiated the era of globalization. Money freed from capital controls was free to look for opportunities worldwide, and the resulting global economic boom greatly increased trade, resource consumption, financial interconnectedness and the multiplier effect for monetary expansion.
(snip)
We stand on the verge of a precipice. The effects of the first real liquidity crunch for decades will be profound. We are going to see prices fall across the board, but far fewer will be able to afford goods or assets at those lower prices than can currently afford them at today's lofty levels. The social effects of this will be enormous, and will spread to many more countries. The collapse of our credit pyramid will be the driving factor and it will sweep all before it like a hurricane for at least the next several years. Beware.
interesting photo.
Aside from home prices, inflation continues apace.
Yes. It reminded me of the Bank Of America.
When that photo was taken they were named the Bank Of Italy...they made their money making high risk loans after the quake & fire and later changed their name to BOA.
Author?
the bank of america history is interesting.
the l.a. times story when b of a “merged” with union bank of north carolina was amazing.
the ceo of b of a thought it was a “merger”; in reality, it was a coup.
the ceo of b of a became second in command to the union ceo.
meanwhile, all of the executive positions were structured so that the b of a people were working for the union executives.
the b of a people missed their beautiful san francisco.
suddenly when they realized they were playing second fiddle, the b of a ceo and his staff resigned, and went home.
Sorry, but I must report you to the government. The Fed's say that there is almost no inflation. How dare you contradict the government!
Now, if you'll excuse me, I must look through the want ads for a second job to pay for my higher utility and grocery bills.
Yes, aside from 80% of the capital stock in the US, inflation continues apace.
Well, except it's not inflation. It's commodity speculation absorbing the last of the Fed's spent wad.
The velocity of money remains at historic lows and credit continues to contract.
Nicole Foss is co-editor of The Automatic Earth (where she writes as Stoneleigh) and former editor of The Oil Drum - Canada. Foss recently completed a speaking tour of North America and Europe where she described the interaction of peak oil and debt deflation. Foss also presents at the ASPO-USA conference and the European Biodiversity Conference in Brussels.
Ping.
Ping.
The Fed also subscribes to that theory, as did Milton Friedman, but it seems roundly debunked by now. If that theory was accurate then Japan's mass money printing each year from 1989 through 2011 would have caused inflation in Tokyo...instead, Japan's real-estate today is 50% below its 1988 peak.
Deflation.
If that theory was accurate, then TARP and the massive Stuimulus projects in the U.S. that pump more than 100% of GDP into the economy after 2007 ($14.7 Trillion!) would have caused housing inflation.
Instead, U.S. homes are 40% below their 2007 peak today.
Deflation.
In neither instance was the predicted (by that theory) result of housing inflation achieved. Nor was salary inflation achieved.
OK, so how about stocks?
Nope, not there, either. NIKKEI's peak was 40,000...300% more than its value today. The DOW's peak was over 14,000...40% higher than today.
So why didn't Japan's massive money printing and U.S. massive money printing cause inflation? Isn't inflation a purely monetary phenomenon?
Nope. Inflation is the acceleration of the speed of financial transactions. Deflation is the opposite: the slowing down of that speed of money.
This can happen due to new, more burdensome red tape that prevents people from buying and selling as fast today as they were allowed to do yesterday. This slowdown in the speed of money can happen due to retirements of large numbers of people (e.g. Baby Boomers or aging Japanese). This slowdown can happen due to a lack of credit (e.g. a liquidity crunch).
...and none of those things have the slightest bit to do with how many pages of Dollars are being printed on magic printing presses.
It’s like Louis Carroll said.
Bernanke’s running twice as fast just to keep up.
Deflation’s the game.
A Chinese crash could wipe out your retirement, disrupt the social order and make life miserable for at least three years
(snip)
GOLD BUGS CRUSHED
China recently overtook India as the No. 1 source of investment demand for gold. At its current pace, China will soon pass the U.S. as the largest holder of gold. Imagine what a drop in Chinese demand would do to gold prices. The yellow metal could fall to $700/oz... or lower.
Gold bugs will be ruined with their long-term gains quickly cut in half -- and no one rushing to take physical gold off their hands.
COMMODITIES COULD LOSE HALF THEIR VALUE
China currently accounts for more than 40% of global demand for commodities like cotton, aluminum and crude steel. Even worse, Chinese demand has single-handedly inflated copper and silver prices. A commodity crash will drag down the larger market and destroy the holdings of many mutual funds.
(snip)
Right on. The japanese printing and the porkulus didn’t work because the velocity of money was/is too low. Of course, spending the stimulus on keeping public employees employed, instead of growing private, productive, employment didn’t help, either.
This will probably happen eventually, but not while the euro problems are still bubbling, I think.
Gold bugs will be ruined with their long-term gains quickly cut in half — and no one rushing to take physical gold off their hands.
Don’t they know that the market price is what someone is WILLING to pay?
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