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Rick Santelli: Deflation Is The "Biggest Bogeyman In A Central Banker's Closet"
The Business Insider ^ | 7-3-2010 | Gregory White

Posted on 07/03/2010 2:30:46 PM PDT by blam

Rick Santelli: Deflation Is The "Biggest Bogeyman In A Central Banker's Closet"

Gregory White
Jul. 3, 2010, 3:32 PM

Rick Santelli of CNBC spoke with King World News (via Zero Hedge) on a variety of different economic topics, but his most prescient comments were about the reality of deflation in the United States.

Santelli called deflation "the most disingenuous argument," of the moment, saying that deflation is only a natural response to the end of a bubble. That end of a bubble, according to Santelli, causes deleveraging in the economy, as the market heals itself to reveal the reality of what prices should actually be. Santelli says that deflation is an argument economists use to position central banks and governments to spend more money to prop up the system.

Often on CNBC Santelli comes off as being over-political and under-analytical. In this interview, he makes clear his arguments, and while they are anti-government size, anti-government spending, and pro-tax cuts, they are cogent and not the typical for-T.V. bombast we usually get from him. The interview is certainly worth a listen.

Listen to the audio of the interview at King World News >

[snip]

(Excerpt) Read more at businessinsider.com ...


TOPICS: News/Current Events
KEYWORDS: deflation; economy; ricksantelli

1 posted on 07/03/2010 2:30:50 PM PDT by blam
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To: blam

Bookmark


2 posted on 07/03/2010 2:40:28 PM PDT by freemama
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To: blam
" Santelli comes off as being over-political and under-analytical"

Only if you are a Keynesian, leftist, monitarist or banker?

yitbos

3 posted on 07/03/2010 2:41:51 PM PDT by bruinbirdman ("Those who control language control minds.")
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To: blam

Isn’t Santelli the guy who actually used the term
“tea party” a few years ago? I seem to recall him
being an outspoken voice regarding this.. no?


4 posted on 07/03/2010 3:08:25 PM PDT by ThreePuttinDude (o).. Marco Rubio in 2010 .. (o)
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To: ThreePuttinDude
Isn’t Santelli the guy who actually used the term “tea party” a few years ago? I seem to recall him being an outspoken voice regarding this.. no?

Spot on. Same guy.

5 posted on 07/03/2010 3:32:17 PM PDT by surely_you_jest
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To: blam

Good interview. Makes me wish for more interviews that actually are conversations between educated adults. Lowest common denominator on the TV news dumbs us all down.


6 posted on 07/03/2010 3:36:59 PM PDT by Mere Survival (The time to fight was yesterday, but now will have to do.)
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To: blam

Well. I was going to ask who this pretentious little twit was, but I did a quick Google. From Business Insider’s site we get this little mini-vitae on our opinionated author -

“Gregory White is a reporter for Business Insider. White has previously reported from Doha, Cairo, and London and has had work published by The Huffington Post and MSNBC.com.

He holds a Master’s degree in journalism from Columbia University. White graduated from the London School of Economics with a BSc in international relations and history after transferring from Boston College.

In his spare time, he also writes a soccer blog for The Huffington Post.

Disclosure: White has no notable investments.”

Sort of explains everything. At least, to me it does.

Frankly, to me, Santelli is credible. White is a no-name wanna-be leftist “journalist” whose opinions are, well, at best valueless.


7 posted on 07/03/2010 3:37:59 PM PDT by surely_you_jest
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To: Mere Survival
In discussing DEFLATION you must necessarily recall what happened to home resale prices ~ everybody got REPRICED LOWER!

Now that's deflation.

8 posted on 07/03/2010 3:39:15 PM PDT by muawiyah
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To: blam

Inflation is two things: 1) theft of wealth by dilution; 2) the mother’s milk of governments that are addicted to spending.

Question: So, why all the loud fretting about deflation? Answer: Because it reverses the advantages that big borrowers have from inflation.

Question: Who is the biggest borrower?
Answer: Government and GSEs.

Question: Why does deflation seem to be a big worry?
Answer: It is the one thing that brings the game of borrow and inflation to a screeching halt.

Question: So, then would it increase the liberty of citizens to have deflation?
Answer: Inflation transfers wealth from the lender to the borrower. Deflation transfers welath from the borrower to the lender. I think that two wrongs don’t make a right. We must work to prohibit government from manipulating the value of our money. If all that government did toward that goal is to stop creation of new money, then what would happen over time is the value of the dollar would deflate slowly in line with increases of productivity. But we would still be left with fiat money. I favor an asset-based currency to repair that deficiency. Gold is the historic candidate. Gold is money. Everything is a substitute.

But I should quickly note that with the rise of gold ETFs (like GLD, SGOL and PHYS), at least for people with a discount brokerage account, it is just as easy to park your money in gold as it is to park it in Euros or dollars. It appears that everyday more and more investors are parking their money in gold. Gold, at least gold ETFs, have become a form of money.


9 posted on 07/03/2010 3:56:49 PM PDT by theBuckwheat
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To: TigerLikesRooster

Pingworthy?


10 posted on 07/03/2010 3:58:54 PM PDT by OwenKellogg (Don't Tread on Me)
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To: bruinbirdman

I was impressed with Santelli. I think his time in the trading pits have trained him well. He shouts on those CNBC TV cattle calls because that’s the only way he can be heard and he discusses when one on one. This interview has both examples. I like him!


11 posted on 07/03/2010 4:29:35 PM PDT by Mere Survival (The time to fight was yesterday, but now will have to do.)
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To: muawiyah

It’s a funny sort of deflation though. Nothing I buy has become noticeably cheaper. My mortgage stays the same since I have had it throughout the crises. Most prices are stable, many are up.


12 posted on 07/03/2010 4:31:47 PM PDT by Mere Survival (The time to fight was yesterday, but now will have to do.)
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To: Mere Survival
You can "rebuy" your mortgage by refinancing at a lower rate. The principle is going to stay the same ~ an accounting trick, of course, but it works for the lenders.

Once a 15 year overhang of housing was created through the labor of the millions of illegal aliens brought North to build stuff, the price collapsed.

It is anticipated that eventually the price will go back up.

A lesson for you ~ Indiana has what amounts to unlimited space for building quarter-acre housing developments. A major part of the manufactured housing industry is located there in fact.

You can buy a building site for $5,000 or less ~ with septic system, or $15,000 with sewer.

Water, gas, electricity, phone service are all universally available. You can build a new house for anywhere from $85,000 to $500,000 with no serious problem using standard designs widely available and already approved at least once in every jurisdiction with zoning and/or planning. You'd want a larger lot for a more expensive house in Indiana ~ half a mil will buy a tremendous amount of house there.

So, you decide you don't want to spend all that much so you buy a double-wide and a half, with private pool and jacuzi/sauna, fully fenced, and that should run about $50,000 for the basic unit and another $10,00 to $20,000 for the add-on. Throw in a central pergola with seasonal awnings, or maybe greenhouse roof, for another $15,000, and you see immediately why home prices in Indiana lagged behind the more heavily urbanized Eastern cities for so long.

In the recent housing price deflation housing in Indiana dropped about 50% as best I can tell. Your typical homeowner lost a good $45,000 on the deal. Around here, Springfield VA, the housing prices dropped only 40%. That was a loss of more than $200,000 per home! I've heard Oklahoma City, cheaper than most spots in Indiana, dropped over 60%, and that's probably a $50,000 loss for the average homeowner.

So, given comparable homes, who got hurt the worst? Springfield VA (a DC suburb) lost $200,000 @, the OK City folks lost $50,000, and the guy in Indiana lot $45,000?

Worse, the owners are left with residual mortgages based on a far higher initial price!

Obviously deflation hurt housing in Indiana less than it did Oklahoma City, and both were far less than the losses incurred around DC.

Los Angeles county had some incredible disasters with 90% loss rates, and there are entire brand new subdivisions elsewhere in California that simply went unsold since the builders can't recover the cost of the materials in the current market.

Even if we have price inflation, the existing deflation from just repricing houses is MASSIVE and very lasting.

13 posted on 07/03/2010 5:12:04 PM PDT by muawiyah
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To: theBuckwheat
Comes the ocean and the war and you're living in your attic with a pile of tulip bulbs, you are king and the guys with gold and diamonds are beggars!

Fur shur that only happens every now and then but it does happen.

Gold is not necessarily stable or reliable over time.

14 posted on 07/03/2010 5:14:35 PM PDT by muawiyah
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To: muawiyah

Even if we have price inflation, the existing deflation from just repricing houses is MASSIVE and very lasting.
_________________________________________________________

Bubbles and inflation . . . are they the same thing!? : )

I really don’t know if they are different animals or the same.


15 posted on 07/03/2010 5:15:47 PM PDT by Mere Survival (The time to fight was yesterday, but now will have to do.)
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To: Mere Survival
A bubble is very simple. You have a bubble when an asset is overvalued to begin with but it's still demanded and buyers are willing to pay more than its actual value.

Then, one day they stop.

That's how you find out it was a bubble.

There was a housing bubble.

16 posted on 07/03/2010 5:23:02 PM PDT by muawiyah
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To: muawiyah

So it’s not really “deflation” then, as you see it, and realizing that we are just playing with definitions here.


17 posted on 07/03/2010 5:25:05 PM PDT by Mere Survival (The time to fight was yesterday, but now will have to do.)
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To: Mere Survival
What has been going on in housing for several decades is the development of materials handling techniques that've been slashing costs all over the place. Combine that with low cost labor imported from Mexico and South America and what you saw was builders able to produce a $500,000 house for about $188,000 in this market, and BELOW that in many others.

The price of land varies due to other factors ~ e.g. land without water in California essentially worthless. Land without sewers in the DC suburbs is also worthless BTW.

The new construction price advantages wasn't much spoken of since the buyers were not given many options. Some lucky individuals were able to pull off new construction on their own. Most weren't so the prices were bid up without reference to actual cost.

That's a bubble.

Deflation in construction had already occurred. When the bubble burst ALL prices fell to the current real construction cost level. That's deflation.

It's possible to differentiate the two effects. Throughout Indiana prices fell to the current average construction price which wasn't very much different from the then current average sale price, so the percentage drop was pretty good, but the actual out of pocket drop was chumpchange as compared to almost everywhere else. In DC, the prices fell almost to the cost of construction in Indiana ~ which was a massive drop as a percentage and as a real dollar cost.

People in the DC suburbs took a bath. People in Indiana walked away from their mortgages and found different, cheaper homes. They did that here too, but due to differences in the available "move to" market, there was less walking away from mortgages. Plus, government employees best not do that ~ you lose security clearances, etc.

18 posted on 07/03/2010 5:37:12 PM PDT by muawiyah
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To: muawiyah

With deflation, everything gets cheaper. Sounds like a good thing to me.


19 posted on 07/03/2010 6:25:44 PM PDT by Roklok
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To: muawiyah

With deflation, everything gets cheaper. Sounds like a good thing to me.


20 posted on 07/03/2010 6:25:47 PM PDT by Roklok
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To: muawiyah

With deflation, everything gets cheaper. Sounds like a good thing to me.


21 posted on 07/03/2010 6:25:51 PM PDT by Roklok
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To: ThreePuttinDude

Google Rick Santelli and Rant of the Year :)


22 posted on 07/03/2010 6:30:32 PM PDT by mewzilla (Still voteless in NY-29. Over 250 roll call votes missed and counting...)
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To: theBuckwheat

Your definitions and Q&A are spot-on.

I think the thing that’s missing from discussions of deflation is the question, ‘then what’?

Deflation from collapsing prices is one thing, but eventually the piper comes calling on all those loans and spending.

The US (and to be honest, municipalities, states and even individuals) have racked up unimaginable loan balances. The federal government is the only entity with the power to 1.) repudiate their loans or 2.) print their way out of them.

Since the states cannot print money, they can cut spending or raise taxes, but some, like Illinois are past the point where they can expect to raise enough money to become solvent. There isn’t enough tax-power to do it. And since states are willing to surrender their sovereignty to the feds in exchange for a bailout, I’d look for a short period of deflation followed by massive inflation.

And the longer Obama’s depression goes on the more money they’ll have to print because the states will be collapsing one after the other.

The only politically viable way for the feds to erase loans is to print money... and that is inflation.

My 2cents


23 posted on 07/04/2010 2:00:03 PM PDT by IncPen (How can a man who won't produce his own documentation lecture the rest of us on immigration?)
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To: ThreePuttinDude

You don’t remember the “rant”?
This is where it all began:
http://www.cnbc.com/id/15840232?video=1039849853


24 posted on 07/04/2010 2:04:37 PM PDT by HereInTheHeartland ("And for that matter what do we REALLY know about HereInTheHeartland?")
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