The Miracle of Inflation

Inflation: The Miracle Cure

I'm not saying it's a good thing. I'm just saying it's the only thing left that can get us out of our current financial system death spiral.

I agree with this wholeheartedly.

To date the Fed has used every trick in it's toolbox without much affect. There's only one tool left that can pull off such a whiplash recovery; inflate and inflate with a vengeance. Because at this point academic debates over what constitutes “true market value,” and "mark to market accounting, are all very interesting, but way too late in coming. Lectures on good fiscal hygiene are useless now. It's time for steroids.

Inflation with a vengeance does very much seem to be the current mindset. We're still experiencing deflation overall in my opinion, but once the remedy kicks in I strongly believe we're headed for stagflation (as is predicted in the article as well).

I continue to believe that any recovery in our economy will be offset by an even bigger recovery in the price of oil. That will not be a good thing for us (or our stock market in inflation adjusted terms), not a good thing at all.

IEA says oil capacity crunch looms at end of 2013

LISBON, Feb 27 (Reuters) - The International Energy Agency fears that an expected recovery in oil demand from 2010 and oil project cancellations due to low crude prices and the credit crisis will mean no spare oil capacity at the end of 2013.

The price of oil on that day was $44.15 and it was considered to be a low price. In 1998, we would have been shocked and horrified to see $44.15. I just want to point that out.

He added that supply from producing oil fields will decline dramatically, and that to offset the decline by 2030 "we need 45 million barrels per day of new capacity, or the equivalent of 4 Saudi Arabias".

Good luck on that one.

I'm not a complete pessimist though. I was born in 1964. I consider myself very lucky. Had I been born centuries earlier, the appendicitis I had as a kid may have killed me. Had I been born decades earlier, I may have died in World War II. Had I been born years earlier, I may have died in Vietnam.

In 2030, I'll be 66 years old. I probably won't have that much lifespan left in me by that point. By the looks of it, I won't be peaking alone though. Peak oil? Peak resources? Peak debt? Peak global population? Mad Max might not be fiction after all.

March 20, 2009
What's driving up price of oil?

"The government is basically printing money to buy back all this paper, and it devalues the dollar," said Phil Flynn, analyst at Alaron Trading Corp. Flynn said the rise in oil, however, shouldn't be taken as a sign that the economy is on the mend.

He's preaching to the choir.

There are at least three camps.

1. There is the camp that can look at stock prices and cheap energy for the past 100 years and extrapolate future prosperity. Let's call this camp the optimists.

2. There is the camp that can look at rising debt over the past 100 years and extrapolate future anti-prosperity. Let's call this camp the realists.

3. There is the camp that can look at rising debt over the past 100 years and also see that cheap energy is not something we can count on going forward. Let's call this camp the pessimists.

When I turned bearish in 2004, I was firmly in Camp #2. I didn't care about the price of oil at the time. It was a side topic to me. At some point in the last few years, I became a believer in Camp #3 though.

Here's a scary thought. What if we're calling Camp #3 the pessimists but history later shows that they were actually the optimists? Things are certainly much worse than I thought they'd be. Further, we're throwing trillions of dollars at the problems. Let's say the fundamental problem is a lack of future cheap energy though. Perhaps someone could explain to me how spending what's left of our prosperity on better roads will help to solve that problem?

Ah, who am I kidding? A lack of future cheap energy cannot be the fundamental problem. At best, it is just one fundamental problem. There are plenty of other fundamental problems too and that is why I am a bear.