Tuesday, November 13, 2012

If It Truly Was the Fed's Goal to Hyperinflate...


Click to enlarge.

...and bring down the entire banking system, then they are certainly taking their sweet time about it. I, for one, am not complaining.

Meanwhile over on planet exponential trend failure...


Click to enlarge.

Ouch. It was a "sure thing" until it wasn't. With a 52% real annual growth rate, you can't convince me that most of its investors were simply trying to preserve capital.

Source Data:
St. Louis Fed: CPI (Not Seasonally Adjusted)
St. Louis Fed: CPI (Seasonally Adjusted)
Yahoo Finance: Silver Standard Resources Inc.

25 comments:

Stagflationary Mark said...

As a side note, I looked at SSRI when I turned bearish in 2004. I also looked pretty hard at NEM. I decided to pass.

I really was just trying to preserve capital. I put 1/3rd of my nest egg in physical gold and silver instead. I sold the metals in 2006. They treated me very well.

Past performance does not guarantee future results or success.

It's just another quote from the email I got today. I definitely think it applies here.

Jazzbumpa said...

Is your CPI chart a 10 Yr rate of change, or did you do some averaging?

Interesting observation.

JzB

TJandTheBear said...

Illustrates the inflation/deflation push-pull nicely, doesn't it?

Stagflationary Mark said...

Jazzbumpa,

I just annualized the 10 year rate of change. No averaging. It is what it is.

Stagflationary Mark said...

TJandTheBear,

Illustrates the inflation/deflation push-pull nicely, doesn't it?

Black Hole Sun

Stagflationary Mark said...

Just to be clear, here's the math for the latest point.

September 2002 CPI: 181.000
September 2012 CPI: 231.407

(231.407/181.000)^(1/10) = 1.0249

Annualized inflation rate over previous 10 years = 2.49%

I used the CPI that wasn't seasonally adjusted because...

1. It went back further in time.
2. Seasonal adjustments weren't needed (since the 10 year duration was a multiple of full years).

Stagflationary Mark said...

Here's a bonus thought.

As a saver, I'm at least thankful that the Fed seems to realize that exponentially growing inflation rates will not bring us prosperity.

I suspect that they really don't want to let that genie out of the bottle. They allowed the genie to escape in the 1970s and it was very difficult to put it back in.

I think it is safe to say that the genie has grown in power over the past few decades. That makes it very dangerous.

Real MZM per Capita (September 2012 Dollars)

The hyperinflationists would point to that chart as proof of what is to come. I think they are missing one important thing though.

The bottle is stronger too!

November 29, 2009
The Quantity Theory of Aluminum

In aluminum economics, the quantity theory of aluminum is the theory that aluminum supply has a direct, negative relationship with the price level.

It seems very unlikely that we will hyperinflate if aluminum prices don't go up.

Just an opinion!

mab said...

Can we get a ten year annualized chart of Shadow Stats data?

Time to prove I'm not a robot. You'd think the foolish nature of my comments would be enough!

dd said...

With the Fed and Treasury's vanquishing of the "independent"
regulatory agencies via FOSB the bottle is getting an aluminum
casing. Inflation will be contained
and bank runs will be a thing of the past ie
Geithner's move to turn "liquid" money market funds
into gated short term bond funds and together with the rules
limiting bank withdrawals (read the fine print)
inflation will be contained because liquidity for the everyday Joe
will be controlled. Combine that with Joe's
wage deflation and hyper-inflation is a thing of the past.
Then again, savers getting a return
of their investment when they need it may be a thing of the past too.

Stagflationary Mark said...

mab,

Nice!

I should supply a chart using my old TRS-80 Model III in honor of the Shadow Stats data. That $999 computer (1982 price) is up to the task. I'm sure of it!

Shame on the US government for trying to claim that old computer is hedonically less useful to me! Sure, it didn't have a hard drive. It didn't have a mouse. The tiny monitor was black and white. It had an 8-bit processor and just 16k of memory. That means nothing!

And while I'm at it, I'm going to make it play Borderlands 2 as well, if it is the last @#$%ing thing I ever do! That's how much I respect the Shadow Stats data!! Hahaha! ;)

Stagflationary Mark said...

dd,

Then again, savers getting a return of their investment when they need it may be a thing of the past too.

Today's -1.44% real yield on the 5-year TIPS would tend to back your point.

It would seem that the era of great investment returns and wage growth relative to even relatively tame inflation ended in 2000. Sigh.


Jazzbumpa said...

Mark -

You're always goading me to look at things in different ways.

I stripped CPI out of your MZM chart to get actual quantity per cap and threw CPI onto the right hand scale, both as logs.

What this suggests is that the genie and the bottle have no definable relationship.

I put the discontinued M3 series on there as well, to show the specific measure of money doesn't make much difference.

http://research.stlouisfed.org/fred2/graph/?g=cP1

Inflation was super-exponential until the early 80's, and since then has been slightly less than exponential, since the slope is declining slightly.

But since the early 80's the slope of money growth has increased - indicating a greater exponent.

Much faster money supply growth with much slower inflation.

Milton Friedman was a liar.

JzB

TJandTheBear said...
This comment has been removed by the author.
TJandTheBear said...

Much faster money supply growth with much slower inflation.

There was an abundance of disinflationary forces at work during that time (e.g., China).

Jazzbumpa said...

Still, it throws a monkey wrench into "Inlaflation is always and everywhere a monetary phenomenon."

JzB

Stagflationary Mark said...

Jazzbumpa,

In my example, the bottle is aluminum!

"Inflation is always and everywhere a monetary phenomenon." - Milton Friedman

I don't believe it for a minute, and clearly you don't either.

It could just as easily be said that deflation is always and everywhere an overabundance of aluminum production problem.

In my opinion, you cannot use the exponential increase in the money supply to make sense of the price of a can of soup without also looking at the exponential increase in the amount of soup produced!

Stagflationary Mark said...

TJandTheBear,

This is just an opinion of course, but I think there are still an abundance of disinflationary forces at work.

1. There's a lot more robots can do.

2. Think how much cheaper things could get if we removed some of these!

You tell me which is gallows humor and which is simply the truth and we'll both know. ;)

Stagflationary Mark said...

And if we really want a good model to explain it all, we definitely need to throw in income and wealth inequality.

Give an extra trillion dollars to a billionaire and not much will probably happen to the price of a can of soup.

Give an extra thousand dollars to a billion people and the price of soup could easily rise.

Jazzbumpa said...

Youse tryin' to make me think inflation is a GOOD thing?!?!

JzB

Craig M. Brandenburg said...

Anyone whose job is gotten and maintained by being elected by the general population or by being appointed by an elected official has great incentive to keep both hyperinflation and deflation at bay for as long as possible. But that fact alone doesn't say anything about what's possible to achieve with policy.

Stagflationary Mark said...

Jazzbumpa,

Hahaha!

I'm talking about the evil genies, not the ones I dream about! ;)

Stagflationary Mark said...

Craig M. Brandenburg,

Anyone whose job is gotten and maintained by being elected by the general population or by being appointed by an elected official has great incentive to keep both hyperinflation and deflation at bay for as long as possible. But that fact alone doesn't say anything about what's possible to achieve with policy.

That's certainly true. All we can really debate is how long it will be possible. If I was granted the curse of immortality, then I would definitely brace for hyperinflation. Since there is a small risk it happens each year, it becomes a "sure thing" if given an infinite number of years.

As a side note, I say immortality would be a curse. Here's why.

The earth's ultimate fate is precarious.

What will I do to amuse myself in the emptiness of space once it's gone? An eternity of nothing might be one definition of hell.

Craig M. Brandenburg said...

Mark, ha! Well, immortality would be a curse at the least because forever is a long time to suffer from dementia and other forms of brain rot. I mean, your mind is finite, so even in the best of scenarios you would have to be infinitely forgetful in order to handle an infinite amount of time.




Stagflationary Mark said...

Craig M. Brandenburg,

That's a great point.

Perhaps immortality wouldn't be so bad in the emptiness of space if one had severe memory loss.

Think of the wonder each time you opened your eyes and saw the Milky Way galaxy!

Seriously. I've been going on a lot of walks at night lately. Looking up at the same stars never seems to get old to me.

Craig M. Brandenburg said...

Yeah, no kidding. I've heard a lot about those stars things some people get to see.