Sunday, January 10, 2010

Stagflation and/or Deflation? Yes!

U.S. spending its way to stagflation

The administration's lack of fiscal restraint is going to result in unprecedented levels of printing by the Fed. Under the current forecast, the U.S. Treasury needs to raise around $4-trillion to finance a $1.5-trillion deficit and to replace Treasury debt that is due to expire in 2010. In the last five years, issues of new Treasury securities have already climbed from a couple hundred billion dollars to $1.5-trillion in 2009, to double that in 2010. The debasement of the dollar that started in 2009 is certain to continue -- and with it inflation will come, starting in 2010.

I'm a believer. Sign me up!

Call that a crisis? Stand by, for the worst is yet to come

As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st-century depression - more akin to Japan's lost decade than the 1840s or 1930s, but nothing like the normal cycles of the postwar era.


In the end the euro's fate will be decided by strikes, street protest and car bombs as the primacy of politics returns. I doubt that 2010 will see the denouement but the mood music will be bad enough to knock the euro off its stilts.

The US dollar rally will gather pace. America's economy - though sick - will shine within the even sicker...

I'm a believer. Sign me up!

I was a stagflationist as I read the first article.
I turned into a deflationist as I read the second article.

I just reread the first article and became a stagflationist once more. I then reread the second article and became a deflationist again. This clearly isn't working.

Perhaps there is someway I can read both articles simultaneously? I can't seem to resolve the uncertainty.

Uncertainty principle

In quantum mechanics, the Heisenberg uncertainty principle states that certain pairs of physical properties, like position and momentum, cannot both be known to arbitrary precision. That is, the more precisely one property is known, the less precisely the other can be known.

The most likely outcome to me appears to be a combination of stagflation and deflation. In other words, more of the same. The two 'flations will cancel out as The Great Depression's deflation meets the inflation of the 1970s. That's really all the Fed is attempting to do.

If one were to simply look at the price of toilet paper, one could easily argue that the Fed has been successful so far. Toilet paper's price has risen at a slow, stable, and predictable pace over the last decade. That's in spite of two major stock market crashes and a massive real estate bubble popping.

So why the long face?

I guess it is because The Great Depression's high unemployment will continue to meet the high unemployment of the 1970s. Those two do not cancel out. Sigh.

The Great Depression's stock market will also continue to meet the stock market of the 1970s. Those two do not cancel out either. Neither era was good for stocks. I guess that's why I haven't owned any stocks since 2004.


Anonymous said...

[*Useless metaphor alert*]

Perhaps deflation and hyperinflation aren't two sides of a coin, with rough "stability" the very low probability edge,but rather the poles of a football, with rough stability in the middle, where the (landing) probability is very high.

While the credit markets contract, QE goes nuts. When they stop contracting, the CB's stop the QE. Maybe things will work out, after all.

- jus me

Stagflationary Mark said...

jus me,

Perhaps our coin was very thick (shaped like a tube). It was therefore very easy to balance on its edge. While the coin may still be thick enough, I do fear that the coin gets a bit thinner every year.

Perhaps Greenspan's book should have been named...

The Age of Endlessly Increasing Turbulence

EconomicDisconnect said...

High unemployment is great for Inflation, no pricing pressures! Mainstream economists actually write that.

EconomicDisconnect said...

based on Alcoa's earnings report you are not hoarding enough aluminum foil. I change my foil hat every two days so I m trying to help them.

Remy said...


nice articles. I'm very curious as to how this all plays out.


watchtower said...

GYSC said:

"I change my foil hat every two days"

This is where GYSC and I differ, seeing that I reuse the outer metal layer and only replace the inner velvety soft two-ply 'comfort liner' when, dare I say it, it becomes soiled through profuse sweating (my hat is non-ventilated for obvious reasons).
If my method catches on there could be some late nights at Alcoa's HQs.
Invest at your own risk!

EconomicDisconnect said...

I feel like Yoda on Dagobah trying to teach Luke about the force!

You have to replace the aluminum outer shell every 48 hours due to the enemy signals being sent on the frequency of iridium, which we all know is a very hard metal. The tiny radio paticles attack the foil and degrade the shell leading to infiltration of messages. You may even have been converted already! Would you even know?

Test question:
Who Invented "Halo3"
(A)-Ben Bernanke
Your answer will tell me all I need to know.

watchtower said...

But alas I'm afraid that with or without the 'deflector' it is common knowledge that Mark is and always has been the supreme creator of Halo 3.
But let me reassure you that the integrity of my thoughts are well accounted for.
How can this be you ask, seeing that I often go as long as a week at a time before replacing the outer structure?
Quite simply it is this, after shaping the afore mentioned structure I rub a coat of protective gel on the outside, not any gel mind you, but the gel that is found protecting the substance known as SPAM, that's right SPAM.
A person's brain makeup is not that far removed from that of SPAM, and if that jelly substance is enough to protect it in flight from the mainland to Hawaii, then it is probably overkill as a protectant against damaging 'rhetoric' signals.
Please feel free to use the above tip at no charge, unlike Mark and his royalty scheme he has going with the distributors of Halo 3, I seek no compensation other than the satisfaction that I may have spared someone from having to open a new box of foil.

Stagflationary Mark said...


I've sort of come to the conclusion that it never really ends. It's like a really bad joke with no punch line.

Stagflationary Mark said...

GYSC & watchtower,

I wear a new aluminum hat every 20 minutes. It isn't helping though. It's crazy. It's almost like somebody is "recycling" my old hats.

Of course, that's exactly what THEY want me to believe.