Tuesday, March 29, 2011

Money vs. Stuff

Which will be the victor?

Just look at us go. But wait, that's not all. The planet has also mastered the art of stuff creation to fulfill our wildest materialistic dreams. The following shows a small subset.

The next chart includes an exponential trend line. Note the explosion higher in the last few years. We're now pretty much right on target.

Now let's combine the charts.

Now let's add them up and include a linear trend line. Note that as of 2009 we were right on trend.

The data in these charts only goes through the year 2009. Keep that in mind.

Since I believe that our economy will slow over the long-term and I also believe that money creation will continue over the long-term, I therefore tend to embrace the stagflation story over the long-term.

That said, there was an abundance of debt creation heading into the deflationary Great Depression. We certainly have an ample supply of that as well.

In my opinion, we're doing everything we can to combine the deflationary 1930s and the stagflationary 1970s. Assuming that it does (or can) end, then it won't end well. As I've said before, I do not think two wrongs will make a right.

I haven't even discussed our
housing and trade deficit situation. No need to rub salt in the wound, especially since we've mastered the art of money creation to protect us from a Great Depression. It is all going according to plan, with the only unintended consequence so far being a persistently high unemployment rate common to both eras. Woohoo!

It took me a week to think up these charts and this level of sarcasm. It may be a while before I post again. I'm still in cool down mode from the past week's activities.

And lastly, I think the next few years are going to be very interesting from a gallows humor perspective. I'm just not at all a believer that this recovery is built upon a stable foundation. Sigh.

Source Data:
USGS: Historical Mineral Prices
St. Louis Fed: MZM MOney Stock


Troy said...

I'm just not at all a believer that this recovery is built upon a stable foundation

Gov't jobs/salaries are the next shoe to drop.



4 million health & education jobs have been added since 2000.

California has, what, a $25B deficit to close. That is 500,000 batches of $50,000 pain to distribute.

1Q09 was peak jobless claims so there will be peak 99-week exhaustees now, too.

I for one don't think deflation will be all bad. I think it will come out of home prices and rents, mainly.

What goes up can in fact go down in real estate, since land value is completely untethered to anything but how much money we have.

Less money, less land value!

Stagflationary Mark said...


Less money, less land value!

If 1930s style deflation continues to hit real estate and 1970s style inflation continues to hit oil prices, then I will make a similar prediction.

Less money, less restaurant value!

That's not exactly a cheery scenario for our service-based economy. Sigh.

In other words, money printing won't save the restaurant industry from what ails it.

Darden Falls on Food Inflation Forecast

"However, increasing food costs specially beef, underperformance at its core brands, Olive Garden and Red Lobster, in terms of same-restaurant traffic and stiff competition from the peers like Brinker International and Red Robin Gourmet Burgers will drag its profits."

So what do you do when you have stiff competition?

Looking ahead, Darden raised its 2011 earnings-per-share growth forecast to 19%, up from its prior estimate for growth between 17% and 18%. That outlook is based on sales growth expectations of 5.5%, comps growth up to 2% and 70 to 75 net new restaurants openings during the year.

More restaurants of course! Can't ever have too many of them.

Mr Slippery said...


Not sure I understand these charts, especially the last one. Chart 2, the stuff chart, is not in tons of ore, but in dollars, so it just shows the nominal prices of the stuff mined, but not the actual amounts of stuff. Chart 3 seems to show that we are paying higher nominal prices for stuff with our greater amount of money.

The trend in the last chart shows that we are paying a somewhat smaller % of MZM for the stuff we use, but are we using more or less actual stuff?

EconomicDisconnect said...

Too much built up sarcasm can be bad for your health and your relationship with the lady, lol!

Fascinating charts, will have to review them a bit more.

Stagflationary Mark said...

Mr Slippery,

We are using a lot more stuff and you are right that my charts don't actually show that. The exponential growth in the "stuff" charts is due to both inflation and increasing production. There has been plenty of both over the years.

The main purpose of these charts was the last chart as a final destination. It was my thinking that the amount of MZM would be somewhat proportional to the total price of all the stuff mined and that the ratio would be somewhat constant over time (except for temporary bubbles of course). I think we are seeing that.

The inflation we see in the CPI would therefore be proportional to the amount the MZM grows but also adjusted downward by the growth in the amount of stuff mined. Inflationists only seem to want to talk about the growth in MZM. Deflationists only seem to want to talk about the growth in stuff production (and credit). I fall somewhere between the two extremes as I try to make sense of the balancing act.

It would seem to me that if all these commodities were in a bubble then we would see a spike similar to the late 1970s (shown in that last chart). We aren't seeing that though. That tells me that these high commodity prices might be here to stay (at least long-term). In other words, Bernanke's miraculous monetary technology might be succeeding at making sure "it" doesn't happen here long-term.

There's a lot to think about. It is hard to watch China build empty cities and not think that at least some of these commodities are in a bubble, but then again what else would they do with the money? Parking money to nowhere isn't better than building bridges to nowhere I guess. At least bridges to nowhere creates jobs. Go figure.

Here's something else to think about. Jim Chanos thinks iron ore is in a bubble. Note the rise in iron ore in that 2nd to last chart. He might have something there.

Stagflationary Mark said...


Too much built up sarcasm can be bad for your health and your relationship with the lady, lol!

She's so sick right now that she can't even speak and she's coughing up some blood. She saw the doctor today and he thought that maybe she has H1N1.

You know me and gallows humor. I'm sure that it is due to all that pent-up sarcasm demand. I tried using some on her already since laughter is supposed to be the best medicine. No luck so far though.

Stagflationary Mark said...

Jim Chanos didn't think gold was in a bubble. I think the 2nd to last chart makes a good argument that he might be right on that too. Keep in mind that its price in 2009 was just under $1000 and MZM growth over the past 2 years has been rather modest though.

Stagflationary Mark said...

Here's some bonus trivia.

World gold production was in decline from 1970 to 1980. Annual production fell from 1,480 metric tons to 1,220 metric tons. I'm sure it made a great bull market story.

Just one problem. Gold production skyrocketed from 1980 to 1990. It rose from 1,220 metric tons to 2,180 metric tons.

Behold the power of higher commodity prices to increase commodity production. That would be my greatest concern as a gold investor these days.

Stagflationary Mark said...

Here's a link to the bonus trivia.

Stagflationary Mark said...

I was looking for "gold shortages" from the 1970s and stumbled upon this gem.

The Phoenix - Jan 9, 1980

Afghanistanism: Journalists call it "Afghanistanism" when a newspaper ignores crime or corruption in its own backyard and editorializes about the events in Afghanistan. The term may be applied to explanations of the gold zoom. Iran or Afghanistan may have helped "touch off" the panic market but the real cause was the market itself.

Buyers of gold are not required to say why they are buying. Relatively few may have been reacting to the Soviet moves in Afghanistan. Most were reacting to the rising price itself. If put into words, their reasons would sound like that song that goes: "We're here because we're here because we're here because we're here."

The 31-year old deja vu stick just beat me senseless, lol.

March 24, 2011
Americans are tired of Afghanistan war

The U.S. war in Afghanistan is almost 10 years old.