Yep, deflation continues to be a major concern, which has always
been my worry.
As I've said so many times here, there are too many talking
heads talking about inflation because we are printing money, but
that's too simplistic, and the contrarian in me makes me think that
Deflation will be the problem instead
Posted by tradequick on 21st of Jul 2010 at 04:54 pm
Only this last year, have I started to think along the lines of
deflation rather than inflation after reading Prechter's
ideas on the subject. I really don't understand what he says;
but, if we have a fractional reserve banking system where money is
created out of nothing, then, when defaults occur, does that money
just disappear? And is it true that when money and liquidity
begin to disappear, then government won't be able to print money
fast enough to replace it during a massive contraction? Or
can the government just throw money out of helicopters and solve
the deflation problem? I know Prechter says "no". I
wish I understood why!
Back in the 2008 crash, Bernenke tripled the monetary
base. While everyone was focused on the 800 billion TARP, The Fed
increased the money base by over 1.5 trillion. What saved the banks
was not TARP, it was Ben. TARP was simply the distraction and
cover.
At the time, tripling the money supply was unprecedented. Now,
if they triple the money supply, it gives them room to print about
5 trillion - and there is nothing stopping them from going up by
ten fold. That is the "advantage" of fiat money.
Last time, they distributed it through the banks - but this
time, they can do it through the Treasury - and directly to the
people - a.k.a. Helicopter Drops... in the form of Tax rebates or
anything else they wish to call it.
They have the ability to replace the defaulted credit.
Where they have no ability is in controlling the velocity of
money, and that could lead to social unrest and eventually martial
law as tradequick suggested. And that is why there is such a rush
of smart money towards gold.
The other wild card in the inflation/deflation debate is the
500+ trillion in derivatives, and depending on who you believe,
much of this can be double book-keeping and a whole bunch of other
technicalities that reduces the actual exposure. However, if that
goes bust, then deflation is not just a possibility, but will be
the cause of collapse of all fiat currencies.
In pretty much all of the above scenarios, at least a modest
deflationary wave is necessary to give the Fed the excuse and
political capital to monetize... And in all of these cases, the
final outcome does not look good.
Posted by tradequick on 21st of Jul 2010 at 05:27 pm
Matt, some time ago I watched that video twice--the second time
with a lot of stops and starts and thinking. If that video is
true, won't the great mass of people fall off the big treadmill?
Mind you, I cannot argue otherwise.
Then won't the government itself fall and chaos appear? Maybe
marshall law will hold things together (perhaps that explains the
big TASR rally today) I think Prechter thinks that civil order will
endure and fiat money will be king. I just don't know.
at some point when civil unrest is bad enough, when the barter
system and hoarding have replaced all other forms of transactions,
some totalitarian authority is empowered to create a new fiat
currency.
In that day, I still want to own some gold and silver coins if I
haven't bartered them all away by that point.
TLT rising today
Posted by kbgupta on 21st of Jul 2010 at 02:09 pm
TLT seems to be rising all day with trending SPX. Maybe hint to future trend for SPX. We'll see got some ES to play this.
Title: TLT break out TLT break
Posted by darnelds on 21st of Jul 2010 at 02:21 pm
TLT break out is forecasting deflation.
Yep, deflation continues to be
Posted by matt on 21st of Jul 2010 at 02:33 pm
Yep, deflation continues to be a major concern, which has always been my worry.
As I've said so many times here, there are too many talking heads talking about inflation because we are printing money, but that's too simplistic, and the contrarian in me makes me think that Deflation will be the problem instead
Prechter's Deflation Theory
Posted by tradequick on 21st of Jul 2010 at 04:54 pm
Only this last year, have I started to think along the lines of deflation rather than inflation after reading Prechter's ideas on the subject. I really don't understand what he says; but, if we have a fractional reserve banking system where money is created out of nothing, then, when defaults occur, does that money just disappear? And is it true that when money and liquidity begin to disappear, then government won't be able to print money fast enough to replace it during a massive contraction? Or can the government just throw money out of helicopters and solve the deflation problem? I know Prechter says "no". I wish I understood why!
tradequick - exactly, the debt
Posted by matt on 21st of Jul 2010 at 05:00 pm
tradequick - exactly, the debt levels would overwhelm the printing presses if the fiat system started to implode.
I know that I always post this video, but it really explains how money and debt work:
MONEY AS DEBT
money printing
Posted by mamaduck on 21st of Jul 2010 at 06:39 pm
Matt
Back in the 2008 crash, Bernenke tripled the monetary base. While everyone was focused on the 800 billion TARP, The Fed increased the money base by over 1.5 trillion. What saved the banks was not TARP, it was Ben. TARP was simply the distraction and cover.
At the time, tripling the money supply was unprecedented. Now, if they triple the money supply, it gives them room to print about 5 trillion - and there is nothing stopping them from going up by ten fold. That is the "advantage" of fiat money.
Last time, they distributed it through the banks - but this time, they can do it through the Treasury - and directly to the people - a.k.a. Helicopter Drops... in the form of Tax rebates or anything else they wish to call it.
They have the ability to replace the defaulted credit.
Where they have no ability is in controlling the velocity of money, and that could lead to social unrest and eventually martial law as tradequick suggested. And that is why there is such a rush of smart money towards gold.
The other wild card in the inflation/deflation debate is the 500+ trillion in derivatives, and depending on who you believe, much of this can be double book-keeping and a whole bunch of other technicalities that reduces the actual exposure. However, if that goes bust, then deflation is not just a possibility, but will be the cause of collapse of all fiat currencies.
In pretty much all of the above scenarios, at least a modest deflationary wave is necessary to give the Fed the excuse and political capital to monetize... And in all of these cases, the final outcome does not look good.
mamaduck - let's hope none
Posted by matt on 22nd of Jul 2010 at 01:49 am
mamaduck - let's hope none of us have to go through all that, though honestly I'm not sure how they are ever going to work off all this debt
Time for me to get some sleep, see ya guys tomorrow!
Matt, some time ago I
Posted by tradequick on 21st of Jul 2010 at 05:27 pm
Matt, some time ago I watched that video twice--the second time with a lot of stops and starts and thinking. If that video is true, won't the great mass of people fall off the big treadmill? Mind you, I cannot argue otherwise.
Then won't the government itself fall and chaos appear? Maybe marshall law will hold things together (perhaps that explains the big TASR rally today) I think Prechter thinks that civil order will endure and fiat money will be king. I just don't know.
well, let's hope they can
Posted by matt on 22nd of Jul 2010 at 01:38 am
well, let's hope they can keep it going for a long time
fiat money will cease to exist
Posted by perthx on 21st of Jul 2010 at 05:56 pm
at some point when civil unrest is bad enough, when the barter system and hoarding have replaced all other forms of transactions, some totalitarian authority is empowered to create a new fiat currency.
In that day, I still want to own some gold and silver coins if I haven't bartered them all away by that point.
well, as Jim Morrison said,
Posted by Michael on 21st of Jul 2010 at 09:16 pm
well, as Jim Morrison said, no one gets out of here alive.....
Matt Could you take a look
Posted by shellysan on 21st of Jul 2010 at 02:57 pm
Matt
Could you take a look at the daily of TLT. Appears there are several negative divergences in place as it approaches it's last high agin, thanks
Shelly
Yes there are divergences, but
Posted by matt on 21st of Jul 2010 at 03:02 pm
Yes there are divergences, but it could easily push higher again if it waned too