Shiller: US could likely to fall into deflationary spiral ala Japan

[Huckleberry]

Rich,

I was merely wondering if any of the recent market variables that have transpired may have changed the theorem. I was not insinuating that your analysis was done poorly, nor was I trying to potentially debunk it based on new economic information.

Just wondering if your professional experience and knowledge still support the belief behind the articles.

Also, thank you for clarifying the short/long term time frames.

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[kev374]

PIMCO forecasts deflation…

http://abcnews.go.com/Business/wireStory?id=11367580

[kev374]

PIMCO forecasts deflation…

http://abcnews.go.com/Business/wireStory?id=11367580

[kev374]

PIMCO forecasts deflation…

http://abcnews.go.com/Business/wireStory?id=11367580

[kev374]

PIMCO forecasts deflation…

http://abcnews.go.com/Business/wireStory?id=11367580

[kev374]

PIMCO forecasts deflation…

http://abcnews.go.com/Business/wireStory?id=11367580

[Arraya]

Here is a good piece to understand the deflationary side of the argument where TAE takes on John Williams of shadowstats call for hyperinflation. Conversely, Rich’s article is definitely one of the most complete and clear to the layman, articles on inflation.

Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing

http://theautomaticearth.blogspot.com/2010/08/august-8-2010-stoneleigh-takes-on-john.html

It is indeed pushing on a string. Trying to stuff more credit into a system that is already choking on it will do nothing to increase the money supply in circulation. It cannot -even possibly- be inflationary. We are already in monetary contraction, as Williams has noted, and the contraction of credit makes the situation considerably worse than it appears from traditional money supply measures. Contraction is being aggravated by a fall in the velocity of money, as people, companies and banks hang on to what cash they have.

snip

There is no chance that the money injected by the Fed will find its way into the real economy, and no chance that it will ignite a wage/price spiral in an era of credit contraction and rising unemployment. Employees will have no pricing power at all under such circumstances, which means that wages will fall rather than rise. Prices will also fall, as the withdrawal of credit will remove price support across the board.

snip

Without the ability to expand consumption, there is no price support even at current levels, let alone a chance for prices to rise. Credit expansions are based on Ponzi dynamics – the creation of multiple and mutually exclusive claims to the same pieces of underlying real wealth pie, as opposed to cutting the pie into a larger number of smaller pieces as currency inflation would do. The Ponzi nature of credit expansion is the determining factor in the ultimate fate of all bubbles.

snip

Governments do not have the power that people imagine them to have. They cannot overcome the power of the collective, when that power is focused like a laser beam in one direction. Governments are going to find that the number of claims on their resources skyrockets, even as their tax receipts fall dramatically and their ability to borrow is curtailed by rising interest rates as a reflection of rising sovereign debt risk. Debt-junkie governments will be caught in a liquidity trap until the power of the international debt financing model is finally broken, as it will eventually be.

However, this does not happen overnight. Until it does, the power of governments to print will be sharply limited. We would expect this to remain the case through the era of deleveraging, which should last for several years. While inflation may be a long term threat once the power of the bond market is broken, that threat lies much further down the line. It is deflation that is today’s threat, and deflation that people must prepare for right now.

[Arraya]

Here is a good piece to understand the deflationary side of the argument where TAE takes on John Williams of shadowstats call for hyperinflation. Conversely, Rich’s article is definitely one of the most complete and clear to the layman, articles on inflation.

Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing

http://theautomaticearth.blogspot.com/2010/08/august-8-2010-stoneleigh-takes-on-john.html

It is indeed pushing on a string. Trying to stuff more credit into a system that is already choking on it will do nothing to increase the money supply in circulation. It cannot -even possibly- be inflationary. We are already in monetary contraction, as Williams has noted, and the contraction of credit makes the situation considerably worse than it appears from traditional money supply measures. Contraction is being aggravated by a fall in the velocity of money, as people, companies and banks hang on to what cash they have.

snip

There is no chance that the money injected by the Fed will find its way into the real economy, and no chance that it will ignite a wage/price spiral in an era of credit contraction and rising unemployment. Employees will have no pricing power at all under such circumstances, which means that wages will fall rather than rise. Prices will also fall, as the withdrawal of credit will remove price support across the board.

snip

Without the ability to expand consumption, there is no price support even at current levels, let alone a chance for prices to rise. Credit expansions are based on Ponzi dynamics – the creation of multiple and mutually exclusive claims to the same pieces of underlying real wealth pie, as opposed to cutting the pie into a larger number of smaller pieces as currency inflation would do. The Ponzi nature of credit expansion is the determining factor in the ultimate fate of all bubbles.

snip

Governments do not have the power that people imagine them to have. They cannot overcome the power of the collective, when that power is focused like a laser beam in one direction. Governments are going to find that the number of claims on their resources skyrockets, even as their tax receipts fall dramatically and their ability to borrow is curtailed by rising interest rates as a reflection of rising sovereign debt risk. Debt-junkie governments will be caught in a liquidity trap until the power of the international debt financing model is finally broken, as it will eventually be.

However, this does not happen overnight. Until it does, the power of governments to print will be sharply limited. We would expect this to remain the case through the era of deleveraging, which should last for several years. While inflation may be a long term threat once the power of the bond market is broken, that threat lies much further down the line. It is deflation that is today’s threat, and deflation that people must prepare for right now.

[Arraya]

Here is a good piece to understand the deflationary side of the argument where TAE takes on John Williams of shadowstats call for hyperinflation. Conversely, Rich’s article is definitely one of the most complete and clear to the layman, articles on inflation.

Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing

http://theautomaticearth.blogspot.com/2010/08/august-8-2010-stoneleigh-takes-on-john.html

It is indeed pushing on a string. Trying to stuff more credit into a system that is already choking on it will do nothing to increase the money supply in circulation. It cannot -even possibly- be inflationary. We are already in monetary contraction, as Williams has noted, and the contraction of credit makes the situation considerably worse than it appears from traditional money supply measures. Contraction is being aggravated by a fall in the velocity of money, as people, companies and banks hang on to what cash they have.

snip

There is no chance that the money injected by the Fed will find its way into the real economy, and no chance that it will ignite a wage/price spiral in an era of credit contraction and rising unemployment. Employees will have no pricing power at all under such circumstances, which means that wages will fall rather than rise. Prices will also fall, as the withdrawal of credit will remove price support across the board.

snip

Without the ability to expand consumption, there is no price support even at current levels, let alone a chance for prices to rise. Credit expansions are based on Ponzi dynamics – the creation of multiple and mutually exclusive claims to the same pieces of underlying real wealth pie, as opposed to cutting the pie into a larger number of smaller pieces as currency inflation would do. The Ponzi nature of credit expansion is the determining factor in the ultimate fate of all bubbles.

snip

Governments do not have the power that people imagine them to have. They cannot overcome the power of the collective, when that power is focused like a laser beam in one direction. Governments are going to find that the number of claims on their resources skyrockets, even as their tax receipts fall dramatically and their ability to borrow is curtailed by rising interest rates as a reflection of rising sovereign debt risk. Debt-junkie governments will be caught in a liquidity trap until the power of the international debt financing model is finally broken, as it will eventually be.

However, this does not happen overnight. Until it does, the power of governments to print will be sharply limited. We would expect this to remain the case through the era of deleveraging, which should last for several years. While inflation may be a long term threat once the power of the bond market is broken, that threat lies much further down the line. It is deflation that is today’s threat, and deflation that people must prepare for right now.

[Arraya]

Here is a good piece to understand the deflationary side of the argument where TAE takes on John Williams of shadowstats call for hyperinflation. Conversely, Rich’s article is definitely one of the most complete and clear to the layman, articles on inflation.

Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing

http://theautomaticearth.blogspot.com/2010/08/august-8-2010-stoneleigh-takes-on-john.html

It is indeed pushing on a string. Trying to stuff more credit into a system that is already choking on it will do nothing to increase the money supply in circulation. It cannot -even possibly- be inflationary. We are already in monetary contraction, as Williams has noted, and the contraction of credit makes the situation considerably worse than it appears from traditional money supply measures. Contraction is being aggravated by a fall in the velocity of money, as people, companies and banks hang on to what cash they have.

snip

There is no chance that the money injected by the Fed will find its way into the real economy, and no chance that it will ignite a wage/price spiral in an era of credit contraction and rising unemployment. Employees will have no pricing power at all under such circumstances, which means that wages will fall rather than rise. Prices will also fall, as the withdrawal of credit will remove price support across the board.

snip

Without the ability to expand consumption, there is no price support even at current levels, let alone a chance for prices to rise. Credit expansions are based on Ponzi dynamics – the creation of multiple and mutually exclusive claims to the same pieces of underlying real wealth pie, as opposed to cutting the pie into a larger number of smaller pieces as currency inflation would do. The Ponzi nature of credit expansion is the determining factor in the ultimate fate of all bubbles.

snip

Governments do not have the power that people imagine them to have. They cannot overcome the power of the collective, when that power is focused like a laser beam in one direction. Governments are going to find that the number of claims on their resources skyrockets, even as their tax receipts fall dramatically and their ability to borrow is curtailed by rising interest rates as a reflection of rising sovereign debt risk. Debt-junkie governments will be caught in a liquidity trap until the power of the international debt financing model is finally broken, as it will eventually be.

However, this does not happen overnight. Until it does, the power of governments to print will be sharply limited. We would expect this to remain the case through the era of deleveraging, which should last for several years. While inflation may be a long term threat once the power of the bond market is broken, that threat lies much further down the line. It is deflation that is today’s threat, and deflation that people must prepare for right now.

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