Generational Dynamics Forum - New Site

stevendeklerck wrote: > I also read the article by Ambrose Evans-Pritchard.

> The most important sentence to me was the following:

> I’m afraid this is going to have a very deflationary effect on
> the economy of Western Europe. It is almost guaranteed that
> euroland money supply is about to implode.

> If the money supply is about to implode, doesn't that imply that
> the euro in real terms will become more valuable?

stevendeklerck wrote: > The Austrian School doesn't rule out a deflationary spiral.

> People like Peter Schiff are a little bit obsessed by
> hyperinflation.

> A quote from a book on Austrian Economics:

> >The third type of deflation we will consider results from the
> >tightening of credit which normally occurs in the crisis and
> >recession stage that follows all credit expansion. Just as
> >credit expansion increases the quantity of money in
> >circulation, the massive repayment of loans and the loss of
> >value on the assets side of banks' balance sheets, both caused
> >by the crisis, trigger an inevitable, cumulative process of
> >credit tightening which reduces the quantity of money in
> >circulation and thsu generates deflation. This third type of
> >deflation arises when, as the crisis is emerging, not only
> >does credit expansion stop increasing, but there is actually a
> >credit squeeze and thus, deflation, or a drop in the money
> >supply, or quantity of money in circulation.

> Sounds familiar?!

John wrote:Dear Gordo,

Gordo wrote: > Just to recap what Bernanke said in 2002, because I think its
> important, and John has basically dismissed it:

Ben Bernanke wrote: > > "Although a policy of intervening to affect the exchange
> > value of the dollar is nowhere on the horizon today, it's
> > worth noting that there have been times when exchange rate
> > policy has been an effective weapon against deflation. A
> > striking example from U.S. history is Franklin Roosevelt's 40
> > percent devaluation of the dollar against gold in 1933-34,
> > enforced by a program of gold purchases and domestic money
> > creation. The devaluation and the rapid increase in money
> > supply it permitted ended the U.S. deflation remarkably
> > quickly. Indeed, consumer price inflation in the United
> > States, year on year, went from -10.3 percent in 1932 to -5.1
> > percent in 1933 to 3.4 percent in 1934.17 The economy grew
> > strongly, and by the way, 1934 was one of the best years of
> > the century for the stock market. If nothing else, the
> > episode illustrates that monetary actions can have powerful
> > effects on the economy, even when the nominal interest rate is
> > at or near zero, as was the case at the time of Roosevelt's
> > devaluation."
> > http://www.federalreserve.gov/BOARDDOCS ... lt.htm#f19

> If the "new depression" scenario really does in fact play out as
> most here expect, the above is exactly the policy response you
> should expect. Exactly how it will look, I don't know, but it
> will have its intended affect of forced inflation.

I'm sorry, Gordo, but you really have to wonder how Bernanke managed
to get through Economics 1.01, let alone become head of the Princeton
economics department.

He talks about inflationary measures that were taken in 1933-34.
Well, that was 4-5 years after the deflationary spiral had begun. By
that time, the deflationary spiral had run its course, and reflation
would have begun no matter what FDR had done.

By contrast, Bernanke has opened the liquidity floodgates right at
the beginning of the deflationary spiral, and it's done almost nothing
to stop the deflationary spiral today. Perhaps, if he's lucky,
President Obama can find a way to take credit for reflating the
currency when its time comes, around 2012-13.

Ben Bernanke is considered the world's leading expert on the Great
Depression, on economics and macroeconomics, but his understanding of
all of these subjects is so embarrassingly shallow, it's incredible.
He simply doesn't know what he's talking about.

The reason that I've dismissed what Bernanke has been doing is
because it's total, utter nonsense. I would think that, by this
time, you could see that as well as I can.

Let Bernanke try anything he wants. It will accomplish nothing.

Sincerely,

John

> Market Outlook
> Markets Lack True Fear

> Joseph Hargett and Joe Sunderman, Option Advisor 10.27.08, 1:35 PM
> ET

> The Dow Jones Industrial Average finished another horrific week
> of trading, and is well on its way to logging its most infamous
> October showing ever. Currently, the Dow is off more than 22% for
> the month, vs. the roughly 23% declines logged in October 1987 and
> 1929. For the week, the DJIA lost 5.4%, the S&P 500 Index (SPX)
> shed 6.8%, and the tech-laden Nasdaq Composite (COMP) plummeted
> 9.3%.

> Despite the selling, is there really the kind of elevated fear
> among traders and investors that is necessary for a bottom in a
> market like this? I have my doubts.

> On Friday, we saw a television commentator talk about her
> grandfather purchasing stocks in 1932 and 1987, something she said
> she keeps in mind during this period. We also saw a slew of
> headlines last week declaring that the situation could be worse,
> or that it isn't as bad as expected. All the while, we watched the
> market plunge significantly lower. Clearly, this is not the type
> of panic that you'd expect, nor the fear that we'd much rather be
> seeing at this point. Moreover, think of how many advisers have
> reminded you that the U.S. has been in a weak position before and
> has come out of these scenarios just fine, or how many times have
> you heard, "Why sell now?"

> Meanwhile, we are also seeing a fair amount of hope among
> traders, which could be preventing the panic necessary to force a
> market bottom. Put another way, how many commentators and
> strategists are advising you to buy portfolio insurance or sell
> stocks immediately? How many would you expect to hear urging this
> caution with the SPX down 40% in the past year? Keep in mind that
> during the 1929-1932 bear market, stocks fell 89%, a fact that the
> objective investor would do well to consider when debating the
> "Why sell now?" question.

> The most recent poll by the American Association of Individual
> Investors may better quantify the point I'm making. In last
> week's survey, 38% of those surveyed were bullish and another 38%
> were bearish. Putting this in perspective, the reading was 54%
> bearish and 27% bullish in mid-September when the SPX was trading
> 25% above its current levels. In mid-July, 58% were bearish and
> 25% were bullish. I find it mind-boggling that the recent downturn
> has not generated a level of fear among retail investors greater
> than the levels seen in prior months.

> http://www.forbes.com/finance/2008/10/2 ... k_inl.html

Gordo wrote: > As far as the Bernanke quote - you STILL don't seem to get it.
> What he said he would do, is exactly what he is going to do,
> probably within the same timeframe that it happened during the
> Great Depression, or perhaps 1-2 years earlier since he is
> anticipating having to do it. Understanding what is going to
> happen is key to making a LOT of money though this debacle.

mosullivan wrote: So, is the argument simply that the deflationists don't see the
velocity of money getting going (hence, just sitting there
"clogged") and inflationists believe otherwise as was the case in
02-03? I aologize if this was covered before but I am trying to
grasp this as it clears up a lot of things.

> I have a retirement account, which is in a S&P 500 Index fund.

> The value is minimal at around $25K.

> Would you recommend switching the fund to their Treasury Money
> Market Fund / Government Money Market Fund, or fully liquidating
> the fund into cash (paying tax penalities, since my age is mid
> 40's).

> If there is a Treasury default, it seems the account would be
> worthless even in the Money Market account.

> I just noticed something interesting.

> As you pointed out, US and Japan's early 20th Century financial
> crises, 1919 and 1929, were offset by a decade. The more recent
> financial crises are offset by an even larger time length, 1990
> and 2008.

> And then looking back into the 19th C, it would appear that
> candidates for Japan's economic crisis date would be limited to
> 1837 when there was a one day rebellion by peasants which freaked
> out the leadership so much, or possibly Commodore Perry's first
> visit of his Black Ships in 1852, whereas the US financial crisis
> was 1857.

> Why does the time length vary? Why did Japan's 1919 financial
> crisis come so much earlier than their launching war? Was their
> crisis era prolonged by something?