Deflationists & Blind Eyes
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My forecast has been for a powerful Inflationary Recession to occur, a consistently laid out analysis, delivered during the last year or more in clear terms. That has been my call, and continues to be my call. The Deflationist camp is making more noises. They do not know their limitations, which are obstructed by a blind eye toward the monetary inflation. They do not understand it, so they ignore it, and attempt to encapsulate it into a convenient bottle set aside on the margin. Gonzalo Lira will be proved wrong about price inflation showing on the official Consumer Price Inflation index. So what? The prevailing price inflation will ramp past 12% easily as he also predicts. His style is wonderful, even if a mirror is a fixture at his desk. His details in argument are strong and cogent. An anger meter is a fixture at my desk. So what? Since the emergency G-7 Meeting held two weeks ago, the central banks have joined forces in a Global QE movement that will propel the Gold & Silver price much higher and render deep further damage to the USDollar. The Deflationists paid no notice, or did not notice, or did not comprehend the importance. They are a laughing stock crew of half blind shamans.
USFED MOUTHPIECE ECHOS
The Deflationists fail consistently to measure the flow or pace of inflation, seeming mouthpieces without realization for the USFed and Wall Street itself, whose incessant calls of dreaded deflation have opened the political floodgate for global monetary hyper-inflation. They do not even recognize their compromised subservient support role. The aberrant crowd of Deflationists have a blind eye to the dynamics of inflation, and how it transforms from excessive funds in the financial system, to reaction against the USDollar, to rising commodity prices, to rising cost structure, and finally to extreme pressures for end product prices, including higher wages. They dismiss each step of the way, and do not bother to explain their progressive errors along the pathogenesis pathway. The USFed has passively developed followers like a Pied Piper. They are just lousy economists in the Deflationist camp. A good technical analyst on chart interpretation in no way makes for economist qualification. They cannot integrate complex systems where both asset deflation and monetary inflation coincide, collide, and conspire to produce economic wreckage and price inflation. They act sheepish when what they predict will not happen, actually comes to pass. Recall they have been preaching for three years that crude oil and gold would descend lower in prices. They serve as the bell tower in an empty village. They have also been preaching that end product prices would fall also due to low final demand. They are consistently wrong, but never apologetic. Sadly, most Deflationists cannot adequate even define deflation, even when challenged. It is a catch-word they fixate upon, that permits them to dismiss anything and everything pertaining to the ravaging complex effects of monetary inflation, whose dynamics are beyond their scope of comprehension, perhaps even recognition.
Mine are not rants, but detailed arguments with numerous factors fortifying arguments put forth toward a thesis defended on many fronts in broad fashion for over five years. To be sure, my work includes some invective due to overflowing anger at the system having gone so far awry with deep fraud, coordinated media deception, impunity for those responsible, and elevated powers granted to them during reforms. Rants are shallow harangues. Mine is thorough analysis put to paper. These guys should consult a dictionary, as some of their own haughty dismissals fail to address or respond to much of anything my work has put forth. The word rant might invite an accusation of shallow in the mental process. They often argue in a circle under the pretense of confrontation, never addressing important points like the flow of the increased monetary aggregate, and its destinations with strong effects. One analyst in particular should really stick to what he does best, that being technical chart analysis. While the historical economics books of the past are indeed enlightening in theory, little truly applies to explain all that occurs in the profound intervention and rigged financial markets led by a criminal elite class whose main enterprise is clearly war and narcotics, followed by orchestrated chaos designed to permit broad elite powers. Their past excellent work should be kept on the wall for constant reminder of true market forces, true economic forces, all of which are opposed by powerful criminal actions and heavy handed monetary policy.
THE BLIND EYE TO INFLATION
My main ongoing criticism of the Deflation camp has been their blind eye to the human response to asset deflation. Obvious home prices fell and continue to fall, and related asset backed bonds have fallen progressively into ruin. That is not the point. Their camp has consistently ignored the central bank response with multi-$trillion monetary expansion. In round #1, the excesses were tucked away in the Federal Reserve interest bearing account for the big banks. They were essentially Loan Loss Reserves of those banks, which were removed from the big bank balance sheets only to be relocated on the USFed books. In round #2, the excesses went global with the entire commodity complex exploding upward in price. Purchase of USTreasury Bonds in the hundreds of $billions cannot be contained anymore than herding tiger cats. Most noticeable among commodity price rises was in food & energy. With most food items up 15% to 20% in price in a single year, and gasoline up 25% in several months, the pinch is on with powerful price inflation. But it appears on the cost side, as my analysis has mentioned numerous times. What the Deflationists miss from the start is that the extreme storm conditions come from the falling asset prices and wage effects on the one side to form a low pressure zone, meeting the rising monetary expansion and counter reaction by commodity prices against the debased USDollar in a high pressure zone. Thus the collision and powerful storm vortex, which they miss with blind eyes. Their camp never addresses the storm conditions, ever. The Deflationists show their blind eye by overlooking, or ignoring, or never noticing the storm itself, where natural collapse meets extraordinary monetary aggregate growth in reaction. They never mention multi-$trillion central bank expansion of the money supply, which debases the value of money, even making a total mockery of money, thereby adding to the cost structure in a massive way, pressuring prices and wages. The rising stock indexes serve as evidence of the monetary inflation, which they do not recognize.
My point made consistently is that wages will not keep pace with rising costs, even made a national priority to halt the secondary inflation effects on wages. In that sense, my analysis has joined the Deflationists, but only with one foot in their shallow pond of constructs, hardly qualifying as a School of Thought. Since wages do not keep pace with costs, the unemployment will rise and has risen, a point made consistently here. Therefore my work cannot be carelessly labeled as over the top inflationist. Sadly, most Deflationists do not understand how to read my analysis, because they operate with a blind eye to the many sided crisis, too focused on his narrow perspective that cannot adapt to the current complex situation. The Deflationists cannot integrate into their shallow thinking the combination of inflation on the monetary side and deflation on the asset (and wage) side, surely a difficult and extraordinary situation loaded with complexity. They lost my respect long ago, the entire clan. Most of their followers in paid subscription services suffered crippling personal financial losses. A few analyst newsletter writers from their camp have learned nothing and continue their tired saw with shallow analysis and a string of wrong-footed forecasts. So be it!
IMPORTANT CRUX OF THE MATTER
The heart of the matter is not the outcome, but the path to the end point. If a man and woman are destined to be placed in a cemetery crypt, is that a reason not to marry and enjoy a life together, filled with bliss and human challenge? Of course not. One should hate to be married to one of those Deflation Knuckleheads, a downtrodden and bleak crowd. The pathway is where fortunes are made and lost. The Deflationists have gotten it wrong for a long time. One should not be overly concerned about three years from now if an economic collapse takes place. That is the obvious outcome, not too challenging an issue at all. The Deflationists believe they offer wisdom in such a pronouncement. It is obvious. The wrong-footed Deflationists have focused on for a long time, with precious little elucidation of the path to the end. My concern is the extent to which the cost structure will rise, and then how much the end product & service price system will rise, and how much the wages will rise in compensation upon concerted demand. The Deflationists have ignored the pressure in 2007 and 2008 and never foresaw the entire Quantitative Easing movement, which was forecasted with ease in the Hat Trick Letter. The Deflationists consistently ignore the powerful effects of Quantitative Easing itself. They dismiss the human response to falling asset prices. The only conventional assets rising nowadays are stocks and farmlands. The thesis put forth that DEFLATION WILL PREVAIL BY SNUFFING OUT THE HYPER-INFLATION represents a cavalier avoidance of the entire sequence toward the end, reveals lack of comprehension of the extreme forces in conflict, and attempts to sit above the fray in arrogance beset by ignorance. Of more concern to me, and millions of people, is the important middle portion of the game, that happen from innings three thru eight. The ninth inning calls by wrong-footed blind eyed Deflationists pale by comparison to discussions on whether banksters take global control of governments, how the current monetary system is fracturing, whether new monetary forms are shoved down our throats, or how an alternative oppositional monetary system can overthrow those in regimes in power. They never discuss such lofty but important concepts, since they do not comprehend them, cannot perceive them, and cannot envision them. They retreat from such discussions.
The Deflationist themes ignore the Inflation story. The G-7 Meeting to adopt the Yen Selloff Pact was a veiled GLOBAL QE ACCORD. The pact has not even been discussed by the shallow Deflationist camp even though it is the most signficant policy directive since September 2008, more important than the original QE decision in March 2009. That is because it is Global QE, stamped and approved by the major central banks, monetary hyper-inflation gone global. The Deflationists live in a cave, unaware of such events or dismissive of them in arrogance. They instead continue to defend the wrong-footed construct of Deflation. In personal email and telephone exchanges, my habit is to constantly laugh at their pre-occupation with Deflation. On more than 40-50 occasions with certain contacts, my reply is simply WHAT IS DEFLATION?? Shallow responses come in return, unimpressive one and all. We will continue to experience and suffer both deflation of assets and wages, during a massive storm of hyper-inflation from central banks. The inflationary effect is a perverse factor toward the real game on stage. Do not expect wages to keep up with the rising costs. This has been a major point of mine all along, so a massive squeeze will continue. The Deflationists do not understand the reaction to the squeeze, focusing arrogantly on the endpoint. Their work is of little practical value, certainly of zero investment value. The squeeze will render harm to both households and businesses, with lost discretionary spending and lost profit margins. Their debate over which prevails misses the entire point. That is, the Deflation will continue in certain asset classes, especially housing and commercial property, while the Inflation will continue in monetary aggregate, TO MAKE A GROWING POWERFUL DAMAGING GLOBAL HURRICANE. Much end product price inflation will come. More end service price inflation will come. See shipping charges for a start. It seems obvious that the Deflationists ignore the battle and try to describe the outcome in narrow myopic terms. In a sense, they are the flat earth society.
ELOQUENCE LACED WITH IGNORANCE
Obviously, we cannot have a Weimar-style hyper-inflation. We do live in a credit based global economy. But the reasons why differ since the current global situation is different. The Weimar conditions were local to the microcosm that was Germany. It was enclosed. The current situation has its Weimar elements, especially endorsed by the recent March G-7 Meeting. That is global Weimar by any name, given its global coordination of USTreasury Bond purchase after broad discharge from Japan. The Deflationists cannot comprehend a global Weimar concept.
FURTHER REBUTTAL TO THE BLIND EYE
To begin with, 12 to 18 months ago the Deflationist camp claimed the price of crude oil and the Gold price would fall and dramatically so. Wrong on both counts. Curiously, the camp avoids defending their wrong-footed points as the months pass, while the crude oil price zips past $120 (Brent that is, since West Texas is the province of paper games), while the Gold price hurtles toward $1500. Have Deflationists not noticed? People are moving rapidly out of quickly debased paper money and into tangible goods. Conversion of USTreasurys has become commonplace among sovereign wealth funds. Have Deflationists not noticed? This is the basis of the commodity price rise and the basis of the precious metals price rise. The USFed has in fact picked up almost the entire slack in USTBond purchase during the massive conversion process. The movement is better observed outside the US Dome of Perception, where foreign USTBond creditiors have openly halted their USTreasury bids, replaced by the USFed printing pre$$ eagerly. Foreign sovereign wealth funds across the globe have openly expressed their dismay over the entire QE initiatives, anger of unilateral monetary policy decisions made in the United States with seeming contempt, and the consequent harsh effect on commodity prices. They have increased their gold (and even silver) purchases in conversion of US$-based assets. They have rebalanced their reserves. They have stopped bidding at USTreasury auctions. Have Deflationists not noticed?
Germany's financial collapse took several years. So is the US financial collapse, a long painful process. What began with a subprime mortgage problem in mid-2007 spread to a full blown housing decline, a bank insolvency problem, then a sovereign debt problem, then a monetary inflation solution with severe blowback, and now a monetary system discredit problem. The pathogenesis has so far spanned four years. Have Deflationists not noticed? Anyone who believes the US financial collapse could occur in a single week is a moron. Actually, such an observer would be a blind man and moron. The US banking system in my view suffered a death experience in September 2008. The coroner was overridden by the Financial Accounting Standards Board, thus declaring the corpse permitted to walk with props and to speak from a recorded message, pretending to be alive. After April 1st decree in 2009, the Zombies have roamed the US landscape freely. Have Deflationists not noticed? The big US banks have been operating with an Extend & Pretend policy that their crippled balance sheet overloaded with toxic credit assets will somehow recover in the next year. Instead, the Real Estate Owned (REO) residential homes on the bank books have ballooned to over one million properties. Almost half of all home sales are short sales and foreclosure sales. The entire process has been extended to the extreme over times. Have Deflationists not noticed?
Financial assets are indeed being shifted into hard assets, in particular the basic commodities. Nations are building stockpiles. The main focus has been on crude oil to the commecial side and to Gold & Silver on the financial side. But some speculation has come to the copper market (which JPMorgan seems interested in), to the coffee market due to problems in Africa, to the sugar market (which JPMorgan seems fond of), and to the cotton market from broad necessity. Financial mavens, news anchors, and hedge fund managers have all been touting their strategies in response to runaway monetary inflation commanded from the marbled offices of the USFed. They respond to the devaluation of money itself. The migration to hard assets is well along. Have Deflationists not noticed?
Did somebody say there was insufficient currency to drive up and power hyper-inflation? Excuse me, but that statement truly misses the 800-pound gorilla sitting at the Deflationist dinner table. The USFed has expanded its balance sheet to over $3 trillion. The USFed has printed over $2.7 trillion in QE programs, with much more to come. That figure does not account for their secretive monetary extensions, like grants without collateral to fellow central bankers and friends of the syndicate. In fact, the QE program will soon be announced as ended, since so offensive, when in fact it will be incorporated and melded completely into routine weekly activity. The Euro Central Bank, the Bank of England, and the Bank of Japan have all joined in the paper confetti production enterprise. Have Deflationists not noticed? The spillover from the banks who hoarded the USTBonds took place and the spilled funds hit the commodity market. The Deflationists claimed it would not happen, no spillover of any kind. They were wrong. The next spillover will be to end product prices, and to some extent wages. The Deflationists will be wrong again. But the wage hikes will not be adequate to manage the higher costs to come. The increase in money supply plays out symptomatically under their noses without much recognition or comprehension.
The next phase will be for Cost Push, which will introduce higher prices and smaller packages by vendors. Then come demands for higher wages with high pitched battles. Some will be won, many will be lost, especially given the state government union legislation that has bagun to ban collective bargaining. The workers will lose more than in the 1980 decade, when 10% and 12% salary gains were commonplace. The corporations are supposely flush with these $2 trillion in cash on their balance sheets. Let's see how much are devoted to commodity investments in counter action to the USDollar debasement (not noticed by Deflationists) and how much are devoted to labor concessions under demand of work action (not expected by Deflationists). My preference would be for capital investment and factory revamps, but the United States and its newfound marxism blended with fascism and oppressive regulatory impositions is not a place conducive for corporate expansion. These are some of the dynamics underway, which are not detected by those with blind eyes. The Deflationists prefer to cling to shallow arguments of a move straight to deflation without all the intermediary steps that cannot comprehend.
Cash held by the people and investors and hedge funds pension funds and elsewhere is in a massive migration to hard assets. Physical goods & tangible assets are rising in price. Have Deflationists not noticed? Witness the burgeoning demand for USMint coins, resulting in shortages and production shutdowns across the world. Have Deflationists not noticed? Amplifying the USFed money output parade, the troubles in Egypt with associated threats to the Suez Canal, followed by troubles in Libya with interruptions to output, have all contributed to the movement of funds into hard assets like crude oil. Have Deflationists not noticed? As for buyers, right now the only (or primary) buyer for USTreasurys is the USFed itself. Plenty of global funds continue to chase crude oil, industrial metals, grains, farmlands, cotton, coffee, sugar, as well as the King Gold & Queen Silver. Have Deflationists not noticed? The interesting opportunities will continue to be offered for wealth accumulation in defense of the unspeakable abuses of money. These are the middle innings of opportunity when it is still legal to build and hold wealth. Those years might be nearing an end, unfortunately as we near open confiscation after hidden confiscation. The money to bid tangible assets skyward, my blind fools, is from the collective gaggle of central banks which are in a panic printing money without the controls to direct it where they wish. This is not a rant, but rather a directed rebuttal of a shallow discourse laden with blind spots, shallow arguments, and arrogance. Let us gaze at the fool with a blind eye in a purple robe sitting on a self-designed throne, with zero authority and a track record of major missed events.
GOLD & SILVER REACTION TO MONETARY DESTRUCTION
Acute Silver shortages are in front of our noses, in the news, and point to extreme vulnerability in the USDollar, if not the USGovt debt condition. The USMint in possible illegal manner has at times suspended the production of Silver coins to be minted. They by law are commissioned to continue to meet public demand, which means they must bid up the Silver price if required. The COMEX shortage of Silver is so widespread and in the open, that futures contracts are being settled in cash, after the contract owner signs a waiver to permit the breach of contract itself. A 25% to 30% cash settlement bonus has become the norm. Such actions in policy have lit a fire under the Silver market and lifted its price. Angry from incessant charges of currency manipulation, the Chinese have responded by purchasing large truckloads of Gold & Silver. The real manipulation is by the USFed, whose debt monetization has gone global, whose USDollar effect is undeniable. That is blatant manipulation of not only the sovereign debt, but the currency denominated in it, extending to the entire monetary system. The group of major fiat currencies are all attached like a floating papyrus bound by threads. They are discredited in unison, weighed down by a debt burden and rotten paper.
The Euro is rising, despite its crippled condition. The ruse of a higher interest rate set by the Euro Central Bank is really amusing. Maybe they will come through with an inflation beater rate hike of a puny 25 basis points. How irrelevant? Both the US and EU have prevailing inflation rates over 8%. The cost of money remains 7% below the prevailing price inflation, maybe 12% too low for practical commerce. The appeal of the Euro comes from the totally obscene ruinous debased condition of the USDollar. The reverse beauty contest leaves the clownbuck as the gal left on stage seeking a dance partner. The toothless Euro at least has two dancing legs. The USDollar has none, nor teeth. The newest wrinkle in currency flows is the Arab investment in Euros, as they seek anything but USDollars. The US War Machine has targeted Libya, and turned its head from Bahrain. Just this week, Prince Turki of the House of Saud warned his princes that the Saudi Arabians must seek protection from other sources besides the United States. With the Saudis acknowledging security shortcomings, one must bring into focus the Petro-Dollar Standard, the defacto accord between the US and Saudi Arabia. They sell OPEC crude oil in US$ denomination only, and the USMilitary provides security protection for the royals in power as they accumulate great wealth. The accord is slowly disintegrating, with enormous potential impact to the USDollar standing. The US$ DX index is flirting with yet another breakdown below critical support. Each bounce off support is met by fresh selling. It seems military underpinning for the USDollar is slowly fading away like an old soldier after several decades.
The Gold breakout is clearly timid, lacking gusto and strong conviction. The Powerz have decided that they must contain the Gold price advance. The factors pushing up Gold are numerous. The sovereign debt decay process has led to lost integrity in the global monetary system organized as major currencies. They are all being debased by mammoth money printing initiatives with the full blessing of the governments and finance ministries. Each paper ambush led by naked shorting of the futures contract has resulted in a slingshot lift in Silver, a veritable nasty backfire in their faces. Those who cannot accept such a forecast of $100 Silver come from the same crowd that refused to believe last November that a $25 price would give way to a $40 price. But the Powerz cannot halt the powerful impressive advance of Silver, which will next take assault on the $50 mark. In two years, it will surpass the $100 mark, maybe sooner. The Gold price will make new highs in repeated fashion, and continue the upward movement, but it will be slow and steady toward the $2000 mark, inhibited the entire way. But Silver will be the impressive winner in the precious metals arena. At least one Silver substitute is already well over $1000 in price. That is the hint and clue of future price direction. Silver will take no prisoners while Gold shakes off its bondage. It has almost reached my $40 stated target, right on cue. One of the most profound changes that has come to the precious metals market is the shift, whereby price discovery has moved directly to the physical market. The paper futures market has been thoroughly corrupted.
The latest travesty is that JPMorgan is attempting to take delivery on a large portion of its short silver position. No misprint here. On their short position, that is, so that they can deliver it!! That is like making a demand to a credit card bank that the borrower intends to collect the debt from the creditor. Utterly absurd. That comedy is worth more to watch than the CFTC charade on position limits. The other profound change is that inflation expectations are being dictated by the Gold & Silver market, not the USTreasury Bonds any longer. The USFed Chairman has lost an enormous amount of credibility in his focus upon the long-term USTBond as an indication of price inflation expectations. The USGovt debt securities have lost their buyers. Not only is the USFed monetizing USTreasurys at a $100 billion clip per month, they are also purchasing the Treasury Inflation Protection Securities (TIPS). The TIPS are supposed to act as an inflation gauge. It too is corrupted.
A bigger fool than the Deflation Knuckleheads is the USFed Chairman Bernanke. He is a myopic professor who wrote a fine piece of revisionist history of the Great Depression, who now presides over a global monetary systemic collapse. Gold is reacting, but Silver reacts even more. As long as the insolvent big US banks remain in operation and are not liquidated, as long as toxic paper repositories rest under the USGovt roof, as long as the USGovt deficits remain well above $1 trillion annually, as long as Quantitative Easing legitimizes the debt monetization without checks, the GOLD PRICE WILL RISE INDEFINITELY. It is that simple.
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April 6, 2011
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com