Troy Peterson said…
So, to sum up your counterpoint, you believe that the US policies are completely different than Japan’s simply because we are enacting said-policies on a much-quicker timeframe?

The US is quantitatively easing (check), protecting its major banks/institutions that are insolvent (check), and protecting jobs/unions/defunct industries (check).

By your angry and confused logic, it would hold true that someone that starts drinking heavily at a very early age (i.e- quantitative easing) is less likely to become an alcoholic with a destroyed liver…..because they took such actions at a much earlier stage.

Your rantings are patently falst with respect to the US taking a different course than Japan. That being said, its up in air whether deflation/inflation occurs, but its very clear that we have implemented every major step the japanese did, only on an accelerated timetable. It should also be noted that Japan has had rampant inflation (consumer goods that are used) and deflation (hard assets) simultaneously. Thus, while I agree with conclusion that deflation may be unlikely for broader categories, your argument does not appear supported by the underlying facts.

July 9, 2009 8:29 AM

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Rich said…
The comments are not fair. I’m not aware of any investment comments that do not reflect the bias, and positions, of the writer. Mauldin actually has many commentators on differing sides of the issues contributing to his letters.

His bread is buttered by people who come to him for market neutral product. He has a bias. Not unique.

July 9, 2009 2:43 PM
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kfunck1 said…
Leaving aside the Mauldin related stuff (who cares guys, really), what is your projection then? You’re expecting serious inflation in the near future (<2 years)? Or are you just saying we won't be mired in a perpetual battle of deflation for the next thirty years? If it is the latter, then I'm with you.

July 9, 2009 6:14 PM
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REIT Wrecks said…
Hi kfunk, here is an excerpt from an interesting speech on deflation, if you haven’t already read through it:

“Deflationary episodes are rare, and generalization about them is difficult….I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States.”

2002 Bernanke Speech to the National Economists Club

Not surprisingly then, this is what the Fed had to say on March 19th 2009:

“the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.”

The Fed obviously wants a little inflation, so that’s probably what we’ll get. Mine is not a unique opinion (perhaps that should be troubling, but at this point I don’t see it). The real worrisome part of all this is what’s outside the Fed’s control: the interest rates that China and India will charge to buy U.S government bonds in 2010. The pressure on interest rates will definitely increase in Q1-Q2 2010, and so will the likelihood of inflation. I don’t think it will be runaway inflation, but I definitely don’t think we will be eternally stuck on the precipice of deflation either, not with all this central bank liquidity. Good grief.

Check out the econobrowser for more. They are a great resource on inflation, interest rates, etc.

As for Mauldin & Jensen, thank you for allowing me to sidestep the retorts. But I do have this to say: why not demand a little accuracy?

July 10, 2009 12:20 PM

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kfunck1 said…
I am in complete agreement with your general disposition, fwiw. I don’t mind Mauldin, I’ve been reading his stuff for about a year, but there is almost always one thing or another that I disagree with him on.

July 10, 2009 12:52 PM

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DDT said…
I have no opinion on the veracity of Mr Maudlin. However, the deflation debate is important independent of that.

There is rising evidence that economist are captive of larger forces (their employers), and have been “forced” to conform to out-moded theories, namely Friedmanism and Kensianism. These two economists disagree on most things, but agree on the basic idea that the government creates money and the banks dutifully multiply it.

The evidence is that the banks do whatever they want, and the Fed has to play catch up by printing (or borrowing) the necessary reserves later. What this means is that bankers are free to create a credit bubble of any size, and the Fed is powerless to stop or moderate any of it. The banks have been blowing this bubble for over 30 years, and piled up at least $40T in private debts.

We simply cannot afford to service that much debt, let alone keep adding to it. So we either default (really bad) or pay it down (bad). Deleveraging $40T down to $15T (1 times GDP) at 5% per year will take 19 years.

Unfortunately that brings the babyboom retirement wave into play where we essentially have to repay another $13T at the same time.

This extends the repayment to 25 years.

This repayment comes at the expense of all GDP growth, and perhaps even causes GDP reduction, making the repayment that much more difficult.

All this is happening in a global climate that truly terrible. There is no one to come to anybody’s rescue.

Looking at the numbers (debt to GDP ratio), this could be worse than the Great Depression. WW II brought us out of that, but 70,000,000 deaths is a high price to pay for a little prosperity. WW III would probably be worse so lets hope we don repeat that part of it.

We allowed the banks to squander our future on nothing, and now we have to rebuild it the hard way.
(see Steve Keen’s web site for better explanation)

July 31, 2009 11:35 AM
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REIT Wrecks said…
DDT,…please. The deflation debate is important, but nobody – not anybody – from the Fed, to the CEOs on down to the traders, understood the risks they were taking. Your conspiracy theory gives everybody far too much credit.

There are no “larger forces” at work out there. It’s just Adam Smith’s invisible hand, fanning the flames of the profit motive. The Steve Keens of the world feed on misguided populism, not reality, and the longer you read that crap, the longer you will be kept in the dark by the real oligarchy.

July 31, 2009 8:38 PM

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Anonymous said…
Ever hear of LTCM? After LTCM, Wall Street understood that there were no risks: the government would bail them out as long as they went all in!

You can have deflation, or you can have a wrecked currency followed by deflation. Either way, the biggest asset bubble in world history is going to result in deflation. It is only a question of when. From a credit standpoint, we are certainly already there.

August 3, 2009 4:57 PM

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Anonymous said…
Isn’t it true that a large chunk of Japan’s debt just offsets their trillions of accumulated trade surplus? It seems to me that the Japanese government is acting as an intermediary between Japanese savers and US borrowers, taking a big exchange rate risk in so doing. I’ve never seen a good explanation of how they manage these reserves and what the consequences would be for the Japanese economy of a big drop in the dollar. Anybody have a link to something a non-banker can understand?

August 6, 2009 2:15 AM

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Anonymous said…
The major flaw in your reasoning is that you focus only on Govt debt. The total amount of private debt, many times bigger, will tell you a different story and support Mauldin’s forecast.

August 20, 2009 2:55 PM

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Anonymous said…
I just do not understand how can there be inflation with credit contraction… wasn´t Friedman who said that inflation is a monetary phenomenom? so if credit contracts (the net of private and public credit) the broad meassures of money supply will contract as well (even if the MZM expands) making GDP to contract and making the inflation scenario less likely….

August 25, 2009 9:43 AM

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REIT Wrecks said…
Anon number 1, re: major flaw. Your comment indicates that your understanding of private debt is not complete; right now, it is not relevant to the inflation/deflation debate.

Anon number 2, interesting point. However, the government is filling the void with low interest rates and PPIP deals to buy bad debt. Banks are being recapitalized by gushers of gov’t funded liquidity, and low mortgage rates are being subsidized by a near zero fed funds rate and open market purchases of RMBS and CMBS. How about cash for clunkers? Credit is out there, and it’s your tax dollars at work! The question is, who will pay it all back…inflation is the easy, inevitable way out.

Cheers, REIT Wrecks

August 25, 2009 3:19 PM

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Anonymous said…
How can private debt be “irrelevant” to the inflation/deflation debate? The banks are being backstopped by the Federal government because of bad private debt, and private debt is actually being converted into public debt. The two seem inextricably tied.

Private debt seems very relevant, both directly and indirectly.

September 24, 2009 10:24 PM

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Anonymous said…
From the banks’ standpoint: Bad private debt is what’s causing their problems. And as long as there is so much bad debt to address, the banks will be unwilling/unable to lend. They’re worried about remaining solvent and surviving.

From the consumers’ standpoint: Private debt hangs over their heads, causing them to retrench, pay off the debt and save. Bad private debt also includes the growing number of mortgages will continue to go bust. Thus, private debt is a drag on the consumer, who will not borrow or spend like he/she used to.

So you have banks who don’t want to lend, and consumers who don’t want to borrow. That means no velocity, which directly affects the inflation/deflation issue.

September 24, 2009 10:33 PM

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Kimo said…
I find it strange that a comparison of the differences between Japan’s economy and ours has no mention of exports. Is it irrelevant to your discussion, or just inconvenient?

And discussions of inflation and deflation are not very useful without mentioning time frames. Am I to conclude you see no deflation in the short, medium, and long term?

And finally, the voracity of your, err, commentary suggests you have some skin in this game. True?

November 9, 2009 2:12 PM

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Anonymous said…
REIT Wrecks said: “Your comment indicates that your understanding of private debt is not relevant; right now it is not relevant to the inflation/deflation debate.”

Wow! You’re so far out in the weeds I need a tow truck to pull you out.

Just stumbled across this site and won’t be coming back after a comment like that!

November 20, 2009 10:29 AM

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REIT Wrecks said…
Kimo – no skin in the game per se, though I do own commercial real estate and wouldn’t mind a little inflation. The “voracity” you detect relates to my dislike of conflicts of interests. You wouldn’t believe the number of emails I got on this post – people are sick of being sold to. I may be wrong, but at least I’m not paid on commission. Most people just want the facts, and from that they can draw their own conclusions.

Anons, collectively, re private debt. One or all of you may be referring to debt deflation, which is a convenient theory, but it’s not happening. It’s absolutely true that private debt is a drag on the economy, but it can’t be “monetized” by governments like public debt can. Public debt monetization would quickly create conditions conducive to inflation, not deflation.

Significantly, for private debt to be a real factor in the deflation debate, investors of all stripes need to sell private debt, but they just aren’t doing that. Credit card companies are closing accounts yes, home equity lines are being shut down and credit is difficult to obtain, but existing credit is not being liquidated en masse, and when it has been put up for sale, it is quickly snapped up by eager buyers – read my post “Billions, Literally, Chasing Distressed Commercial Real Estate” for just one example.

Commercial real estate debt is not the only form of credit catching a bid. For private debt to be a real deflation factor, the offer needs to overwhelm the bid, and right now just the opposite is happening.

Cheers, REIT Wrecks

November 29, 2009 7:37 PM

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Steven said…
I believe that what the US government (and other govt’s that have followed in their footsteps) has been doing to do to attempt to “improve” the economy is very irresponsible and wreckless. It has wasted trillions of dollars bailing out creditors and shareholders of failed institutions with broken business models rather than addressing the structural flaws in the system of too much debt. And this is going to lead to massive problems down the road with regard to our currency and interest rates, in my opinion. And I think that the gold price breaking out to a new high is a strong indication of the reduction in faith and confidence that people have in governments and their fiat currencies. I recently read several good articles at http://www,.goldalert.com that discuss the Federal Reserve’s easy monetary policies in order to try to prevent any sort of deflation from occurring and to try to reflate assets prices. One I found particularly interesting is called “Gold Price Cheaper Now than at $300 – Hathaway”. I think these articles are very helpful for any investor to read because they help to explain the investment implications for the dollar, the gold price, and gold mining companies who I think will continue to benefit from central banks’ inflationary programs.

December 10, 2009 9:44 AM