Tuesday, Jul 06, 2010
A slow decline
Telegraph: With the US trapped in depression, this really is starting to feel like 1932
'The US workforce shrank by 652,000 in June, one of the sharpest contractions ever. The rate of hourly earnings fell 0.1pc. Wages are flirting with deflation.'
Posted by hpwatcher @ 08:15 PM (1724 views) Add Comment
17 Comments
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1. hpwatcher said...
Good comment pasted:-
I am sick of people pushing "Deflation", what the US is suffering is NOT deflation (a monetary phenomenon where the value of currency rises relative to the value of goods and services) it is a Devaluation (where the price of overvalued goods and services fall to a level closer to their real market value). The Federal Reserve made money cheap by lowering interest rates and making loans to those with no real ability to sustain them long-term. Money flooded into the housing and financial markets producing artificial price inflation. Wall Street compounded the problem be producing fraudulent investment vehicles that reduced their exposure to the risk of default by passing it on to other investors.
ALL the politicians and banks are at fault, not just Democrats, Republicans, Labor or Conservatives. The Banks (Fed, ECB and BoE especially) created the problem to get the politicians the money to pay for the votes of their respective ignorant electorates, knowing that the debt cycle was running out anyway and the world economic system would need rebuilding in the near term.
The world's currencies are "Credit Money" not "Fiat Money", Governments create Fiat-money out of thin air, a practice which is not inherently inflationary or deflationary (that depends on the amount produced). Credit-money is where governments "Barrow" money, at interest, from the banks which themselves create it out of thin air. Credit-money is inherently inflationary because the banks get the interest (about 3% historically in the US) every year. In 33.3 years the value of the money borrowed has been returned but you still owe the principle AND the interest continues to pile up, causing you to borrow more, and more, and more, ad infinitum. Such a system is inherently unstable over time and will need to be replaced, but the controllers of such a system use it to obtain vast amounts of real wealth while the system works, putting them in a position to control what will replace it, and eventually, everything else.
Meanwhile, those who don't understand the system will fight each other like a pack of wild dogs, while the people at the top gather an ever larger share of the nation's, and indeed the world's resources for themselves and their friends. "Money" my friends, is a fiction, something that exists only in the minds of human beings. Money can, and has been everything from Gold and Silver to tulip-bulbs, carved rocks, sea-shells and darn-near everything else, because, for money to work we only have to believe it has value. Money just lets you trade your labor for another persons. A "Dollar" is just an idea, a "Pound" or a "Euro" or anything else is just something you believe in, not a law of nature. Until we all understand the problem, the problems will continue.
2. rumble said...
Nice post. "those who don't understand the system will fight each other like a pack of wild dogs, while the people at the top gather an ever larger share" and those who understand but aren't at the top sit around swearing.
3. hpwatcher said...
Here is a related video, from Chris Expose the Frauds, on you tube.
http://www.youtube.com/user/Exposethefrauds#p/u/0/n1VIwfqUSWg
4. hpwatcher said...
http://www.youtube.com/user/Exposethefrauds#p/u/0/n1VIwfqUSWg
5. mark said...
strange i posted the same article the other day.
6. hpwatcher said...
strange i posted the same article the other day.
It should have stopped me from posting it....perhaps the url changed.
7. uncle tom said...
The US economy had become unsustainable, and they had deluded themselves into thinking that huge budget deficits and trade imbalances were somehow OK.. (so did we..)
Their economy is now settling back toward a sustainable base, and while it is hard to be sure, I suspect it does not have much further to go..(unlike the UK..)
..putting faith in the printing press rather than balancing the books would be a dangerous strategy now.
They should not over-react to a small amount of wage deflation, but accept it as part of their economic correction. If it continues and gathers pace, then a little QE might be justified..
..but not yet.
The problem for the UK is that our situation is rather worse, except that we have a much larger proportion of the workforce employed by the state, and therefore more scope for making cutbacks.
We are however, still a long way from finding a sustainable base from which to recover
8. mountain goat said...
@1 I am sick of people pushing "Deflation",
I am sick of constant reminders that I will eventually get sick and die. But that doesn't mean that the forecast of my inevitable death is untrue.
Low interest rates, bailouts, QE, debt forgiveness and various other financial shenanigans have bought some time but not solved anything IMO. If you reject deflation then you presumably believe that the unsustainable/bad debt problem that surfaced in 2008 has been solved?
9. techieman said...
" If you reject deflation then you presumably believe that the unsustainable/bad debt problem that surfaced in 2008 has been solved?"
ReCaptcha: wasted breath [i am sorry to say MG].
Still the good news is markets are behaving quite well methinks. Did you see the http://www.elliottwaveforex.com/ . It looks pretty good to me. [I know that the flashman always had a go at EW but to my mind its always worked quite well on the currencies. leafs
10. mountain goat said...
TM yes I saw that, she seems to know her stuff.
Did you see Mr P
re wasting breath on Mr Inflation. Got to give the other side now and then. In case someone falls for the "low IR and hyperinflation etc so its pointless trying to save" propaganda that is sending people to financial ruin.
"Despite disagreements about the roots of higher consumer prices, many economists expect the Bank of England to keep interest rates unchanged until at least next year. The government’s austerity program, which includes a sales tax increase to 20 percent next January, means inflation could remain volatile.
“They should sound worried about inflation but also be mindful that there is a bigger danger, and that’s to increase rates when the economy is still low,” Mr. Gabay said. “If both consumers and the government save, things can turn ugly very quickly.”
New York Times
In other words the same old failed message from our financial leaders: Come on suckers your country needs you. Go out and spend, spend, spend, since the recession is nearly over, and with high inflation and low IR, saving is pointless.
Not saying as they should, deflation of the borrowing bubble is inevitable and if you have some savings left in a few years time, bargains will be your just reward once the housing and other pyramid schemes have unraveled a bit.
11. techieman said...
MG - just read it, but as you know, i know most of what he has to say. I suppose at the end of the day you believe what you believe and its all caveat emptor.
Its pointless trying to convince people that bury their heads in the sand but to be fair perhaps they say the same about us. As mr P says taking a cash stance means you are relatively safe, while investing in an inflation hedge... that doesnt materialise (eg shares) could be hazardous.
Looking for the wave 2 to get in (short) the 3rd of the 3rd of the 3rd.... keep an eye on Daneric
12. str 2007 said...
Hi techieman
You must be watching the S&P closely today after you EW link last week.
It's in the box, if a day late.
13. str 2007 said...
techieman
the link you posted to save you or anyone else looking it up.
http://2.bp.blogspot.com/_TwUS3GyHKsQ/TCz4mStS7DI/AAAAAAAAGIg/hmjfGPI1r0I/s1600/spx15
recatcha : our messiaer (really)
14. str 2007 said...
Hmmm
So much for that box, I think Estrader was closer the mark on that one 'onto 1070' as I recall.
15. techieman said...
hey str 2007 - no you are sort of missing the point. That chart was a 15minute chart (each bar 15mins) the pink iv did get back to 1042 i.e. in the range of 1035 - 1046 so it actually wasnt a day late. We then headed down again BUT did not break 1010 (the prior low) and therefore not 992.
The chart you post shows "looking for minute [i]".
However the real point is that once we have that [i] we then have [ii] - a bear market rally - and then [iii]. So the question now is where could the top of [ii] be to enable a short position to be taken - ASSUMING the [iii] comes next - thats generally the biggest move in the sequence.
The next hourly chart shows the update :
http://4.bp.blogspot.com/_TwUS3GyHKsQ/TDTvAglH90I/AAAAAAAAGPY/4R-sgPjpBUk/s1600/spx60.png
funnily enough the green box target area, stretches from 1065 to 1090. [so includes 1070 - but i cant remember seeing that, although that doesnt mean EST didnt say it].
You can read the whole lot and why that area is important here http://danericselliottwaves.blogspot.com/2010/07/elliott-wave-update-7-july.html
its the penultimate chart that i refer to above.
Looking at the FTSE - i think i said we would probably go back to both 5k on the ftse and 10k on the dow. Once we break 5k ftse, on the downside, that will probably be very bearish (although it might take a couple of goes - for examle if it breaks below that tomorrow i wouldnt neccesarily think that was it). Its about 5070 in after hours now and 10033 on the dow.
16. techieman said...
in fact an ideal target on the FTSE is 5160 for this counter trend up move. but we shall see....
17. str 2007 said...
Cheers techieman
Always fascinating, I'll have a look at those links and charts later, busy this morning.