Deflation/Inflation- Any Economics Nuts Out there wanting to swap ideas?

Here's a post from a forum at the mises site. This stuff matters, a LOT as far as where to focus your efforts AND what to do with your cash. After spending way too much time on this stuff, my opinion is that we will see deflation in the USA, at lease for a few years. the upside is, if you have some cash or a decent cash flow that won't go away, your money will go farther. downside, continued deflation spiral.
As the gov't ramps up printing, we will see inflation down the road.

Anyone interested in swapping ideas of how to ride this out?
What products to focus on, besides money-making info products?
What investments to go into?
Etc.

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Earlier this week I posted my thoughts on inflation and deflation on this blog. I got a lot of good responses and others confused and contrived. Posting it allowed me internalize my thoughts and hear others opinions and piece the whole issue together. After a week of review, I sent the revised piece below to a friend of my families (that was the intent all along). He started 30 years ago with about $10,000. He now is worth over $100,000,000. I've never met any human with a handle on economics like this man, he has constantly predicted the future regarding politics, oil, gold, all commodities, real estate, stock market, collectibles, etc, he is truly amazing. He turned me onto to Mises theory of economics. I didn't want to send him a half baked email so I posted my thoughts here and on a few other blogs. I sent him my final copy last night, and when I woke up I received a response from him that said, 'Ryan, you've got it, I wouldn't change a single word'. If any of you are self made multi millionaires by way of investments as a result of understanding economics your opinion would be considered, everyone else, including me is really not important, as they say, look at the scoreboard. Truly when it comes to economics what else matters? Professors, students, and the like may have it in theory but this man has year after year increased his net worth considerably by way of his knowledge. I share this with you to help you all understand the future and nothing more, it's not a contest, I know none of you, and I stand to benefit nothing. I like the truth; I hate the confusion, so here's a light in the darkness.

Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4 The misinformation and confusion disseminated by financial newspapers and TV programs is astounding. Glen Beck of Fox news recently had an aggressive piece on the US dollar becoming worthless from the coming runaway inflation. Mr. Beck like most everyone at CNBC is going bonkers over the issue of the Federal Reserve printing money and the supposed inflationary Armageddon. It seems to me they don't understand what they are talking about because they only tell half of the story. CNBC arguably the biggest financial news program by viewership affectionately calls itself, 'the best of the best' or 'the only business network that has the information and experience you need'. Every day on their program they have guests and panels of so called, 'market mavens' or 'experts' overwhelmingly spewing misguided information which is nothing more than self serving spin.



My personal favorite was a prediction CNBC made in December 2008. Larry Kudlow, one of their pundits said, 'we are now officially in a recession and now we know it began one year ago'. What? I almost fell out of my seat. Let me get this straight. Larry Kudlow and 95% of their featured 'experts' and pundits were proclaiming we were avoiding a recession. They claimed the stock market was going to stay flat and have moderate growth. They also said we would have a 'soft landing' in real estate, remember that phrase? If you watch CNBC I hope so as they said it about 30 times a day for a year. During this time the Dow Jones Industrial Average decreased from 14,000 to 8,000 a loss of more than 40% in just over a year. Every day they had several different people on the tube talking about the soon resurgent bull market. Again this is a network that calls themselves, 'the best of the best' and 'the only business network that has the information and experience you need'. After seeing the result of their predictions those tag lines could be used in a comedy routine. Actually Jon Stewart of Comedy central has done just that, he made a joke out of it. Another glaring example is one of CNBC's most popular talking heads Jim Crammer. He proclaimed that Bear Stearns stock was not only a hold, but a great buy at 60 dollars per share. This was one week before it went completely out of business and to 0. This brings me to the reason for my letter. I'd like to clear up a wide pervading misconception that most news organizations are creating, the concept of inflation from the printing of dollars. It's astounding to me that there isn't a single person anywhere on TV or in the Main Stream media that's getting this issue right and moreover not giving other viable alternative outcomes. Perhaps the main problem is most people have no idea how money is created in our system.



Let's first look at few definitions.



Monetization - the third definition is most important and what causes inflation, 1 and 2 mean nothing without 3.

1. To establish as legal tender.

2. To coin (money).

3. To convert (government debt) from securities into currency that can be used to purchase goods and services



Inflation

1. The act of inflating or the state of being inflated.

2. A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.



Deflation

1. The act of deflating or the condition of being deflated.

2. A persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money because of a reduction in available currency and credit.



Monetization is a key aspect to understanding the issue of inflation. If the TV pundits wanted a logical discussion they would put more focus on concept of monetization, not how much money is being printed. The government can print all the money it wants but doesn't mean runaway inflation, a sinking dollar or monetization. In fact deflation could take hold for 10 years and the result would be the opposite of inflation. If the money being printed does not get into the hands of the consumer, it is not inflationary or monetized. Banks do not loan money to people who are broke, have too much debt, and those whose homes are worth less than their mortgage, it doesn't happen. Right now our country and world are witnessing amounts of money being destroyed by massive decreases in the price of everything like we've never seen before in history. Here are two important facts. Debt destruction is money destruction and credit is money or purchasing power. Credit is how 95% of people buy homes, cars, even food and where has the credit gone? Money and credit are synonymous. When credit is revoked or decreased and debt payment slows and/or stops money dies and deflation ensues. Many of my friends have seen a decrease in their credit offered from their home equity lines, and their credit cards. Some people's available credit has been shut off altogether! The increase which was inflationary has already happened, the pundits are 15 years late! Did the properties in your neighborhood triple from 1995 - 2005? Why did they? It's interesting we hardly heard a peep about runaway inflation or a collapsing dollar until now!? We were in a huge inflation due to the biggest housing, stock market, and commodity bubble in history yet now that it's over, we hear about inflation ad nauseam? Reference the attached chart to view what true monetization looks like to see what creates inflation. This IS NOT what's happening today. Today banks are not lending anywhere near the level they lent in the past so outstanding debt is falling as people/companies gradually repay their loans or default on them. This contracting of outstanding credit as I have detailed above leads to deflation as money is destroyed. Even when debt is repaid deflation ensues if banks aren't lending it back out, which they are not. Banks need to expand credit for inflation to actually kick in and you do not see that happening to any level as seen in previous years but all of a sudden we are screaming inflation now? I'm scratching my head. We know from the snippet of information I detailed above that financial pundits being wrong it is not an abnormal concept, it's a common theme! Right now if you have any US dollars the buying power of those dollars are getting stronger, meaning you can buy more today at a lesser price than last year, therefore, we are in a deflation, NOT inflation. The dollar index has soured over the past 6 months. Dollars may be on the presses but they are not going back into the hands of spenders. The money is going to the banks, who then in turn hoard it, and buy treasuries. Our credit is shrinking, jobs are shrinking, net worth's are shrinking, and taxes are on the rise. This is not inflationary!!



Again, inflation is what took place over the past 10 years ending just a few years ago when the Federal Reserve, (a private banking cartel who will not tell us where our bailout money is going) printed money and pumped it into our hands by lowering lending rates at breakneck speed. At the same time lending standards became non-existent allowing everybody and their brother to borrow money to buy just about anything they wanted from cars, homes, collectibles, jet skis, etc. Prices went to the moon and this is called INFLATION. Please re-read the definition of inflation and tell me without borrowing or increasing credit how we can have inflation? The media is wrong. Visit this link greatdepression2006.blogspot.com/2007/08/famous-quotes-from-past-revisited.html and read what the mainstream media, government officials, those akin to Warren Buffet of that day, and the Harvard Economic Society who was the CNBC and Wall Street Journal of the 20's and 30's had to say. They got it wrong. They said everything was great just months before the greatest stock market crash in history when the market fell 80%. Nothing has changed today with information except for maybe a faster medium to disseminate it namely Internet and TV.



Let's look at an example. Say the year is 2000 and you borrowed $1,000,000 dollars to buy a house. If that house is now worth $500,000 because it dropped 50% what happened to the $500,000 of that loan which no longer has worth? It's gone, that money/credit doesn't exist as we explained above. This decreases the credit supply, which decreases demand, which causes prices to fall. Again debt destruction which is what's happening now, it's not inflationary, it's deflationary. The newly printed money IS NOT going into the hands of homeowners at anywhere near the pace it did in the past 15 years, which is why printing is not monetization, inflationary, or going to devalue the dollar. Again, if it was devaluing the dollar why has the dollar been up against just about ever currency in the world over the last 6 months? It's not devaluing the dollar, that's why. Could we have runaway inflation at some point way off in the future, sure but first we are going to have a massive deflation and depression. Let's look at it this way.



Say you have $1,000,000 dollars in cash that gets burned in a fire. That money is obviously no longer in the system because it's been turned into ash. Therefore if another $1,000,000 is printed and monetized (put into the system or in this case you're hands) to replace that ash, is that inflationary? Does it cause prices to rise; does it make the existing dollars worth less? NO it does not. More importantly today we may be printing that million dollars but were not loaning it therefore we are not even replacing that lost million dollars. We may be creating more money but it's not going back into that house to replace that burnt money, it's staying with the banks therefore it's NOT INFLATIONARY and NOT MONITIZATION!



In summary it amazes me how many have no idea what their talking about. Most people get their information from the same source and just dress it up differently, think about that for a moment. Where do all these people get their info? Their all reading the same stuff. Inflation is what we had over the last 15 years except the last couple maybe. Today people are going broke faster than ever before in history, jobs are being lost faster than the Great Depression, loan defaults are also breaking records, banks are loaning at a fraction of what they were and people have no extra cash. All of this is a textbook definition of Deflation but the TV is calling for runaway inflation, I'll be damned. I'll leave you with this logic to better explain why printing money does not necessarily mean inflation. A punching motion can cause a facial injury, but a punching motion is not a facial injury. A facial injury is not the cause of punching motions. Likewise money supply inflation (printing money), can cause price increase, but money supply inflation is not price increase and price increases are not the cause of inflation. Cause causes effect, cause is not effect. Dollars are scarce, which is anything but inflationary. It's the concept of supply and demand. If people have little or no cash, there can be no demand, therefore prices drop and you have deflation.