From what Neville has highlighted this is all deflationary(less money around). If commodities rise from here it will not be demand driven but by fear of US currency crashing which will lead onto social problems in the setting of falling wealth.

Krugman thinks inflation is not a consideration. if 13 trillion lost and 2 trillion printed the black hole gets filled up a little but the hole is still there.

It will be interesting to see how this plays up.
?Welcome stagflation

Neville/Bernard your thoughts on this?

Neville - nice piece, many salient points. Almost all of what you describe is deflationary in nature and there is a fair bit of evidence to back that viewpoint up. My question is - what happens when the deflationary effect of deleveraging collides with the inflationary effects of resource depletion? My understanding from your previous missives is that you are aware of our looming liquid fuels crisis - I reckon 2012 is when it will start to really heat up.
The key moment is not so much when we are past peakoil production (some claim with a deal of justification that the global peak happened for crude oil in the period 2005-2008), but is rather when recessionary effects are no longer capable of knocking demand below supply (as happened in 2008-present), because the latter is falling at a greater and increasing rate. We are not there yet but we are getting close....

Mish on inflation

An Austrian Economic Definition Of Inflation

In Austrian economic terms inflation is a net increase of money supply and credit and deflation is the opposite, a net decrease in money supply and credit. In those terms we either have inflation or we don't. Prices simply do not fit into the equation.

Not all those calling themselves Austrian economists would agree with that definition. Some consider money supply only. But even by that definition, we either have inflation or we don't.

The notion of inflation and deflation at the same time is a widely held belief based on brainwashing by the Fed about what inflation is. If everyone realized inflation involved money supply, the Fed and Central Bankers would not be able to lie through their teeth about being "inflation fighters".

Once you realize that inflation involves money supply, you must come to the realization that the only source of inflation in the world comes from Central Bankers. Unfortunately, the media has bought the Fed's "inflation fighting" mantra hook line and sinker by talking about inflation as if it was prices.

Yes prices of some thing can rise while others fall. However, that will ALWAYS be the case from now until eternity. This makes the seemingly powerful statement "we have inflation and deflation at the same time" cute, but meaningless nonsense.

Fiat Mathematical Model

Those who model the world in terms of money supply only, ignoring credit, have missed the boat big time. They have been looking for massive "price inflation" for years pointing out the huge printing by the Fed.

Yes, in isolation, printing is inflation. But its effects are nonexistent when credit, marked to market, is plunging at a greater rate as is the case now. I talked about this concept in detail in Fiat World Mathematical Model.

The Fed and Central bankers, try as they might, simply have not been able to force banks to lend or consumers to borrow. For a real eye opener, take a look at the five charts in US Consumer Credit Shows Steepest Contraction in Over 5 Decades.

Those calling for higher prices because of all the printing blew the call and those looking only at prices to begin with were not even in the boat.

In a credit based economy one must take credit into consider first and foremost to have a chance at getting the global picture correct.

Where's the Inflationary Beef?

The answer is: There is none, nor will there be any unless the Fed can coax banks to lend or consumers to go on another huge spending spree.

With alternative measures of unemployment over 16%, with an unprecedented 4.4 million workers have been unemployed and looking for work for 26 weeks or longer, with 1.5 million unemployed on the verge of expiring over 52 week of extended unemployment benefits, and with home prices crashing and $trillions in imaginary "wealth" wiped out, pray tell what is the likelihood of consumers going on a huge shopping spree?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com/2009/08/misguided-worries-abo...

Quite right Neville, it's a nation coming to the end of its days. Right, stuff the USSA, let's all learn Mandarin and get with the kowtowing to our new masters in Beijing. How about that paragraph "A long era .... Saving plunged and borrowing skyrocketed, ended in disaster; vast numbers paying a high proportion of their income to service debt and mortgages. Many homes have fallen in value and have been repossessed" ( edited version) oh yeah that's us all right.
Best way out of this mess is to avoid debt, invest in commodities and stash your cash before the crash. Keep a wary eye out for thieving taxes set to bleed the place dry.
Best of all, join the bludgers in Parliament and get to wallow in the pig trough full of stolen peasant wealth.

For all you commodity bulls,caution.

http://bloomberg.com/apps/news?pid=20601072&sid=aox.KsSOudpA

Andrewj

Excellent links and quotes! Yes Mish has a great understanding of what's really going on and who's behind it. Unfortunately most people have been brainwashed by mainstream thought which isn't altogether their fault. But If people asked why enough times they will find the answers.

Follow the white rabbit...

Im going to scare the cr*p out of you

http://www.prudentbear.com/index.php/thebearslairview?art_id=10258

The same is true in Britain also, where even in the face of a recovering economy, the Bank of England has added another 50 billion pounds to its monetization of the British budget deficit, taking its total to 200 billion in less than 6 months. Even taken over a year, the bank is now monetizing over 30% of British public spending, or 13% of Gross Domestic Product (GDP). Over the last six months, it has monetized 60% of public spending. That's a higher level than the 50% monetization of public spending undertaken by the Weimar Republic in 1919-23 and the result will be the same.

In Britain's case, the Bank of England seeks a quiet life from the current government, which is on its last legs and facing a General Election within a year that it is very likely to lose. In the U.S. case, Bernanke wants to get his Fed chairmanship extended beyond January 2010 from an administration that did not appoint him. In both cases, a sloppy monetary policy that devastates savings, rewards shysters on Wall Street and eats away at the foundations of the economy is by far the most popular course. Paul Volcker, the only chairman in Fed history to run an adequately tight monetary policy, is well respected and indeed included in the Obama administration, but his advice, sound on most matters, is conspicuously ignored.

The next bubble?
http://www.bloomberg.com/apps/news?pid=20601039&sid=a04oVutXQybk
Widening Gaps

The disparities in those banks' loan values grew as the year progressed. Bank of America said the fair-value gap in its loans was $44.6 billion as of Dec. 31. Wells Fargo's was just $14.2 billion at the end of 2008, less than half what it was six months later. At Regions, it had been $13.2 billion.

Other lenders with large divergences in their loan values included SunTrust Banks Inc. It showed a $13.6 billion gap as of June 30, which exceeded its $11.1 billion of Tier 1 common equity. KeyCorp said its loans were worth $8.6 billion less than their book value; its Tier 1 common was just $7.1 billion.

When a loan's market value falls, it might be that the lender would charge higher borrowing costs for the same loan today. It also could be that outsiders perceive a greater chance of default than management is assuming. Perhaps the underlying collateral has collapsed in value, even if the borrower hasn't missed a payment.

......and not to forget the damage and $ Millions/ Billions of repair & reconstruction costs from natural disasters caused by climate changes.
I think in stead of creating a cycle way and other similar projects (I was in favour a few months ago) we better make plans and take actions to protect life's, the land and infrastructures.

Excellent article Neville, thanks. Don't we live in interesting times!?

Wasn't it Harry Truman who said something along the lines of, 'We have 40% of the world's resources, and 4% of the world's population, and our job is to keep it that way.'
Can the recent economic history of US possibly be explained as much by their starting to run out of resources as by the whole credit thing? I believe so. What the availability of cheap credit did perhaps was to extend the period of denial. The manipulated high value of the $US, mainly through its role as reserve currency, did not help either.

Why are we arguing about the definition of inflation?

A give you this from a Kiwi of action and credibility from who we should all take a lead.
Bryan Gould
In 1962, a Rhodes Scholarship took him to Balliol College, Oxford, where he completed a post-graduate law degree, the B.C.L., with first-class honours. He joined the British Diplomatic Service in 1964 as the top entrant of his year and served in the Foreign Office and the Brussels Embassy......In 1974, he was elected to the House of Commons as Labour MP for the marginal seat of Southampton Test. He was appointed Parliamentary Private Secretary to the Rt. Hon. Peter Shore MP. On losing the seat in the 1979 general election, he joined Thames Television as a presenter and reporter on the nationally networked current affairs programme, TV Eye...........He returned to New Zealand in 1994 as Vice-Chancellor of the University of Waikato. He chaired the New Zealand Vice-Chancellors' Committee for two years. He is Chair of the National Centre for Tertiary Teaching Excellence and has been appointed by the Ministry of Research, Science and Technology as a Mentor to a newly formed group of younger social science researchers - He Waka Tangata. On stepping down from the University in 2004, he was made a Companion of the New Zealand Order of Merit and in 2006 was awarded an Honorary Doctorate by the University of Waikato. He chairs the Foundation for Research, Science and Technology and the New Zealand National Commission for UNESCO.
http://www.bryangould.net/id11.html

WHO CONTROLS THE BANKS?
(middle paragraph most relevant to this thread)
"It has always been a mystery that the banking function "“ which in macro-economic terms means essentially the creation of credit and therefore of money "“ should have been allowed to develop in private hands. The banks have avoided scrutiny on this issue, first by (improbably) denying that they create money, secondly by arguing that the function is in any case so important to the economy that it would be too dangerous to disturb it and finally by maintaining that only they have the expertise to discharge the function anyway - and all this at a time when the prevailing orthodoxy is that the most important factor in economic management is the rate of growth in the money supply, so that the banks' central role in the creation of credit "“ the most important single factor in the excessive growth in the money supply "“ has an additional and unmistakeable macro-economic impact.

What the recession has demonstrated is that none of these defences can stand. The first stage of the financial crisis was largely one of liquidity and arose because the banks' (supposedly non-existent) ability to create credit was brought to a halt. This required government intervention on a massive scale "“ so much for the argument that the bankers' role should not be disturbed "“ and this in turn showed that it was not the bankers' expertise (which was manifestly in very short supply) but government resources that underpinned the banking function.

So, if the public has an intense interest in the proper discharge of the banking function, and the last-resort guarantor is the public purse from which billions of our money have been spent, why are we content to allow the private oligopoly to proceed on its merry way and to decide in their own interests issues that matter to all of us and that should be placed under democratic control? Why would we not consider some form of public ownership (we have, after all, paid many times over for banks that were virtually worthless) or, at the very least, a degree of effective regulation to ensure that the public interest was protected and that the banking function served that interest rather than private greed?"
http://www.bryangould.net/id94.html

John Kelly: In those days the USA was a net oil exporter....now its crippled...it cant police the entire world ensuring raw materials and $s come to it....though under Bush and Chenay it seems that was the plan....swap soldiers and foreign civilians lives for energy....great plan if you are amoral I guess.

regards

Give us your full name and background Steven and somewhere we can verify it. Personally I never take as gospel the word of anyone who is not prepared to disclose their full identity in order that a character analysis can be achieved.
All those alternatives you note were oh so successful. England is a basket case, if you had of implemented the credit reforms Bryan Gould promotes it would not be where it is today. He was right te be against all the bankers puppets you mention.

Thank you for finding the time to put this interesting information together. I'll definately bookmark your website to revisit again. Maintain the nice work.