Posts Tagged ‘inflation or deflation’

Video: Go Become a Farmer; Stock up on Whiskey

2009, March 4

Jim Rogers on Australian TV.
H/T to Richard Spencer.

Business Week Facetime February 26, 2009: “Jim Rogers Doesn’t Mince Words About the Crisis”

Are you worried the economic crisis will lead to political turmoil in China and elsewhere?

I absolutely am. We’re going to have social unrest in much of the world. America won’t be immune.

What does all this mean from an investment standpoint?

Always in the past, when people have printed huge amounts of money or spent money they didn’t have, it has led to higher inflation and higher prices. In my view, that’s certainly going to happen again this time. Oil prices are down at the moment, but that’s temporary. And you’re going to see higher prices, especially of commodities, because the fundamentals of commodities are enhanced by what’s happening.

Which commodities are worth buying or holding on to?

I recently bought more of all of them. But I really think agriculture is going to be the best place to be. Agriculture’s been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things [will be on top]. You’re going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they’ll be working for the farmers. It’s going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that’s where the money’s going to be in the next couple of decades.

John Williams of


Audio: Inflation or Deflation?

2009, March 4
From CommodityWatch on August 24th, 2008 (In association with Minesite. com), presented by Dominic Frisby:
Inflation or Deflation? Part 1
James Turk of Goldmoney;
Mish Shedlock of Global Economic Analysis;
and Michael Hampton of Global Edge Investors.
From CommodityWatch on September 1st, 2008 (In association with Minesite. com), presented by Dominic Frisby:
Inflation or Deflation? Part 2
Bob Hoye of Institutional Advisors;
Dr Marc Faber of GloomBoomDoom.

H/T to Mike Shedlock.

Total Fiat Money (& Credit) Deflation Model – Mish

2009, February 22

Mike “Mish” Shedlock (Sitka Pacific), Global Economic Trend Analysis:

I don’t agree with some of his attitudes – for example: “Fiat Money” is backed not by a physical commodity, but by trust – one of the most precious forms of social capital, foundational to all human relationships and behaviour. “My word is my bond” is not backed by a physical commodity, but by trust – that hardly means it’s not worth anything. The fact that the States of Weimar and Zimbabwe betrayed that pooled trust, is symptomatic of a complete bankruptcy (literal and figurative) of trust and the social contract or order in those states. A kind of bizarro mirror-image is Kim Jing Il’s refusal to let his subjects use “fiat” (or any other) money until recently – a totalitarian, sociopathic Scrooge McDuck’s hoarding of all trust and exchange to himself.

I think that money is a measure, a bit like inches – a meter would still be a meter even if that rod in Paris was not there to physically back it. Money is a relative measure of all other goods that operates more like a daily index or telephone exchange that transmits messages. I can see how the system can be rigged and devalued, but don’t see that it’s value needs to derive from only one physical good.

The attraction I see with gold is that it has no counterparty risk: it’s unforgeable and limited, though fungible, so the social value derives from the trust itself derived from gold always being gold, and being limited as is trust, but also being transferable and dividable.

But I think the following is a really clear and succinct summary of what is happening – something absolutely missing from all the talking heads. He puts into relatively rigorous and logical terms that metaphor of the growing pile of money the banks are storing in case they need to plug those growing “black holes” of collapsing credit. It is also a useful way to navigate all the different definitions of inflation and deflation, and their resultingly different conclusions, I think:

Fiat World Mathematical Model

Fm = Fb + MV(Fc)

Fm = Fiat Money Total
Fb = Fiat Monetary Base
Fc = Fiat Credit, the amount of credit on the balances sheets of institutions in excess of Fb

MV(Fc) is the market value Fc

Inflation is an expansion of Fm
Deflation is a contraction of Fm

If only base money was lent out (no fractional reserve lending), MV(Fc) would equal zero. The equation ensures we do not double count credit in Fm.

MV is a function of time preference and credit sentiment (ie. Belief that one can be paid back). As long as that belief was high, banks were willing to lend.

Because (at the moment) Fc (credit) dwarfs Fb (base money), the system can only hold together as long as there is belief credit can be paid back and as long as there are not defaults. Needless to say, the perceived belief that Fc can be paid back is under attack, both by rising defaults, and by sentiment. That is why MV(Fc) is collapsing.

In other words, the mark to market value of credit is contracting faster than base money is rising.

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