Will we ever get durable deflation again? Or will grandma keep getting sucker punched at the check-out lane. Forever. Last week I joined Kevin Paffrath -- MeetKevin on Youtube -- for a wide-ranging interview about the economy and freedom. During our chat, he asked about an ongoing beef between George Gammon and Cathie Wood about whether massive deflation is on the horizon.
When I launched my hedge fund in 2011 my thesis was that ZIRP was intentionally "sucking the air out" of yield so the TRILLIONS on the sidelines would be deployed to avoid purchasing power erosion.
Asset bubble would become the largest of all time.
The thesis played out, now they are trying to build castles further into the sky.
I do wonder about your "we will never again see durable deflation"
...what if the Central Banks are closed?
What if we "return to the standard" but create a basket of Gold, Platinum, Bitcoin, Lithium and other metals that have techno-industrial applications?
Agreed we need to stop the CBs from printing all future value NOW, so they can transfer to their asset bases... they are stealing from current and future savings to have a nice life now.
so after 7 decades in the good old usa, I have yet to c prices deflate. gasoline fluctuates. but not most items. the pandemic made it front and center for a lot of folks. re: AI: once again a few will receive all the money benefits. thats just how we roll.
The Fed's only power resides in it's ability to inflate. Nobody wants to give up power. Not even for the betterment of the people. I believe the fed always knew there was an end game. They are the buyer and lender of last resort, after all
For the first time in history, holders of AAA Sovereign debt (considered to be bedrock long term holdings) are sitting on losses albeit hidden in a basket called marked to maturity. These holders are the Fed, SS, Pension funds and banks. Do you think this would give the Fed pause when it comes to printing? Who is going to make these bond holders whole again? Bond values have eroded specifically due to the Fed printing. The high in US bond futures was 191 in 2020 and today its at 120. Would new buyers be attracted to this market if the Fed's only solution is to print and print some more? Interest on the debt has risen sharply at a time when the dollar is losing its world reserve status. Why would new buyers be attracted to bonds?
Prof. Onge: why would the bond market not collapse out of sheer weight of the trillions in debt coming on stream? In the last 3 years, bonds lost 40% of principal value in the secondary market. The holders of long bonds are sitting on principal losses currently. Even the Federal Reserve has historical $1 trillion in unrealized losses. Coupled with banks, pension funds etc, these losses are in the trillions. How would they be made whole again if the Fed continues printing. IOW, the Fed cannot print its way to prosperity. Those losses have to be reconciled at some point. And printing with abandon or to soak up the excess deflation, will only scare bond buyers and result in erosion of value. Please explain why I might be incorrect.
Thanks for being a sane voice of reason on the web.
Fascinating Peter.
When I launched my hedge fund in 2011 my thesis was that ZIRP was intentionally "sucking the air out" of yield so the TRILLIONS on the sidelines would be deployed to avoid purchasing power erosion.
Asset bubble would become the largest of all time.
The thesis played out, now they are trying to build castles further into the sky.
I do wonder about your "we will never again see durable deflation"
...what if the Central Banks are closed?
What if we "return to the standard" but create a basket of Gold, Platinum, Bitcoin, Lithium and other metals that have techno-industrial applications?
Agreed we need to stop the CBs from printing all future value NOW, so they can transfer to their asset bases... they are stealing from current and future savings to have a nice life now.
Great write-up Peter.
Good stuff per usual, and safe travels to Orlando. There are a few typos above you may want to get fixed
Prices are deflating if your currency is Bitcoin
"...until either the dollar dies or the Fed dies..."
My vote is for the Fed to die. You can't fight the Fed, but maybe you can kill the Fed.
Curious on your takes on what will happen when innovation starts to massively increase unemployment?
But why do the central banks do this for good deflation?? You did not address that.
so after 7 decades in the good old usa, I have yet to c prices deflate. gasoline fluctuates. but not most items. the pandemic made it front and center for a lot of folks. re: AI: once again a few will receive all the money benefits. thats just how we roll.
The Fed's only power resides in it's ability to inflate. Nobody wants to give up power. Not even for the betterment of the people. I believe the fed always knew there was an end game. They are the buyer and lender of last resort, after all
We can borrow money faster than value can be created!
For the first time in history, holders of AAA Sovereign debt (considered to be bedrock long term holdings) are sitting on losses albeit hidden in a basket called marked to maturity. These holders are the Fed, SS, Pension funds and banks. Do you think this would give the Fed pause when it comes to printing? Who is going to make these bond holders whole again? Bond values have eroded specifically due to the Fed printing. The high in US bond futures was 191 in 2020 and today its at 120. Would new buyers be attracted to this market if the Fed's only solution is to print and print some more? Interest on the debt has risen sharply at a time when the dollar is losing its world reserve status. Why would new buyers be attracted to bonds?
Prof. Onge: why would the bond market not collapse out of sheer weight of the trillions in debt coming on stream? In the last 3 years, bonds lost 40% of principal value in the secondary market. The holders of long bonds are sitting on principal losses currently. Even the Federal Reserve has historical $1 trillion in unrealized losses. Coupled with banks, pension funds etc, these losses are in the trillions. How would they be made whole again if the Fed continues printing. IOW, the Fed cannot print its way to prosperity. Those losses have to be reconciled at some point. And printing with abandon or to soak up the excess deflation, will only scare bond buyers and result in erosion of value. Please explain why I might be incorrect.
Thanks for being a sane voice of reason on the web.