This morning your editor writes from the Gold Coast. We’re here for the next few days to relax. And we’ll try our best not to look at financial markets.
Furthermore, we won’t pay any attention to the ‘mortgagee sale’ signs on the investment properties up here either.
But even so, we’re not relaxing too much. We’ve managed to sneak the lap top computer into our carry-on luggage without the missus spotting so we’ll write Money Morning from here until we’re back in Melbourne on Tuesday.
Anyway, on most mornings we like to flick through the Australian Financial Review (AFR). Only, we’re too tight fisted to buy our own, so we’ve only got yesterday’s copy with us which we read on the flight.
The headline that caught our attention was, “These days it seems inflation can be too low.”
Let’s be honest, it doesn’t surprise us to see such a ridiculous headline from the mainstream media. And neither does it surprise us to see Michael Pascoe blathering on again, calling on the expertise of Rory ‘Output Gap’ Robertson from Macquarie.
Before I go on, just a quick reminder on the Output Gap. It’s a nonsensical economic theory embraced by Robertson and the other cronies in the economic mainstream that states inflation (they really mean rising prices) is impossible when ‘actual GDP’ is below ‘potential GDP.’
We tore their theory to shreds a few months ago, but it’s still used by mainstream economists to say that inflation shouldn’t be worried about for another couple of years.
Pascoe doesn’t use the term Output Gap in his article, but that’s really what he’s implying when he writes:
“Our economy is still operating below capacity in most areas, so inflation for now is no big deal for the RBA.”
Pascoe then goes on to quote Robertson:
“The latest four year-to readings for the “trimmed mean” CPI are 4.7%, 4.2%, 3.9%, 3.6% and, today, 3.2%. There’s a pattern there [Ed note: Genius!]. The trend in inflation remains down, so inflation worry-warts can cool their jets for another several months at least.”
Don’t worry Rory, our jets have been fired up on this one for a while, and we’re in no rush to cool them down.
But his comments are really nothing more than the typical mainstream nonsense we’ve come to expect from the banks – ‘Don’t worry about inflation now, we’ll deal with it later.’
Anyway, I won’t go into the full Output Gap argument again, but if you click here, here, and here you can read what we had to say about it in previous articles.
Anyway, let’s get back to the article in yesterday’s Australian Financial Review (AFR) which I’ve conveniently brought with me.
A lot of things baffle your editor, I’ll be honest about that.
Some things I just don’t get. Even if I try to play devil’s advocate and imagine I’m a mainstream economic Muppet, I still can’t get the hang of it.
The biggest baffler for us is the mainstream attitude towards inflation.
If you’ve still got a copy of yesterday’s paper, it’s worth a read. You’ll find it on page 29. It’s full of gems like these:
“Lately, I’ve noticed an emerging theme among economists searching for answers to this challenge. They’re saying it may be time to let in a little inflation. We’re not talking anything too dramatic. But the case for targeting 4 to 6 per cent inflation is certainly growing.”
The column written by Glenn Mumford also quotes economist Kenneth Rogoff, formerly of the International Monetary Fund (IMF):
“I’m advocating 6 per cent inflation for at least a couple of years…”
He then quotes Morgan Stanley economist Spyros Andreopoulos:
“There is a reason why a rational and forward-looking, independent central bank may want to consider generating [some] inflation…it may be preferable to create limited inflation early on…”
Then there’s the central bankers themselves. San Francisco federal reserve economist John Williams is quoted:
“A 2 per cent steady-state inflation rate may be insufficiently high to stop [zero-bound rates] from having significant deleterious effects.”
They were also at it over at The Australian newspaper as well. Arguing who’s better at manipulating the economy – the RBA or Treasury. In our mind it’s probably a dead heat. A photo finish at least.
But it’s hardly a surprise that these arguments mostly come from fans of Keynesian economics or from the banks.
And that’s hardly surprising either, because the banks need inflation in order to keep their indebted gravy train on the rails. As soon as deflation hits then they’re in big trouble as it makes it more expensive for borrowers to repay debt.
But the whole idea of embracing inflation is the equivalent of making friends with the devil. There is absolutely no circumstance whatsoever in which inflation should be encouraged…
None. I’ll repeat that in case you’re unsure – None. Not one.
That economists such as Robertson, Rogoff and Andreopoulos believe they can turn inflation on and off like a light switch is a joke. The fact is, the inflation switch is always turned to ‘on’ whenever banks and central banks are involved.
They never turn it off. In fact, it’s more like an inflation dimmer-switch. All they do is adjust the ‘brightness’ but never actually turn it off.
But aside from all the supposed economics arguments for inflation – of which there are none that make any common sense – we’ve never seen an economist explain how inflation is good for you in the real world.
No one wants to pay higher prices for things. No one wants their wealth to be eroded by central banking and government fraud. Yet still the mantra from the central banking and banking thieves is “more inflation please.”
If you stop and think about it and apply it to a real situation then it’s clear the case for inflation is built on lies and deception.
For instance, let’s take Rogoff’s case for a 6% rate of inflation. What does that actually mean to you?
Well imagine it this way. Imagine we lived in an economy where prices for goods remained constant forever. That four litres of milk is $4 today, and it’s still $4 in two years time.
Or that petrol is $1 per litre today, and the same price next year and the year after.
Prices neither rise nor fall.
Also imagine that you’re looking for a new job. So you turn up for the job interview and your prospective boss says to you:
“Right, the salary is $100,000 in the first year. Then in the second year we’ll pay you $94,000. In the third year we’ll pay you $88,360. And in the fourth year we’ll pay you $83,058.”
Would you take the job? By the fourth year your purchasing power has slumped by 17% yet your living costs are the same as they were four years previously. That’s what a 6% inflation rate will do to you.
And the mainstream economic love of inflation is forcing that lifestyle on you right now. The economists and economic commentators that plead for more inflation are doing nothing less than aiding and abetting the theft of your wealth.
Remember, inflation is not your friend, it is the enemy, and there is no way it can be harnessed for your benefit… Despite what the mainstream economic drones claim.
Cheers.
Kris.
{ 15 comments… read them below or add one }
“”"”"”"”banks need inflation in order to keep their indebted gravy train on the rails. As soon as deflation hits then they’re in big trouble as it makes it more expensive for borrowers to repay debt.”"”"”"”"”"
now thats a ponzi scheme if i’ve ever heard one
“”"”Remember, inflation is not your friend, it is the enemy, and there is no way it can be harnessed for your benefit… Despite what the mainstream economic drones claim.”"”"”
yes you can harness benefits ,you can very,very EASILY BEAT INFLATION BY BUYING property
Also imagine that you’re looking for a new job. So you turn up for the job interview and your prospective boss says to you:
“Right, the salary is $100,000 in the first year. Then in the second year we’ll pay you $94,000. In the third year we’ll pay you $88,360. And in the fourth year we’ll pay you $83,058.”
mate i would take that job in a snap cos it sure beats $30-40 per annumus
Inflation at a target rate of 2.5% per annum is equivalent to a tax on money at a rate of 2.5% per annum. If that’s good for us, I suggest that we make it official: impose a tax of 2.5% per annum on all bank deposits and other debts, payable by the creditors. And then, of course, aim for an inflation rate of zero.
While we’re at it, I suggest that the other tax on debt, namely the income tax on nominal interest payments, should be replaced by a holding tax on the debt itself, in addition to the aforesaid 2.5%. This would provide a much-needed incentive to write off or write down non-performing debts – because one would have to pay tax on the face values of debts whether they were “performing” or not.
On the back page of the AFR today, in an interview ANZ CEO Mike Smith talks about rate rises and says
‘…he has cautioned against a too gung-ho approach given concerns about the ability of small business and consumers to handle higher rates’
Is it just me or is that an amazing thing to say…… the CEO of ANZ banking corporation just said that people cant handle higher rates!! OR in other words, property prices are too high so the level of debt people can take on is only ok if we keep rates low….
But we will keep on lending to them anyway (even though they will go bankrupt when the higher rates kick in) because our lending standards in Australia are sound
Variable rate business loans would be around 7.5 – 9.5 % already with the majority of lenders, so Mike Smith is damn well right that they cannot handle still higher rates. What he omits saying is that him and his buddies never cut the kind of slack to business borrowers as they were forced to cut to residential mortgage borrowers. As far as I am concerned, him and his buddies should have their teeth kicked in for opening their mouth in bad faith like this, as if they cared about small business borrowers.
And I have not even started to mention the sort of fees and charges they will shamelessly slap on any minor move you dare to make with your business borrowings. The simplest change to a business loan you might want to make at the ANZ will be met with a $600 + hit of fees and charges. One lender proposed to charge me 2% application fee on a business loan I was seeking. Talk about bank robbery. But maybe PF will be better placed to really give us a picture of what goes down with business and small business finance these days.
maybe australia needs more competition in the banking industry that 4 banks doesn’t provide
I don’t know what we need, GB, honestly. The whole thing is messier than a dog’s breakfast. Where do you even start?
Sound money would be nice to have, or at least unadulterated statistics, not to mention the shameless thievery that goes on through a policy of inflation. As things are, the system forces everyone to speculate and take risks just so that we give ourselves a chance to be standing still. Whoever dreamed it up and sustains it, clearly has not done so with the bests interests of the people in mind.
The Best is Yet to Come…If You’re Prepared!
By Jeff Reckseit
Mon, 26 Oct 2009 16:45:00 ET Email | Print | RSS Feeds Generated by Elliott Wave International RSS | My Updates
Bookmark and share It!
Are you weary of sorting through all the “good news – bad news” dialogue? The financial media would have you believe that everything is coming up roses. First it was the green shoots. Now they tell us the housing market is stabilizing. In other words, it’s not dropping like a rock anymore. And the credit crisis? That’s improving too. From bone-dry liquidity to a molasses-like consistency. There have also been some positive earnings reports. Then of course there’s the stock market – roaring ahead to new highs on the move.
On the other side of the ledger, there are the dismal unemployment numbers; the foreclosures, with more to come as additional sub-prime mortgages re-set; more bank failures every weekend; and the reality of the residential and commercial real estate market.
As you may already know, trading or investing based on the “news” can be detrimental to your fiscal health. Technical analysis – market forecasting based entirely on price action – attempts to be purely objective. It presumes to let the markets tell you where they are going. Elliott Wave analysis takes this approach several steps further: we use chart patterns to identify tops and bottoms as well as trends and their probable length and duration. Applied correctly, charts can strip away emotion, bias, and ego. What’s left is price as the final and ultimate authority, and price unfolds in recognizable and repeating wave patterns. These patterns represent the prevailing psychology in all time frames.
In the current issue of the Elliott Wave Theorist, Bob Prechter presents a clear and compelling argument for a substantial psychological turn in the stock market. The charts he includes show that history may not always repeat itself but it frequently rhymes.
Our “All-the-same-market” theme is evident as well in Bob’s analysis of gold and the dollar. The premise is that in a deflationary environment, as credit contracts, the lack of liquidity causes people and institutions to sell their assets to get dollars. This includes gold, oil, stocks, property, everything!
Get instant access to the Theorist now and receive a free copy of Prechter’s book The Elliott Wave Principle, the most useful and comprehensive guide to understanding and applying the Elliott Wave Principle. If you need assistance with your market-timing, our three times a week Short Term Update may be helpful. For longer term coverage subscribe to the Elliott Wave Financial Forecast – all with our 30-day risk free guarantee.
So what are you waiting for? Come see what we see and know what we know. Read more…
Etch, EW is an interesting theory, but note this: They got gold dead wrong. Apart from a relatively brief period where even gold was sold off at the very height of the crisis, gold has been hitting record highs against all currencies. EW theory seems to ask us to put our faith into and take our signals from some mysterious psychological cycles, or waves, of highs and lows, of optimism and pessimism, rythmically repeating and pulsating like the waves of the ocean, incessantly and knowable and calculable for decades in advance as to when the turns come from pessimism to optimism, and then from omptimism back to pessimism again. I fail to see how anyone can really understand all this and implement it in practice. It looks like a faith to me. What do you get out of it?
PF – in an earlier post, you have asked about China’s numbers. Here is a link to Faber’s recent take on the Asia-Pacific region, including Australia and New Zealand. It might be of wider interest to the audience at this forum:
http://www.youtube.com/watch?v=o_-ZN7cN69k&feature=player_embedded
PF, this brief report on what China is doing is quite recent.
http://www.uncommonwisdomdaily.com/psst-heres-what-china-is-buying-now-and-you-can-too-7289
“”"”I fail to see how anyone can really understand all this and implement it in practice. It looks like a faith to me. What do you get out of it? “”"
cb- i think he has an interesting angle on the markets there that operate on the “moods” such as exuberance –1)the she’ll be right attitude to ,which happened 2002-07
2)pessimism & he reads the graphs “waves” & has an predicting insight as to where the next wave up or down turn will go .
prechter is a mega big bear ,& i dont think he would harping unless he knows somethings going to happen
i personally think the usa debacle is not finished by a long shot , way,way,way too much damage there
so i think somehow it may eventually effect here & still more world wide over ..
when ,how & why… i dont know ,,but he makes for interesting reading
& he deals with the respected Mauldin
the only reason australian economy is still standing is cos rudd ran like a shot bandi-coot & taxpayer funded the banks ,stimulused
Thanks, etch. Yes, you are right. The demolition job probably only just started, with hundreds of trillions of dollars worth of derivative bets planted to be selectively blown up as, and when, needed. It is the age of financial te!ro!ism, and nobody who is not an insider, can be presumed to be safe. With the many twists and turns between inflation, deflation, blowups and bailouts, it is hard enough to know which way is up, let alone being able to maintain a steady sense of direction with one’s finances.
cb – your above post couldnt be put better in words thankx
But Kris..re world depressions and Central Bankers…wasn’t Mr Bernanke touted as the leading specialist on the Great Depression…so we were told.
Leave a Comment
Comment moderation policy: Port Phillip Publishing supports free speech and frank and open conversation. But we reserve the right to modify or delete your comments if we consider them to be offensive or in violation of any laws, including Australia's anti-discrimination laws