Big Money and Economic Depression By Martin Armstrong

Martin has weighed in on the inflation / deflation debate. What he has to say will stir some controversy and heated argument.
It's a 5 page PDF and can be downloaded here;

Here is a quick snip;
"There appears to be a gross misunderstanding about how money moves and whether we face DEFLATION or HYPERINFLATION. In Physics, we are searching for the illusive Grand Unified Theory where the behavioral laws of Physics and Quantum Mechanics will be unified. The laws that govern our world at our level do not apply in the micro world at the atomic structure. The same division exists in Economics and unless you understand that there are two worlds that operate differently, don’t worry, you will never gravitate to an institutional advisor and you will probably lose your shirt expecting that all money will move the same. This appears to have been elevated to the point of extreme nonsense surrounding this S&P Downgrade. Those who keep betting on the collapse of the United States are impatient and fail to realize that even on a Debt to GDP ratio, the USA is by no means at the top of that list but is only #38."


Brian O'Flanagan said...

this was a very thought provoking piece. I'd agree with his thoughts on the dollar - while it will most certainly collapse some day, it is not coming anytime soon. In fact, the extreme deflationary forces may be very positive for the dollar. I completely disagree with his Keynesian views - that the answer is more spending. Seems he agrees that we are more likely to see austerity rather then spending, which is highly deflationary.

I am now squarely in the deflationist camp and have struggled with gold. Armstrong states that gold's purchasing power will increase regardless, but in deflation so will the dollar - maybe even more. Sure, the thinking is deflation will prelude hyperinflation as the likely policy response would be to print - I'm not so sure about that. Policymakers may be powerless as credit money collapses far faster than they can print. Furthermore, they can print all they want, but if the banks won't move it into the economy by lending then nothing will happen - it's "pushing on a string".

I'd agree that one should own some gold just in case, but cash is looking very attractive to me right now. Other ideas are to short AUD, CAD, crude oil or copper. Any thoughts?

Louis Cypher said...

I have a couple of problems with this;
M1, M2 and M3 supply are sharply increasing (from the Fed and shadow stats)
That is inflationary any way you look at it.

I don't think USA Inc feels they don't have to go the austerity route because we are the reserve currency. As has been argued before the first bailout would have been better off in the hands of the people who would spend it than those who would hoard it or pay debts with it. That might have been inflationary though.
As M.A. has argued in the past a reserve currency actually printing is unlikely to have any inflationary effect. "No empirical evidence to show it does" is the phrase I think he used.

We are definitely going to see deflationary effects when you see "100,000 postal workers may be laid off" headlines. When Grandma has to pay more out of her pocket for food etc that her SS check is not keeping up with then Grandma can't buy her kids stuff. Deflationary.
When politicians around the world blame their citizens for this mess then we are absolutely going to see some culling of the herd by way of job cuts. Deflationary around the world. We can't sell what little crap we make to them. Deflationary here.

I will agree with the statements about the big boys make the rules and we have to zig exactly when they zig. Not before and not after when it comes to major life decisions.
So when I see Pimco getting out of bonds I sure as hell wouldn't touch them. To me a bond is just another way of saying dollar for the big boys. Who is buying them? the Fed.

So for me the answer is stagflation as long as we are the reserve currency with no sense of fiscal responsibility.

I have another bone or two to pick. We have defaulted in the past and it was 40 years ago. We defaulted before that when we revalued Gold. According to M.A. 40 years is about the average lifespan of a currency. Reserve currencies just take a little longer to whither away.

But we are already seeing China etc slowly getting out and as they are easing out they are setting up agreements to pay for oil using their currency or anything other than dollars. They haven't struck a deal with the Saudis for political reasons and I'm sure they need someone to buy their USD's.

I have other bones to pick but I'll leave it at that.

Louis Cypher said...

It occurs to me though we are all balancing on the head of a pin when any piece of political bullshit can tank a market. It occurs to me the brightest minds cannot agree on inflation/ deflation because we don't have enough information but because it is all based on what we believe at that moment in time. If enough people believe the USD is toilet paper then that is exactly what it is.
For example a lot of people believe 9/11 was the cause of a recession. If you think about that statement it's insane to think 14 guys could cause a world recession and yet that is what a lot of people believe. For them that is reality.

flaunt said...

I didn't read what he wrote but if he's expecting deflation, the Core PPI jumped 0.4% last month. I sense we haven't yet had the parabolic blow off in gold that everyone thinks we've had, but we are about to. This doomsday stuff will reach a crescendo right as gold is about to do it's "moonshot." Then when it reverts to the mean there will be much gnashing of teeth and foaming at the mouth among those who believe it was the work of evil men hell bent on keeping gold from reaching $20,000/oz.

jazs07 said...

Isn't it ironic how these politicians blame us for economic depression? It’s been a year or two since we had experienced these deflationary effects.

Economic Depression