Honest Bill Fleckenstein: The Only Difference Between The U.S. And Greece Is A Printing Press (WATCH)
Video: William Fleckenstein, president of Fleckenstein Capital Inc., talks with Bloomberg's Betty Liu, Sheila Dharmarajan and Jon Erlichman about the April U.S. consumer price index and the prospects for deflation -- May 19, 2010
Issues discussed include deflation, inflation, gold, Greece, and the US dollar.
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May 20, 2010 at 2:40 PM
Reader Comments (20)
Deflation and also inflation have NOTHING TO DO WITH CPI and hence prices. Prices for all things either rise or fall because of the Law of Prices (value arises from exchange, when money is involved in the exchange value gets renamed price, winning bids of demand for offered supply set prices).
You could double the number of dollars in circulation but if persons don't increase their demand, prices are going to remain exactly the same. Why? Prices arise from demand in the face of supply and nothing else.
Deflation is a process undertaken by central bankers to reduce the formation of new credit by member bankers who run commerical banks. Far too many confuse deflation with DEVALUATION. Devaluation happens when prices for assets fall over time because persons deem them to not be worth as much as they once thought such things were once worth.
How do central bankers engage in deflation? They raise interest rates. They raise reserve requirements. They tighten lending standards. They pay interest on reserves at a rate higher than interest in the markets for credit.
Likewise, inflation is a growth of credit. Inflation results in an expansion of credit. It's a process undertaken by central bankers to let member banks buy money and sell credit contracts.
Why do persons get mixed up about inflation, deflation, devaluation, and prices? They do not get economics; nor do they get money, credit and banking.
A banker is a trader whose business consists in buying money and debts by creating other debts. While the grocer buys food for resale, the banker buys money or debt and sells credit. A banker creates and issues credits payable on demand and in doing so puts money already in circulation to greater efficiency.
I've been saying deflation since the day I launched the site 17 months ago...
You will be wrong about deflation.
http://www.youtube.com/watch?v=wI7ySujGqjk
Your answer is in the first three minutes, after the forced liquidation...
Sorry, I got to go with Rogers and history on this one.
http://www.businessinsider.com/deflationist-david-rosenberg-passes-along-a-scary-hyperinflationary-scenario-2010-5#ixzz0oVcpA79x
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And i'm not saying we won't get inflation...but i still think it's too early...i think it might be 2-3 years MORE before inflation might show up...hey, i've been right so far...and Rogers has been WRONG...he's been talking about massive inflation for 16 months and so far...nothing...
The offensive now seems to have started in earnest. On Tuesday, European Union finance ministers announced efforts to both rein in hedge funds operating in Europe and to introduce a tax on financial transactions. Overnight, the German financial services regulator BaFin slapped a ban on certain types of short selling.
http://www.spiegel.de/international/europe/0,1518,695679,00.html
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you should read this one...
http://www.businessinsider.com/jamie-dimon-gets-harassed-and-yelled-at-by-a-bunch-of-protestors-at-shareholder-meeting-2010-5#ixzz0oVeMNOQS
So he said that a month before you.
Then you say...Rogers has been WRONG...he's been talking about massive inflation for 16 months and so far...nothing...
Did you not watch the clip? He says that it will occur after the forced liquidation which is still happening in spades.
I think you agree with him more than you think.
So he said that a month before you.
Then you say...Rogers has been WRONG...he's been talking about massive inflation for 16 months and so far...nothing...
Did you not watch the clip? He says that it will occur after the forced liquidation which is still happening in spades.
I think you agree with him more than you think.
Markets go from high valuations to low valuations back to high valuations, ad nauseum.
You can measure it in price to book or price to earnings or whatever metric you want. The affect is the same.
There has never been a time where markets started out from high valuations that they did not eventually end up with lower valuations.
These cycles lasted on average for 17 years, with the shortest being 13 years (so far).
And this is important. There has never been a time when valuations dropped to the mean and then went back up again without visiting a much lower valuation. Never. Not one time. Zip.
P/Es are now (Feb, 2008) in the 15 range.
There are two ways that P/E ratios can get to the lower levels that have been reached in previous recessions.
1) The market can drift sideways while earnings grow (not likely in a recession) or
2) The market can drop far enough to make it happen.
In the last bull market, 80% of the increase in the price of stocks can be explained as the P/E ratio rising from a low of 7 to a cycle high of 42.
If the stock market drops 20% further, then the P/E ratio would be about 12, assuming earnings DON’T fall but they will in a recession. (It just went below 15, today, May 20, 2010)
In 1974 the P/E was 11 but it went to 7 in 1982.
It could happen again. If it does, then we would have a buying opportunity.
That means stocks are probably going down further.
1) When stocks go down it's a deflationary pressure (not a sure proof of coming deflation, just one factor pushing down prices.)
2) Housing prices are still falling.
3) The dollar seems to be undervalued in Europe, to me, so if it increases in value, that is another deflationary pressure.
(A cup of Starbucks Venti costs about $2 in Dallas, $5.50 in Barcelona and $6.50 in Geneva which points to the dollar being over valued in Europe. Asia, of course, is another story.)
However, as unemployment remains, downward pressure on prices shall remain. Nearly 40% of all adult Americans have no more than $100 a week DPI to spend willy-nilly.
Prices result from the intersection of supply and demand and nothing else. Ticket prices for baseball games and rock concerts can fall because Americans cannot afford these things and prices of a meal in restaurants could fall to entice eaters in the face of falling demand, but food prices could rise both for restaurateurs and those who eat at home because oil prices have risen as money holders flee stocks and buy oil futures.
Without employment and growing sales, it's hard to see the demand for houses increasing and thus realty prices should be falling. If persons can't service debt for car loans, it's hard to see car prices rising.
In light of Europe and weak U.S. employment, stocks should be falling, until a new round of stimulus gets injected, if that happens.
Obama-Pelosi-Reid have created the illusion of a recovery owing to a massive amount of money, which has gone into the pockets of many who have been chosen to be made whole. That's the essence of Keynesianism. Keynesianism is a rhetorical doctrine of economics concocted to defend bailing out those at the top.
Here's a little bit of what I've written on Keynes...
CEA Chair Christina Romer: We'll Do Whatever It Takes To Help The Economy (Anti-Keynesian Stimulus Rant Included)
http://dailybail.com/home/cea-chair-christina-romer-well-do-whatever-it-takes-to-help.html
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Ron Paul: More Spending Is Always The Answer; How Keynesians Are Prolonging The Agony (Video & Transcript)
http://dailybail.com/home/ron-paul-more-spending-is-always-the-answer-how-keynesians-a.html
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And You Thought Bernanke Was Bad: Brad Delong Fantasizes About Replacing Him With A $6 Trillion Quantitative Easer
http://dailybail.com/home/and-you-thought-bernanke-was-bad-brad-delong-fantasizes-abou.html
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The Day I Called Larry Summers A Generational Rapist
http://dailybail.com/home/the-day-i-called-larry-summers-a-generational-rapist.html
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Generational Rape with a trillion dollar Shovel
http://dailybail.com/home/bailout-news-stimulus-edition-generational-rape-with-a-trill.html
http://dailybail.com/home/look-out-krugman-belief-in-keynes-is-belief-in-self-delusion.html
http://dailybail.com/home/dr-ron-paul-we-are-spending-ourselves-into-oblivion-video.html
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And there are a few more...
There are two basic parts of Keynes' theory: 1) stimulating the economy by make-work jobs and paying for the jobs with taxpayer money or with fiat money and 2) Spending tax payer money or fiat money on projects which can be either government or private projects, such as defense spending, building nuclear power plants, highways, etc. These can be done by private or government contractors.
After World War II, neo-Keynesian economics became popular until Reagan came to power. (Nixon said, famously, "we're all Keynesians now.") Neo-Keynesian economics is Keynesian economics without the make-work side part, which was ruled unconstitutional. The high priest of Neo-Keynesian economics was Paul Samuelson of MIT who wrote the economics 101 textbook, in the 1950's, for an entire generation of economists.
After Reagan, neo-Keynesian economics went out of style. It was replaced with University of Chicago economics whose lead economist was Milton Friedman.
I'm not arguing for or against Keynes, just trying to set the record straight. Tax cuts to stimulate the economy are not a basic part of Keynesian economics but of supply-side economics which is an offshoot of the modern Chicago school.
Another thing to remember: Keynes was a member of the British upper class and there was a deep fear that communism would take over the entire world. Both Keynes and the three Austrian school economists, von Mises, Schumpeter and von Hayek built their systems to try to save capitalism from the imminent danger of collapse. None of these men can be considered closet socialists or communists. Keynes, in fact, made a fortune speculating in the stock market.
Go Bill!