Tag Archives: cpi

IMF Says Japanese Banks’ Bond Holdings Risk Financial Stability.

IMF would not come out saying that Japan’s bond are going to tumble if it did not have a reason to. Would it? The deflationary spiral is soon going to become a whirlpool that sucks that land of the rising sun into the Pacific ocean. The only question remains of when it will happen and what repercussions will the financial collapse in Japan have on the rest of the world financial system.

On foreclosures fraud, QE and coming new spiral of deflationary forces.

There isn’t anyone at the (nominal) helm who didn’t understood from the very git-go that the only possible way out was a resumption of organic credit growth. All the fraud, lies, deceit, corruption and violation of centuries old jurisprudence were justified (at least in their minds) by national security concerns.

The power-elite have always know that there was a black whole comprised of many different elements, one of which being title insurance, related to challenges in re-securitizing the ponzi. More importantly, they knew that they had at most two years in which to blow another bubble, anywhere/any kind, to get the herd moving once again in a speculative fashion.

The Marginal Productivity of Debt.

The key to understanding the problem is the marginal productivity of debt, a concept curiously missing from the vocabulary of mainstream economics. Keynesians take comfort in the fact that total debt as a percentage of total GDP is safely below 100 in the United States while it is 100 and perhaps even more in some other countries. However, the significant ratio to watch is additional debt to additional GDP, or the amount of GDP contributed by the creation of $1 in new debt. It is this ratio that determines the quality of debt. Indeed, the higher the ratio, the more successful entrepreneurs are in increasing productivity, which is the only valid justification for going into debt in the first place.

Japan’s consumer prices fall again in January. Deflation now -1.3% compared to January 2009.

Japan, after two decades of fighting against deflation and racking up 240% of GDP public debt has literally nothing to show for. The deflation is firmly entrenched in the Japanese economy, which is a very good thing for consumers, not speculators.

Conquer the crash: Bernanke defeats deflation.

At last, the news reports are now fully brimming with optimism and proclaiming victory after victory on the economic front. Despite the fact that the private (and total) credit in the US economy has been and is still contracting at unprecedented multitrillion dollar annual rate, which is deflation by definition in credit based monetary system, the Bloomberg news declares nevertheless that the honorable manager of the privately owned Federal Reserve, Ben Bernanke, has already defeated deflation. Oh say, can you see …

Q3 2009 private sector credit collapsed at – $1.81 Trillion annual rate.

The ONLY major player still borrowing money in big amounts was the United States Treasury Department (line 3), sopping up $1481.2 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Overall total credit in the economy shrank at an unprecedented annual rate of -$275.6 billion.

Private sector credit fell at an astonishing – $1.8098 Trillion.

Retail Sales Data from NPD Shows Consumer Technology Revenue Declined the Week of Black Friday.

When you don’t have government meddling into the free-market price setting mechanisms the prices decline and help consumers save money. Such is the case of consumer electronics that has been experiencing deflation for many years now and the skies did not fall. To the contrary all consumers benefited from natural price declines while the quality and capability of consumer electronic goods have been continuously improving. Now, when most of us badly need lower prices the only bright spots of the economy are where the government is absent and not trying to prop up prices, with our stolen money by the way.

Sovereign Defaults Coming in Second Stage of the Financial Crisis.

The first stage of the deflationary debt unwind resulted in massive consumer and corporate defaults, particularly in the financial sector. This sector being one and the same as the governments that it controls, the state has thrown all the resources that it had and did not have (pulled them out of thin air) in order to save its Banking sponsors. While it has given the Banks the respite and saved many of them for now from going belly up, it did not solve a thing. The bad debts have simply been transfered to the Central Banks’ balance sheets that are expected to be later transferred to the taxpayers of each and every country. Whatever was not transfered was hidden by suspension of the mark-to-market accounting rules. Thus, the deflation that is not seen has not gone a way, but has been simply hidden.

What deflation will do to future US GDP.

It is now an established fact that Japan has been mired in deflation for the last 18 years. It meant no economic growth as manifested in the below GDP graph. Assuming that USA is now in the early stages of a similar, if not much stronger, deflationary depression, we may be able to project future US GDP growth/contraction based on the Japanes experience.

Demand deflation.

In a deflationary environment the psychology of economic agents, be it lenders or borrowers, is such that neither is motivated to engage in credit transaction. This is because consumer attitudes in a deflationary environment are leaning towards conservation not expansion and consumption. Thus, making it economically discouraging for business to expand. The deflationary times follow an expansionary period which ends in an oversupply of goods and services, and overcapacity in production that makes them happen.