The Producer Price Index Is Showing No Signs Of Inflation
While the world was screaming about inflation, we were warning of deflation. Our position has never changed because there is no other possible outcome. At least in the intermediate term. And, policy is lining up that could easily create a very protracted and sustained deflation. In other words, a decade or longer if the policy is continued and successful. I guess that's tongue in cheek since a protracted deflation would not be successful.
If anyone wonders why this this debate about inflation or deflation (It's not really a debate so much as it is misinformation and a lack of appreciation for fact-base analysis.) issue is so important, all one needs to do is look at the world around us. If one was positioned for deflation, they have made money in this cycle. If by doing nothing else, by hoarding cash. If one was or is anticipating inflation, their investment returns are the worst since the Great Depression. And, they have exposed themselves to great risk of bankruptcy or great financial stress. Be that governments, companies or individuals.
Because policy makers really don't understand deflation, they have no ability to combat it. The monetary characteristics of deflation are symptoms not the root cause. But, when the only tool one has is a hammer, every problem looks like a nail. Because deflation isn't a nail, today's policy will fail to stop it.
Below is the latest Producer Price Index released yesterday. The three right-most columns are what I want to briefly comment on. The columns labeled crude, intermediate and finished prices. Crude prices, not to be confused with crude oil, but instead early-stage processing, have been weakening for some time. As one would expect deflation is spreading like a virus from crude to intermediate and then finished prices as this satan of economics works its way into the economy.
The PPI numbers would be almost certainly be double digit declines were the Fed not to have backstopped the markets. Because they have, we will likely see a dripping deflation with no end in sight unless policy fails completely or unless we see policy changes. The possibility of a slow elongated torture exists. If central bank backstopping fails, we'll see a very swift and murderous deflation. There are simply too many moving parts and yet to be determined events & policy to get a clear visibility on specifics beyond some handful of months. So, we wait and watch as many unknowns reveal themselves.
As an aside, it may be of interest to note that this month's PPI announcement showed hog and cattle pricing falling substantially. We have already started to see early signs of farmers unable to make a profit killing animals to avoid bankruptcy or substantial economic loss. Something that would be anticipated in a deflation - talk to farmers who lived through the Great Depression. The risk is building for a substantial bust in the agricultural business. More on that later. Just a place marker given many including Jim Rogers, who has seemingly been on the wrong side of every trade for quite some time, are very bullish on the agriculture business. Not I.
click on the graphic for a clear view.
If anyone wonders why this this debate about inflation or deflation (It's not really a debate so much as it is misinformation and a lack of appreciation for fact-base analysis.) issue is so important, all one needs to do is look at the world around us. If one was positioned for deflation, they have made money in this cycle. If by doing nothing else, by hoarding cash. If one was or is anticipating inflation, their investment returns are the worst since the Great Depression. And, they have exposed themselves to great risk of bankruptcy or great financial stress. Be that governments, companies or individuals.
Because policy makers really don't understand deflation, they have no ability to combat it. The monetary characteristics of deflation are symptoms not the root cause. But, when the only tool one has is a hammer, every problem looks like a nail. Because deflation isn't a nail, today's policy will fail to stop it.
Below is the latest Producer Price Index released yesterday. The three right-most columns are what I want to briefly comment on. The columns labeled crude, intermediate and finished prices. Crude prices, not to be confused with crude oil, but instead early-stage processing, have been weakening for some time. As one would expect deflation is spreading like a virus from crude to intermediate and then finished prices as this satan of economics works its way into the economy.
The PPI numbers would be almost certainly be double digit declines were the Fed not to have backstopped the markets. Because they have, we will likely see a dripping deflation with no end in sight unless policy fails completely or unless we see policy changes. The possibility of a slow elongated torture exists. If central bank backstopping fails, we'll see a very swift and murderous deflation. There are simply too many moving parts and yet to be determined events & policy to get a clear visibility on specifics beyond some handful of months. So, we wait and watch as many unknowns reveal themselves.
As an aside, it may be of interest to note that this month's PPI announcement showed hog and cattle pricing falling substantially. We have already started to see early signs of farmers unable to make a profit killing animals to avoid bankruptcy or substantial economic loss. Something that would be anticipated in a deflation - talk to farmers who lived through the Great Depression. The risk is building for a substantial bust in the agricultural business. More on that later. Just a place marker given many including Jim Rogers, who has seemingly been on the wrong side of every trade for quite some time, are very bullish on the agriculture business. Not I.
click on the graphic for a clear view.
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