Just another day with the money makers.
I wanted to bring your attention to the Deflation vs. Hyperinflation debate coming up between Stoneleigh and Lira. I respect both of the participants so I am sure it will be interesting.
I ought to note that, alas, I disagree with both of them I think. As you know my forecast has, for quite some time, been for stagflation. I consider both deflation and hyperinflation to be on the tails of probability and less likely excepting policy error in a purely fiat currency. With a fiat currency the outcome is most likely to be the result of a policy decision, tying in both the fiscal and monetary authorities. By pure I mean not encumbered by external forces such as the gold standard or a dollar peg.
But nothing is pure in this world especially when it comes to politics and money. Much of what happens depends on many exogenous actions from counter parties overseas, as well as the rise of a third party or some political element that is less hospitable to the financial oligarchs.
As an aside, I have been wondering if hyperinflation is even possible in the absence of some external standard, some peg to something, whether it be a metal or a currency. I think the major cause of a hyperinflation in a fiat currency could only be triggered by a bond default, or an utter rejection of the bonds by exterior parties.
I have also been rereading some books from the 1990's regarding Japan, and remembering things that I have not considered in some time. It is still remarkable how few Westerners really understand how things work in Japan, and the origins of their protracted economic malaise. The lack of other instances of a protracted deflation following a credit incident in a fiat regime should provide a clue that there was something particular going on. Japan is a very highly managed, hierarchical, oligarchical and conservative society dominated by its business interests.
There is no doubt in my mind that their deflation is the result of a policy decision by the keiretsu and their friends in the government, particularly in MITI. Most people do not even understand that Japan was essentially a one party system after the Liberal and Democratic parties merged in 1955. This is only recently changing.
With the Fed now owning more Treasuries than even China, it appears that Benny *could* have a go at it, although technically he can raise short rates overnight, if the government is prepared to live with the consequences.
Best to keep an open mind, because the holder of a reserve currency in a largely fiat regime has, to my knowledge, never failed before. I don't think even Rome qualifies for this, and certainly despite their wonderful system of roads the decline would have seemed as in slow motion compared to the information age we are in today.
So let's hear it for civil discourse and fact based discussions. What I find most disheartening is those few bloggers and analysts who, for the lack of a proper argument or a better alternative, quickly resort to throwing their feces in the manner of chimps, in what they seem to perceive to be some power struggle for the hearts and minds of followers and obedient devotees. What a presumption if you think about it, as if our opinions will affect in any way what is coming down the path, with the inevitability of history behind it.
I suspect that agility, flexibility, and the ability to learn and adapt are critical skills if not requirements for the next step in the evolution of this crisis.
