Kevin Depew's post on Inflastagdeflation in Wednesday's Five Things...

Kevin Depew's post on Inflastagdeflation in Wednesday's Five Things got me to thinking about how everything is in the eye of the beholder. Here is quick recap of inflastagdeflation. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? A. Inflation is understated. General price level measurements are being manipulated, or are failing, or are simply false we are facing a dramatic buildup in inflationary pressures. ..... B. Inflation is yesterday's story. What we are experiencing now is stagflation. Wages and incomes are stagnant, housing is slowing, the consumer is on the brink, and growth is slowing by virtue of the fact that producers have no pricing power in a credit-fueled growth environment. ..... C. Inflation? What inflation? Housing prices are deflating. Consumers are cutting back. Producers have no pricing power. ..... The truest answer is, 'Yes, we are.' .... smack in the middle of inflastagdeflation... with only the last remaining vestiges of this credit cycle allowing us to cling, somewhat desperately, precariously, to the 'inflastag' part of the story. It occurred to me that inquiring minds might be wondering 'Is it possible to chart inflastagdeflation?' Believe it or not I think it can be done. For that I turn to a series of charts that 'Bart' at Inflationists like to point to M3. Is it any wonder? Pick your poison. Not only is the actual number soaring, the rate of change is soaring as well. Clearly the Fed has lost control of monetary expansion the inflationists say. Here is a chart to prove it. Stagflationists point to any number of things to prove their point. They think this is a repeat of the 70's and typically point to oil. That won't work for There you have it. M2 is clearly soaring but the rate of change is either falling or rising depending on where you want to draw the trendline. And what are we getting out of it? Certainly not jobs or houses but we are seeing rising interest rates in spite of miserably weak housing. If that combination does not describe 'Stagfla' what does? Deflationists like to state the case based on the upcoming monetary collapse of credit. Once again that will not cut the mustard with For that we have to look at base money supply or better yet M' (pronounced M Prime) which is based on an Austrian definition of money. Typically (but not necessarily) deflationists come from an Austrian school of thinking. Please see The chart shows that M' is barely growing. A chart of base money supply would look similar. This contradicts what the inflationists are saying about money supply soaring. Heck it's barely budging. And the rate of growth has been falling like a rock since mid-2004. Inflationary? Hardly... at least not to deflationists. Bear in mind that most inflationists (and many deflationists) think that the CPI is horrendously understated. For those folks, John Williams offers an alternative measure of the CPI on ' M' growing at negative 5%. Thus creative deflationists can use creative inflationists own measures of the CPI to state the case for ' is a much catchier name with an additional huge advantage of sounding more like a disease. You have to admit, this economy sure seems sick no matter which So where are we and where are we headed? To paraphrase Kevin: 'Here we are.... smack in the middle of inflastagfladefla... with only the last remaining vestiges of this credit cycle allowing us to cling, somewhat desperately, precariously, to the inflastagfla part of the story.' Dates can change but they are tentatively scheduled for Tuesday and Wednesday of next week. I am working right now on editing drafts. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.