Milne is wrong about inflation

Milne is wrong about inflation

Post by shek » Fri, 05 Nov 1999 04:00:00



"Asset inflation. All that money as a result of the increases credit
expansion has gone into asset inflation. Bizarrely high salaries of CEO's.
Ridiculous stock option packages. And first and formost, the dizzying
expansion of share prices in the stock market. This is where it has all
gone.
...What happens when it comes out of the markets? The same thing that would
have happened if it had not resulted in an asset inflation in the first
place. It will result in inflation in goods and services. In other words,
inflation will come back. If the stock market deflates, in a big way, and I
believe it will, inflation will come rip-roaring back as the flood of debt
('money' created by credit expansion borrowed into existence) comes rushing
out. Not a creep-up in inflationary values. It will come back with a
screaming vengeance like never before. It is going to make the Weimar
Republic look like a week at Disneyland." -  Paul Milne

Paul, I humbly disagree with you on this point.
During the market decline/crash and simultaneous Y2K, liquidity will
evaporate, credit will be nonexistent/expensive. Banks will suffer, mortgage
companies will suffer.
Today many investors have paper gains which they use as colaterral for
loans, there is very little cash used/available.
Tomorrow, decreasing equity values, increasing interest rates will mean less
credit card purchases, less new mortgages/refinincing. Lesser ability to
borrow.
Individuals will not be able to borrow to continue consumption at current
pace. Property values will crash, equity values will crash, deflation will
arrive.

 
 
 

Milne is wrong about inflation

Post by C3hamme » Fri, 05 Nov 1999 04:00:00


Shek:

I'll humbly disagree with you.  I'm not much of a fan of Paul either, but
when when / if the "markets" crash the "wealth effect" will be gone.  Poof!
Just like that the indebted world will be upside down in a big way, just as
SE asia was last year when they had asset deflation (namely property
values).

This asset deflation does not shift any wealth any where.  It simply
disappears.  There won't be any "wealth" left to put into the economy.  With
out price pressure on the upside you will not get inflation.  What you'll
have is 100 times the production capcity across the world vs. what can be
bought even with increases in indebtedness.  This will be deflationary and
will more than offset the extra "money" created by borrowing.

What you're talking about is exactly what has been going on for the last six
years or so.  It think they call it the velocity of money.  The increase in
the money supply (12% incease) has been about double the rate of GDP growth
+ inflation (6 - 7% increase) for a few years now.  This should be
inflationary to say the least and hasn't.

Why?  No wealth has been created.  It is offset dollar for dollar with debt.
Thus no upward price pressures.

That's my story and I'm sticking to it ......... well for now anyway!

Pete Carney


Quote:> "Asset inflation. All that money as a result of the increases credit
> expansion has gone into asset inflation. Bizarrely high salaries of CEO's.
> Ridiculous stock option packages. And first and formost, the dizzying
> expansion of share prices in the stock market. This is where it has all
> gone.
> ...What happens when it comes out of the markets? The same thing that
would
> have happened if it had not resulted in an asset inflation in the first
> place. It will result in inflation in goods and services. In other words,
> inflation will come back. If the stock market deflates, in a big way, and
I
> believe it will, inflation will come rip-roaring back as the flood of debt
> ('money' created by credit expansion borrowed into existence) comes
rushing
> out. Not a creep-up in inflationary values. It will come back with a
> screaming vengeance like never before. It is going to make the Weimar
> Republic look like a week at Disneyland." -  Paul Milne

> Paul, I humbly disagree with you on this point.
> During the market decline/crash and simultaneous Y2K, liquidity will
> evaporate, credit will be nonexistent/expensive. Banks will suffer,
mortgage
> companies will suffer.
> Today many investors have paper gains which they use as colaterral for
> loans, there is very little cash used/available.
> Tomorrow, decreasing equity values, increasing interest rates will mean
less
> credit card purchases, less new mortgages/refinincing. Lesser ability to
> borrow.
> Individuals will not be able to borrow to continue consumption at current
> pace. Property values will crash, equity values will crash, deflation will
> arrive.


 
 
 

Milne is wrong about inflation

Post by Paul Miln » Fri, 05 Nov 1999 04:00:00



Quote:> "Asset inflation. All that money as a result of the increases credit
> expansion has gone into asset inflation. Bizarrely high salaries of CEO's.
> Ridiculous stock option packages. And first and formost, the dizzying
> expansion of share prices in the stock market. This is where it has all
> gone.
> ...What happens when it comes out of the markets? The same thing that
would
> have happened if it had not resulted in an asset inflation in the first
> place. It will result in inflation in goods and services. In other words,
> inflation will come back. If the stock market deflates, in a big way, and
I
> believe it will, inflation will come rip-roaring back as the flood of debt
> ('money' created by credit expansion borrowed into existence) comes
rushing
> out. Not a creep-up in inflationary values. It will come back with a
> screaming vengeance like never before. It is going to make the Weimar
> Republic look like a week at Disneyland." -  Paul Milne

> Paul, I humbly disagree with you on this point.
> During the market decline/crash and simultaneous Y2K, liquidity will
> evaporate, credit will be nonexistent/expensive. Banks will suffer,
mortgage
> companies will suffer.
> Today many investors have paper gains which they use as colaterral for
> loans, there is very little cash used/available.
> Tomorrow, decreasing equity values, increasing interest rates will mean
less
> credit card purchases, less new mortgages/refinincing. Lesser ability to
> borrow.
> Individuals will not be able to borrow to continue consumption at current
> pace. Property values will crash, equity values will crash, deflation will
> arrive.

Yes, deflation will be the ULTIMATE result NOT the immediate one.

--
Paul Milne
"If you live within 5 miles of a 7-11, you're toast"

 
 
 

1. I was right and wrong and am still waiting

this is what  I expected as of last week and this is what happened

1. I expected things to go smoothly at midnight in the US, and they did.
I was right

2. I expected major infrastructure problems immediately on rollover in
Russia and in several less developed countries - I was wrong.

3.  I expected a reasonable percentage chance of a global recession due
to failures of small businesses, 3rd world problems etc.

On this the "jury" is still out. Although odds of major problems go down
by the hour.  And part of my expectation of 3 was based on 2 happening
in a big way, which it did not.

Note also - the correct financial strategy for those expecting a global
recession is quite different from that for a meltdown.  While in the
latter case getting rid of all banking assets and even paper money in
favor of gold may make sense, in the former case one would wish to avoid
gold, and instead concentrate on liquid holdings, either short terms
bonds, money market accounts, or just plain cash.  This would be to used
to be buy up stocks and other assets when the recession hits.

Therefore those who suggested buying gold are wrong NOW, even if
sufficient problems crop up later to trigger a global recession.

Sent via Deja.com http://www.deja.com/
Before you buy.

2. Using Mass Storage Drivers in the Recovery Console without the floppy disk

3. What if I am wrong

4. Word 2002

5. Milne Was Wrong

6. TCP vs UDP ???

7. Need Help with Willy Beamish

8. Why Can't Paul Milne and DOOMSTERS admit when they are wrong?

9. Milne Was Wrong

10. So Milne is wrong?