<DrumBeat: April 12, 2007The Oil DrumJeremy Gilbert's Comments on TOD Saudi Analysis>

248 comments on The Case for Inflation from a Plateauing Supply

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olepossom on April 12, 2007 - 9:42am Permalink | Subthread | Parent | Comments top

Remember: Price increases are not inflation. An increase in the money supply is inflation. When there is no increase in the money supply and the price for oil increases, the price of something else (say, SUV's) will fall. We have never experienced a constant money supply so we do not know deflation. But deflation was present thorughout the 18th and 19th centuries, in those periods when the money supply (ie gold) was not increasing faster than the world population and economy. South Africa, California, and Australia all sparked some bouts of "inflation" separate from the wars.

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davebygolly on April 12, 2007 - 1:04pm Permalink | Subthread | Parent | Comments top

You beat me to it. The price of oil going up in not in itself inflation. The price of computers going down is not deflation.

That said, I agree with JV's conclusion though maybe not for the all of the same reasons. The elite can escape the devastation of inflation through posession of hard assets, though they may be threatened ultimately by the ensuing consequences. The accumulated debts to pensioners cannot be openly repudiated on a sufficient scale: they must be inflated away.

It's hard to see any power bloc benefitting from deflation. Theoretically, deflation benefits bondholders. But deflation would render debts owed uncollectible. The housing meltdown is already showing that, and we see this in already mildly inflationary times (compared with what's to be). Deflation here would cause revolution in China whose factories would idle.

The biggest thing, of course, is the military and intelligence machine. This is what undergirds tha value of the dollar now. This is what allows one to hope that the dollar, which is not backed by anything else, is at least backed by oil, theirs, oops, I mean ours. It must be fed, and can only be fed with inflated dollars. And if it isn't fed, then the sole backing disappears and we are back to the Weimar days. The elites all over the world fear the dam's breaking which is why they all appease a regime they detest. These guys have the world by the pashwingi -- for now.

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Halfin on April 12, 2007 - 5:03pm Permalink | Subthread | Parent | Comments top

Actually I see inflation as more harmful to the "elite" than to ordinary people. Inflation primarily benefits debtors, by allowing them to repay their debts with cheaper money than they borrowed. As a general rule, the wealthy loan money to the poor, rather than the other way around. Therefore inflation will benefit the proletariat at the expense of the elite.

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davebygolly on April 12, 2007 - 6:03pm Permalink | Subthread | Parent | Comments top

"Theoretically" you are right. They lend. But with an implosion they don't get paid back at all. People are already going into default. Deflation would mean economic implosion -- far more would default.

Next, the elite lends, but not their own money. They lend the middle class's money, their pensions, college savings, etc. You don't get into the elite lending your own money -- no, no, no.

Therefore the elite borrows, borrows from us. Now I said the proletariat goes into default. But not like the elite goes into default. The elite goes into default by eliminating our pensions, by running up massive govrnmental debts that will be the excuse for tearing up all contracts with the common folk. The only contracts that aren't torn up are the tax reductions for the very wealthy. The military-industrial complex doesn't need a contract -- it's implied.

The elite can play the world's assets, unlike you and me. That's what globalization is really all about -- not trade so much as free movement of capital. That, by the way, is why the Soviet empire crumbled peacefully. The Soviet elite could not walk away from their rust belt -- it wasn't capital. They envied the Western elites. They thought they would be better off with capital. That they were outmaneuvered is another story.

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jim burke on April 12, 2007 - 6:39pm Permalink | Subthread | Parent | Comments top

This is a fascinating thread, but perhaps we should simplify it and take it a step further?

Since there is wisdom in the collective, why not do a simple poll?

"Do you think PO will result in"

a) high inflation/stagflation
b) little meaningful change
c) deflation

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btu on April 12, 2007 - 6:57pm Permalink | Subthread | Parent | Comments top

d) total chaos

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FTX on April 12, 2007 - 7:55pm Permalink | Subthread | Parent | Comments top

Hal,

I don't quite see it as debtors vs creditors, but more as the prudent vs imprudent. For example, the creditors and debtors in the New Century collapse are very much on the same team when it comes to pressure for a Federal bailout.

The irony of all this is that that the majority of TOD members seem to believe that an inflationary scenario is the most likely outcome. Well, that means that when the credit meltdown comes, those with debt are going to be bailed out by those without debt.

...in which case all those following Westexas' ELP maxim are going to get a big fat bill demanding that they pay for the financial recklessness and profligacy of others.

Not a comforting thought.

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ET on April 13, 2007 - 12:14pm Permalink | Subthread | Parent | Comments top

But...but... then the already slave-level wages of the poor person become worth even less. Wages of the lower percentages of the working poor have declined in recent decades. The rungs keep coming off the ladder.

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