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SHILLING: WE’RE IN A WORLD OF “CHRONIC DEFLATION”

12 August 2010 by Cullen Roche 18 Comments

Few people have nailed the deflationary environment as well as Gary Shilling. Shilling was one of the few people who foresaw the housing crisis and the equity market catastrophe in 2008 and although he remained bearish in 2009 he has been largely correct with regards to the macro picture. He believes we’re in for a prolonged bout with deflation and says Obama’s economic policies are only making matters worse.

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Comments
  • F. Beard

    The implicit social contract of our money and banking system is that purchasing power shall be stolen from all money holders and invested for their own good in terms of employment and cheaper goods . The cheaper goods are there but oops the workers have been replaced with automation created with their own stolen purchasing power. The worker’s savings? These were eaten away by negative real interest rates or lost because the workers were forced into speculation. But the government will balance the scales, right? No, because the social welfare net is under attack as the cause of the problem.

    Our banking and money system has failed us once again. Can no one think of a better way?

  • cham

    could some explain Shillings comments on 30year T , increasing by 18-30%?

    how did he come to that figure

    • Marxist_MMTer Captain America

      Maybe he’s looking for bonds to hit their 2008 highs?

    • Anonymous

      Cham, i think he may be looking at Bernanke’s 2002 speach on deflation where he said one of his bullets could be to put a ceiling of say 2.5% on the longer dated bonds as they did after the war. that’d be a return similar to what he was talking about. rgds.

  • GLH

    I had the privilege of being cussed out by a Bush supporter in early 2005 because I told him there was big recession coming due to the housing market. He assumed I was just trying to belittle his President. I never told him my party affiliation -I have none- and I never told him that I picked that bit of information up from Gary Shilling, who I assume is Republican. Mr. Shilling was so far ahead in warning about the housing bubble that I almost gave up on him.

  • scrilla_gorilla

    This guy is great. “Just like stocks, if you’re in a bear market and you got any brains, you get out.”

  • ric

    If any one thinks that the whole world is going to stand idly by, while the U.S. enters a 10 year period of deflation, and finance the U.S. deficit at rates as low as they are today, over the next 10 years, they are OUT OF THEIR MINDS. When the world wakes up from its current slumber, realizing that the probability the U.S. will ever repay its debts is zero, and that the dollar is facing a massive devaluation by virtue of a massive inflation, U.S. bonds as an asset class will go, “bye-bye.”

    • Fox

      people who believe that the world will soon stop buying US-Treasuries “once they realise the big ponzi scheme behind them” completely fail to take 2 factors into account. First, when the US gets really deep and prolonged into economic trouble and deflation (which it will and which will drive the long yields massively lower), then “the others” will be suffering massively as well. the absolute attractiveness of T-Bonds will fall, yes, but not their RELATIVE value!
      Second, and related to that: If the large foreign institutions stop buying Treasuries – what else are they going to buy? Japanese, with 270% Govt debt-to-GDP? Are you kidding me? German/European bonds? With the economic rift between Northern and Southern Europe getting wider by the day wjich threatens the very existence of the EURO? Sure. So what else? British Gilts – with the UK headed for bk over the next 3 decades? Chinese? Please! They aren’t even freely available and even if, who in his right mind would loan to THAT government??
      So for big institutions, telle me what are they going to buy instead of Treasuries? What are they going to buy with the proceeds of Treasury sales? there simply is no real, large enough alternative available anytime soon. The notion of foreignes driving up US-trerasury yields by “demanding” higher yields is a nice theoretical expectation with Zero regard to the practical reality of the ´todays global financial markets.

  • RSAS

    When we fight inflation we raise interest rates. We increase the price of money. How can increasing the price of anything, including money, be used to fight rising prices, the essence of inflation. So, how then can we fight deflation by decreasing the price of money? Again we are doing things backasswards. If we were to increase interest rates at this moment, deflation would not be a worry. AND someplace above 4%, inflation would tear us up! There is no answer to greed!

  • Jack

    Of course, now we’ve sold so much debt to the morons running other central banks, they
    have a vested interest in propping our fiat up. If they run, they can’t run fast enough, the
    value will plummet. They have to sneak out, but you can’t sneak trillions out. We offer things
    cheaper every day to sell it, to try to lure dollars in. At some point, (soon now, I’m tapped) we
    will have to stop deflating, and start defaulting.

  • honestann

    All the people are total idiots! They’ve accepted so many utterly false and counterproductive ideas that are “conventional wisdom” that they’ve turned their minds into destructive agents rather than productive.

    Deflation is GOOD. Deflation is utterly NATURAL – as people learn to produce more with less time, effort, resources. Given the advent of computers to handle paperwork and operate productive machinery, efficiency has risen dramatically — but has been more than offset by the destruction caused by the predators-that-be (governments and large corporations [with teams of lobbyists]). But today, almost nobody in the western world focuses on productivity, they focus on new lies, scams, schemes and dishonesty. These MORONs say how terrible it is for people to “buy less because prices might drop”. Do you understand what this means – what this necessarily means? It means that we MUST have a world in which people forever pay MORE for everything, even though the cost of producing those products FALLS (for the reasons I mentioned above). This is EXACTLY their motives — to STEAL the difference between “cost to produce” (which naturally falls for most goods) and “cost to buy”. These SCUM position themselves to STEAL the ever-increasing difference between those two prices, and that is why they endlessly repeat the FALSE and MASSIVELY DESTRUCTIVE slogan “deflation is the worst possible situation”. They are LIARs. They are PREDATORs. And yes, a few of them are merely STUPID (but they get promoted into positions of power by the predators-that-be who understand what is really happening).

    It is GOOD for people to “hold off on purchases”. This is called PRUDENCE. What they advocate is that humans buy everything they have the slightest inkling that they might like to have… and get INFINITELY into debt… into debt to the predators-that-be, who PRINT MONEY AT ZERO COST, then lend it at interest to what becomes an entire planet-wide population of DEBT SLAVES. The PREDATORs thus become SLAVE OWNERs… not of “a few slaves here and there”, but an entire planet full of slaves. And with the utterly illegitimate self-recognized powers that simply ASSIGN TO THEMSELVES, even the tiny percentage who stay out of debt are endlessly abused… and made to bail out the irresponsible.

    To imagine that “people will put off all purchases forever” is absurd. People want to enjoy life, and people who produce SHOULD enjoy their lives. And they will. They will spend… at a rational rate. And while they are waiting, they will INVEST in ways to further increase efficiency (deflation), and in ways to make new and superior products. Or, at worst, they will purchase real goods with enduring value as a way to “save now so they can spend later”. This creates current business activity (mine the gold/silver/copper/titanium/etc they intend to save for later). Then later, when those elements may then be available in plentiful supply, human effort can gradually be shifted to other productive activities. There is NO END to the number of productive activities; in fact, there is no end to the single productive activity we call “inventor”.

    ALL these morons who refuse to start from zero (the absolutely real and absolutely known), then carefully and methodically work up from there (intellectually), are causing the destruction of mankind. Rather than spend their time, effort, resources and focus on “understanding fundamentals” (so they can eventually understand “what to do/advise”), simply have their incapable brains stuffed with the PURE PROPAGANDA that is taught in “higher education”, where “education” means “brainwashing”. They CANNOT think. They have been trained to only remember and repeat the soundbites and slogans of their masters. They are almost UTTERLY without rational capacity. If you were to drop a farmer and one of these jerks onto identical empty islands, then watch to see how well they actually observe the environment and figure out how to survive and prosper, you will find the farmer does INFINITELY better – because he deals with reality (not fiction, not soundbites, not propaganda) day in and day out. If the farmer misunderstands, he gets no crops, or has his arm torn off by his farm equipment – or worse. If these criminal apologists for the predators-that-be misunderstand, they get a raise, a bailout, a more powerful position, new support from government, new laws and regulations to give them unearned advantages over others.

    The entire answer to ALL issues and questions discussed on these stupid programs and websites is trivial — END “CONSEQUENCES SHIFTING”. Let every individual take whatever actions they wish, but require that each individual enjoy/suffer ALL consequences of his actions, and enjoy/suffer ZERO consequences of actions taken by others. The world would become infinitely better in a few years. The answer is simple, if you understand fundamentals. Unfortunately, almost zero humans understand fundamentals today, even fewer have worked out how to apply them, and all of these folks who are “prepared to help” are destroyed or marginalized by the predators-that-be who would become recognized as destructive, not “saviors” and “experts”. Unfortunately, such a vast majority humans are now so utterly intellectually corrupted, confused, disabled and dishonest that the entire species is now certainly screwed, as long as they are constrained to this planet (where they are destroyed and thwarted by the predators-that-be and their mindless agents and drones).

    • epulun

      Thank you, honestan, you incisively described our economic predicament with great boldness and flair.

  • Time to short the market & learn to play the downsides…

  • Jackal

    Lucky me….when I was very young my mother explained “if you don’t have the money to buy something, then you can’t afford it”.

  • Storm Cloud

    Thank you, honestann you like me are a messenger they want to kill. Individual freedom, Individual responsibility!

  • Sultan

    He really didn’t say much in either of these clips. Funny how a Titan of industry can get press time and it is supposed to be worthy of a headline, which should read “Shilling interview discloses very little”. Would any real investor disclose their current position?

  • Gene Stickel

    There have been many Johnnys-come-lately to the deflation fear. However, Robert Prechter of
    Elliott Wave International has been beating this drum for many years now!

  • bolsas femininas

    Do you have a facebook fan page or any other way to contact you?