Sometimes, Money Printing Sets The Stage For Lower Prices

Not all printing is inflationary.

I know, what I have just said must resonate as nothing short of heresy amongst most of your ranks.  You’ve been worshipping at the altar of currency devaluation for so long now you probably can’t even begin to fathom life without the dogma.  What would you do, if separated from your ceaseless chanting and repetitious arguments?

But I’ll say it again; not all money printing inevitably leads to higher prices.  Sometimes, money printing sets the stage for much, much lower prices.

For instance, look no further than the U.S.’s own banking system.  There is to be witnessed the very contact point for where all this currency is going.  It is the direct beneficiary of free money.  Yet, how are things faring for them?

Revolving credit, the kind you usually find most prevalent with business, is dropping consistently.  While perhaps the numbers of U.S. dollars in circulation is forming a record apogee, the velocity of money continues to drop.  Banks have fewer and fewer outlets to invest all that free money into.

I say this to remind you that the issues of the day are never as straightforward as they initially appear.

Now, the oil/energy market has for months been going on a run of epic proportions.  And if you think our run has been impressive, you should look to Europe to see true calamity.  In anticipation of the great devaluation at hand, it seems there is no price too great to secure escape.  Gasoline prices in particular have been soaring, while Europe’s economy contracts daily.

How’s that for the worst of all possible outcomes?

But that sort of thing doesn’t last forever.  You can’t have economic contraction and soaring prices for long.  Eventually, this sort of contradiction forces the reluctant choice: let the obligations sort themselves out and take the hit.

Especially with prices where they are right now, and the unwillingness of employee salaries to rise equitably, I would not be surprised to find that current price levels are a temporary phenomenon.  If governments attempt to subject their citizens to these prices, then demand will continue to collapse (as it has to this point).  

At that point, it will become a fairly clear choice of allowing the main players to take their lumps, or allowing a double dip recession and having the main players fail anyway.

We’ve reached the point where every dollar printed goes straight to commodities or stock prices.  That’s the end of the game, folks.

19 Responses to “Sometimes, Money Printing Sets The Stage For Lower Prices”

  1. Captain Planet

    So close here…

    But Scott is right. Ain’t nothing breaking down until April. One last oil spike over $110 and then we see the first sub-$100 print in awhile…

    • Mr. Cain Thaler

      Probably. Or possibly….whatever.

      I’m willing to hold my ERY/SCO combo through the summer, because I fully expect sometime between then and now we’ll see another flush.

      • Captain Planet

        I’m with you though… the eventual direction is down. Today’s crude inventory #s were pretty bad and lead me to believe that the market might finally start to worry more about demand destruction than Iran.

        If I was holding for the rest of the year, no question I’d be short. Not a matter of “if”…

  2. Gov’t can just order you to buy whatever is necessary. That will get the economy moving and improve interstate commerce.

    • Mr. Cain Thaler

      Hell yeah. That worked so well for the Soviet Union, it’s a wonder they ever did away with that model.

      It’s also why totalitarian states are such glistening utopias.

      Nothing is quite so awesome as a few, socially remote individuals (probably continuously surrounded by hookers and blow) dictating the interaction of millions. Sure fire recipe for success, no question…

  3. leftcoasttrader

    Doesn’t it also depend a lot on how they “print money.”

    Are they going to buy up more MBS? Because if housing is actually bottoming, I’m sure the banks would rather hold on to those. There are quite a few profitable MBS sitting on the Fed’s balance sheet by the looks of things.

    • Mr. Cain Thaler

      Not if the response to every eyebrow twitch of Ben is a $3 move higher in oil.

      Although I do agree with you, some of their MBS paper has got to be smoking hot. They were buying when the market for it no longer existed.

  4. Captain Planet

    Cain-

    I just had this crazy idea. Take a look at oil priced in gold. I know oil is extended in dollars, but based on the fact that we’re still handily under the 40 year average… what if the US dollar debasement carries with it some permanent changes in the oil market?

    More specifically, what if China and India want to dump all of their US dollars – permanently – in order to invest in hard assets? Wouldn’t that result in a perma-bid under the current price?

    As I’m thinking this out now, though, it hit me why Ben just can’t do QE3. Maybe you’re right. Debasing the dollar any more would lead to an upward cascade in the oil market as China dumped its holdings at any/all costs.

    • Captain Planet

      Back to the original point though… what happens to the current oil ETFs, etc. priced in dollars, if/when oil moves to another pricing scheme?

    • leftcoasttrader

      Only way China dumps all their dollars is if they stop accepting dollars for their exports and if they decide to incur billions in losses. The latter could happen, but I can’t envision a scenario within the near to intermediate future where the former would be possible. You can’t just turn the largest exporting economy on a dime overnight and make it into something it isn’t.

      And to serve what point? Oil, gold and every other hard asset are rather illiquid markets when you’re dealing with something the size of China.

      • Mr. Cain Thaler

        I think that’s right. China’s problem is organizational; they have plenty of revenue. It’s putting it to work that takes up their time.

    • We pay for everything in dollars. That’s not going to change. It’s a major factor in how we remain solvent no matter what happens. Being the worlds largest economy, if someone refuses to accept dollars from us, they’re fucking themselves.

      • For a little while yet. ^

        • leftcoasttrader

          I love backhanded comments that point to how everything is going to change and the giant will fall, yet provide no insights as to how it will happen.

          Do tell, how is it going to unfold?

  5. Buy DUG.

  6. [...] Read more Share this:TwitterFacebookLike this:LikeBe the first to like this post. [...]

  7. Captail Planet

    Phew, today must have been a bit of relief for the short energy crowd. I still say, hang on tight, cause we have another pop…

  8. Throughout history, whoever has made similar statements i.e “Not all printing is inflationary.” turned out to be off the mark.
    My bet is that this time will be no different. It will be off the mark as well.
    Best of luck.

Comments are closed.
Previous Posts by Mr. Cain Thaler

Sometimes, Money Printing Sets The Stage For Lower Prices

Not all printing is inflationary.

I know, what I have just said must resonate as nothing short of heresy amongst most of your ranks.  You’ve been worshipping at the altar of currency devaluation for so long now you probably can’t even begin to fathom life without the dogma.  What would you do, if separated from your ceaseless chanting and repetitious arguments?

But I’ll say it again; not all money printing inevitably leads to higher prices.  Sometimes, money printing sets the stage for much, much lower prices.

For instance, look no further than the U.S.’s own banking system.  There is to be witnessed the very contact point for where all this currency is going.  It is the direct beneficiary of free money.  Yet, how are things faring for them?

Revolving credit, the kind you usually find most prevalent with business, is dropping consistently.  While perhaps the numbers of U.S. dollars in circulation is forming a record apogee, the velocity of money continues to drop.  Banks have fewer and fewer outlets to invest all that free money into.

I say this to remind you that the issues of the day are never as straightforward as they initially appear.

Now, the oil/energy market has for months been going on a run of epic proportions.  And if you think our run has been impressive, you should look to Europe to see true calamity.  In anticipation of the great devaluation at hand, it seems there is no price too great to secure escape.  Gasoline prices in particular have been soaring, while Europe’s economy contracts daily.

How’s that for the worst of all possible outcomes?

But that sort of thing doesn’t last forever.  You can’t have economic contraction and soaring prices for long.  Eventually, this sort of contradiction forces the reluctant choice: let the obligations sort themselves out and take the hit.

Especially with prices where they are right now, and the unwillingness of employee salaries to rise equitably, I would not be surprised to find that current price levels are a temporary phenomenon.  If governments attempt to subject their citizens to these prices, then demand will continue to collapse (as it has to this point).  

At that point, it will become a fairly clear choice of allowing the main players to take their lumps, or allowing a double dip recession and having the main players fail anyway.

We’ve reached the point where every dollar printed goes straight to commodities or stock prices.  That’s the end of the game, folks.

19 Responses to “Sometimes, Money Printing Sets The Stage For Lower Prices”

  1. Captain Planet

    So close here…

    But Scott is right. Ain’t nothing breaking down until April. One last oil spike over $110 and then we see the first sub-$100 print in awhile…

    • Mr. Cain Thaler

      Probably. Or possibly….whatever.

      I’m willing to hold my ERY/SCO combo through the summer, because I fully expect sometime between then and now we’ll see another flush.

      • Captain Planet

        I’m with you though… the eventual direction is down. Today’s crude inventory #s were pretty bad and lead me to believe that the market might finally start to worry more about demand destruction than Iran.

        If I was holding for the rest of the year, no question I’d be short. Not a matter of “if”…

  2. Gov’t can just order you to buy whatever is necessary. That will get the economy moving and improve interstate commerce.

    • Mr. Cain Thaler

      Hell yeah. That worked so well for the Soviet Union, it’s a wonder they ever did away with that model.

      It’s also why totalitarian states are such glistening utopias.

      Nothing is quite so awesome as a few, socially remote individuals (probably continuously surrounded by hookers and blow) dictating the interaction of millions. Sure fire recipe for success, no question…

  3. leftcoasttrader

    Doesn’t it also depend a lot on how they “print money.”

    Are they going to buy up more MBS? Because if housing is actually bottoming, I’m sure the banks would rather hold on to those. There are quite a few profitable MBS sitting on the Fed’s balance sheet by the looks of things.

    • Mr. Cain Thaler

      Not if the response to every eyebrow twitch of Ben is a $3 move higher in oil.

      Although I do agree with you, some of their MBS paper has got to be smoking hot. They were buying when the market for it no longer existed.

  4. Captain Planet

    Cain-

    I just had this crazy idea. Take a look at oil priced in gold. I know oil is extended in dollars, but based on the fact that we’re still handily under the 40 year average… what if the US dollar debasement carries with it some permanent changes in the oil market?

    More specifically, what if China and India want to dump all of their US dollars – permanently – in order to invest in hard assets? Wouldn’t that result in a perma-bid under the current price?

    As I’m thinking this out now, though, it hit me why Ben just can’t do QE3. Maybe you’re right. Debasing the dollar any more would lead to an upward cascade in the oil market as China dumped its holdings at any/all costs.

    • Captain Planet

      Back to the original point though… what happens to the current oil ETFs, etc. priced in dollars, if/when oil moves to another pricing scheme?

    • leftcoasttrader

      Only way China dumps all their dollars is if they stop accepting dollars for their exports and if they decide to incur billions in losses. The latter could happen, but I can’t envision a scenario within the near to intermediate future where the former would be possible. You can’t just turn the largest exporting economy on a dime overnight and make it into something it isn’t.

      And to serve what point? Oil, gold and every other hard asset are rather illiquid markets when you’re dealing with something the size of China.

      • Mr. Cain Thaler

        I think that’s right. China’s problem is organizational; they have plenty of revenue. It’s putting it to work that takes up their time.

    • We pay for everything in dollars. That’s not going to change. It’s a major factor in how we remain solvent no matter what happens. Being the worlds largest economy, if someone refuses to accept dollars from us, they’re fucking themselves.

      • For a little while yet. ^

        • leftcoasttrader

          I love backhanded comments that point to how everything is going to change and the giant will fall, yet provide no insights as to how it will happen.

          Do tell, how is it going to unfold?

  5. Buy DUG.

  6. [...] Read more Share this:TwitterFacebookLike this:LikeBe the first to like this post. [...]

  7. Captail Planet

    Phew, today must have been a bit of relief for the short energy crowd. I still say, hang on tight, cause we have another pop…

  8. Throughout history, whoever has made similar statements i.e “Not all printing is inflationary.” turned out to be off the mark.
    My bet is that this time will be no different. It will be off the mark as well.
    Best of luck.

Comments are closed.