When a ponzi scheme looses momentum and collapses it is irrecoverably dead. Bitcoin is a popular commodity whose immediate usefulness is low and its popularity rises and falls as any fashionable commodity. But the long term trend continues to accelerate along with its usefulness, while its price remains just as volatile.

Grinder, what JBDive has personally and empirically observed is not controversial. What is controversial is the weighted basket of goods used to calculate the core consumer price index in the United States. Headline inflation (7%) includes food and energy costs (14%). However to calculate inflation the Fed uses "Core CPI" (3%) and PSE, both of which exclude food and energy costs, due to their historic volatility, leading some to fear deflation, which because core CPI relies heavily on housing prices should not be surprising.





Note that 2007-2008 was known as the World Food Crisis. What are we experiencing now?

Just low on the sigmoid curve...



In the trough of disillusionment...

Coming back to OP, whether Krugman is wrong or right, he has a large readership who may and often do not agree with him. Furthermore, Krugman has stated that bitcoin has been a good investment but bad for trade. All together, Krugman has done bitcoin exchanges a favor and the merchants will follow. Gentlemen, bitcoin is going mainstream!

Paul Krugman vs Orson Welles

Yes, I am quite aware of that, and made several allusions to that point in my previous two posts, including the SGS chart comparing Fed CPI with SGS traditional calculation. The new CPI specifically eliminates food and energy because these are considered too volatile to be meaningful. Never mind the fact that monetary volatility drives commodity price volatility: Oil, food, and gold are stable relative to each other, but not paper. Furthermore, since government obligations are adjusted according to the new CPI, it is to the creditors advantage to suppress CPI, including government salaries, Social Security beneficiaries, veterans, and food stamps, to name a few.

It is M3 that is no longer reported by the Fed.

I don't deny that central banks are putting out a fire with blowtorches. I'm just pointing out the 2009 was deflationary at least according to the Fed's own CPI and that QE1 most likely did reflate prices, likewise with 2010 and QE2 to the 2008 average.


I was not aware of that. Is/was that his opinion before or after QE2?


I'd like to read his admission, if you have a link. I agree that base money and M1 have very little to do with inflation directly. Those aggregates can be multiplied through weaker money (M2, M3) but thus far, most of it is just sitting in Fed reserves doing nothing but backing the collapsing credit. A bank is required by law to hold a 10% fraction of M1 from which it lends out (creates M2) money for business, housing, etc. When people start paying off their mortgages, defaulting, bankruptcy, etc, M2 evaporates. The central banks (Fed) are generating more M1 and giving it to banks at 0% interest in the hope that banks through lending will then reinflate M2, but it's not working. So in addition to giving base money away for free, the Fed is buying government bonds and devaluing the currency, driving real price inflation up (food and energy) while the bogus consumer price index (housing, transportation, gadgets) is theoretically going down.

Maybe we define comforts differently, but the females of Iceland are hot.

I'd love to get a snapshot of all posts on this forum during the first week of April and compare that to the first week of June. This forum would be a great study in the euphoria-bubble-despair cycle.

I'm no nobel prize winning economist, but is it not possible that 2008 brought such massive deflationary pressure, contraction of M3, that the various bailouts and quantitative easing brought us relative stability? The Fed began in December 2008 to purchase and hold $2.1 trillion of bank debt, MBS, and UST through June 2010. The Fed announced QE2 in November 2010.

Inflation	J	F	M	A	M	J	J	A	S	O	N	D
2008	4.3	4.0	4.0	3.9	4.2	5.0	5.6	5.4	4.9	3.7	1.1	0.1
2009	0.0	0.2	-0.4	-0.7	-1.3	-1.4	-2.1	-1.5	-1.3	-0.2	1.8	2.7
2010	2.6	2.1	2.3	2.2	2.0	1.1	1.2	1.1	1.1	1.2	1.1	1.5
2011	1.6	2.1	2.7	3.2	3.6	3.6	3.6

Granted, opinions vary greatly on the CPI, but given the numbers above, I'd have to say QE2 brought inflation if not employment and QE3 won't happen this year. Perhaps Krugman would have been right if the Fed hadn't printed 20% of US GDP.

Thanks Cypherdoc and Miscreanity, this discussion has opened my eyes to a larger fraction of what is happening and some of the motives in global finance. I believe you are correct that the deflationary pressure is greater than any central banking authority has power to handle and they will attempt to preserve their currencies. I also believe those central banks, in times of crises, answer to politicians and the people, and all of their random panicked whims. Finally, I think we as a planet have tangled ourselves up so tightly, that history provides only hints as to the future from where there is nowhere for us to flee. Krugman may be right, aliens may be our liberators.

I think the opinions have been well stated, but I greatly appreciated the resources that came out of this discussion, links to technical charts, blog posts, and videos. My opinion has been based on superficial understanding and I would therefor miss the depth brought out by contrasted discussion such as this. Thanks again, though I hope it's not really the last.

People seem upset by a generally fair article. Krugman has now gotten a taste for bitcoin, perhaps he'll look into it further. Chill out. It's not like people read Krugman without a grain of salt. It's economics after all.

One or two of those might have been in jest, ironic, sarcastic, maybe even funny. You added nothing constructive. You were clearly annoying at least one person, indeed you anticipated that yet you continued thrice.

FYI: there are quite a few here who are bullish on gold. We entertain the discussion to challenge our assertions. I for one appreciate and respect intelligent conversation.

No, your attitude was nasty, as I wrote in PM. As my mother once (or twice) told me: "It's not what you say, it's how you say it"

Intrade tells me Obama has a better than not chance of winning the election and I have to assume any alternate would continue similar policies (stimulus projects, cutting taxes, budget deficit). Even the most constitutional libertarian couldn't cut US obligations significantly within years. This debt will need to be monetized or defaulted. Furthermore, I believe Ben Bernanke must fear for his job in the immediate future. While I agree the Fed will want to preserve the monopoly and strength of its reserve note franchise, grinding the government to a halt would not accomplish either.

How does this work? The markets will collapse, unemployment will rise, prices will fall, tax revenue will drop, the Treasury will issue about a trillion new USTB at high discount rates and yields, and the Fed is going to do nothing? And in Europe?

Yeah, something like that. Or drop, stagnate, slide, rise, peak, drop, stagnate, slide, rise, peak...

November, February, and June are the strongest examples of a repeated pattern, namely a drop to the logarithmic half of the peak and a plateau four time longer than the rise.

I was asking more about specific methods by which manipulators could execute the simultaneous drops of CHF and gold. I think I understand your position that the Fed will preserve the dollar at all costs (I'm not sure that all other currencies must conspire), the banks have cleared their most toxic debts, thus the time is right for the inevitable deflation. I personally believe the governments of the world will continue monetizing debt and attempting futile stimuli for quite some time unless/until the United States deliberately f¥€£$ Europe while its economic pants are down.

After watching a series of Dent videos which I imagine you lead me to, I came across this 2009 radio interview with Schiff which made a lot of sense. He is saying much as you except disagrees about the price denominations (gold rather than USD). Essentially he believes all assets will contract in real prices. It comes down to the fundamental question of this thread: will central banks lead us toward hyperinflation and/or when will the total deflation occur? Have I summarized your opinion (in relation to Schiff)?

As well as Obama before he did anything. And Kissinger for the Vietnam war and Le Duc Tho who refused. My point was not to glorify and perhaps I should have left out all the titles. But I think we in general need some humility. Bitcoin is not exactly a happy household name. And though we claim bitcoin is an experiment in progress we tend to be quite assertive with our economic conclusions.

This blogger is a Nobel prize winning professor of economics and international affairs at Princeton specializing in international trade and finance. He has numerous detractors, but we shouldn't expect him to suffer fools nor undue criticism. Opening with "You're being..." leads to a personal remark. Some humility is in order. Nor is Michael Suede making friends by rebuking with "Krugman is a Keynesian...also a complete lunatic"