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Veteran Advisor

Barometer's and thermometer's

My dad and I had this discussion this morning while finishing up chores.  I am wading into the very deep end of the intelectiual pool today so if I get it all wrong tell me. (I know none of you will be bashful about that) 

 

YEs this does have to do with markets.

 

First a couple of definitions. 

Definition of THERMOMETER

: an instrument for determining temperature; especially : one consisting of a glass bulb attached to a fine tube of glass with a numbered scale and containing a liquid (as mercury or colored alcohol) that is sealed in and rises and falls with changes of temperature
Definition of BAROMETER
1
: an instrument for determining the pressure of the atmosphere and hence for assisting in forecasting weather and for determining altitude
2
: something that indicates fluctuations (as in public opinion) <housing sales and other economic barometers>
We talk alot about inflation and what it is, however we mostly define it by extremes.
Many would say that because a product costs more today than yesterday it is inflationary.  We know that many things can cause us to have rises in price that have nothing to do with inflation.  A short corn crop will lead to a price spike but this is not inflationary.  This is the function of a market driven by freedom. The freedom to ask the price that a dwindling supply will reward with pent up demand.  Over time given equal demand with equal supply there should be NO price swing. 
In the housing market the demand for homes and therefore home values should only increase with higher demand for housing such as occured as baby boomers left their parents homes and started their new life with their significant others.  ALso as we can see from the new census data as their is less people there should be less need for homes. Again demand unequall with supply.this isn't deflation this is the market working.
( again very simplified I understand that a famine would in fact be disasterous to an economy.)
A thermometer however measures only one thing Temperature! As the temp rises and falls so does the pressure.
SO what causes an economy to heat up or cool down? MONEY.  Actually the supply of money. 
Today many people are looking in the mirror of history back to the 70's to see what is next. This is the wrong place to look.  The 70's were a result of taking ourselves off the gold standard and putting in it's place Faith. Faith that goverment would not print money to make up for spending that exceeded revenue. ( Now that was dumb!)  Also that goverment wouldn't become the biggest borrower on the block. (again really niave of us) This faith was misgudied and the folks who understood this used thier position to run down the value of the dollar by buying gold and silver primarily but also any other hard commodity because of the demand for something real not fictitious. This commodity rage was the berometor not the thermometor. The thermometor was measuring the new dollars that were hot off the press.
Well the powers that be saw that they must restore faith in the dollar so along came the 80's.  They had devalued the dollar and could see that they would kill off the golden goose if they did not restore some measure of sanity. So they turned down the thermometor slightly. This caised a drastic drop in the barometeor which everybody watched with amasment. Land values dropped.  Food droped.  Oil came crashing down, gold, silver and all precious metals dropped like a barometor in the eye of the storm.  BUt the temperature gauge said that it was only an infantesable drop.  The 90's where just and extension of the barometor. While there were small gains in pressure no one saw any big jumps and like a frog in the pot we just allowed for some small warming not realising that we were being boiled alive. Goverment spending was going nuts we spent like drunken sailors ( remember the republican congress?)  We had a dot com bubble of course but we saw this as a barometric reading not as the thermometric reading. We didn't see the teperature rise. (OK I didn't but most of the rest of you probably did)   Then comes 2001.  We realize that we can't insulate ourselves from the rest of the worlds problems and we have a gut check. We start to look at some things in the light of tomorrow instead of the light of today. 
The realization is that we have some problems.  The economy is cyclical and it is going to gyrate. No one person ie: Greenspan, can foresee all the economic woes and adequatly insulate us from them.  We find out in 08 that the money men knew this and were insultaing themselves with tax dollars and pension funds. As that unraveled we found out again about the printing press.  It has a magic that is so addicting that lawmakers could not avoid it. the fear of losing was so great and the printing press said it would spare us that pain.  But it did not tellus of the worse pain. The pain of run away energy, gold silver, and CORN!  So now the end result is that we have a group of people fixated on the barometor and no one watching the temperature gage.  
The Chinese foolishly pegged their currency to ours which was only backed by faith. Now that they have decoupled they are realizing that the faith that they are selling is empty. Hence thier runaway inflation and interst.(yes we are at the beginning of that tear)  
What is ahead now for us? The time frame is still scetchy but I think that the pot is already to scalding and all that is left is for the lid to blow. We already plugged the safety valve by not allowing the failing of the banks So now we will all feel the heat. The bond market is heating up and world interst rates are starting to perculate. We are next. For those that went thru the double digit interest of the 80's I hope you have prepared. For those who have only heard of it as urban legend this is a fearful thing that is about to befall us.
As congress begins to reign in the printing press it will not go quitely. It will fight it's banishment and as it does it will raise commodity prices again. I fear those who are wage earners will soon riot!  And I think that the cries for nationalization of food policy are very close. I don't think this ends well.
So while every news story you hear is about the Barometric pressure, housing starts, foreclosure rates, unemployment, energy costs,and FOOD prices. Remeber keep your eye on the money!
Lawmakers are between the rock and the hard place. They can not spend more if they do the inflation thermometer will peg. If they reign in spending the people will riot as they have less money to buy things with and no safety net at all. 
This can only end very badly. And for those of you who say it has never happened before  Well no one had ever killed 3000 people by flying airplanes into a building before 9-11.
Well am I all wet?
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27 Replies
Senior Contributor

Re: Barometer's and thermometer's

No, you are spot on.

 

just read about the Germans, and the days of the Weimar Republic, and how debt and inflation greased the skids that allowed the Nazis to slide into power.

 

Hitler and crew got things rolling again in Germany by basically repudiating the country's crushing foreign and domestic  debt....they just stopped paying. Germany had been assessed debt to pay the cost of WWI , and it was clearly not possible. Public works projects were started and payment was in a new type of government scrip tied to the value of an hourly wage. The foreign and domestic bankers that Germany owed their debts to were ignored.

 

I am not sure what course American history takes, whether it involves nationalization of the farms and food industry, welshing on our debts to China and others, raising taxes and having draconian expense cuts, but based on the posts even  in this forum, I would be surprised to if something doesn't happen soon. Maybe it ends up like Stalinist Russia, where farmers were either shot or sent to Siberia and their wealth and farms confiscated.

 

No one is an island, if you are a prosperous person, whether a banker, a farmer, or anyone else, and the masses are not doing well, you should not expect to have a life free of change. German bankers never saw it coming, Russian landowners never saw what was going to happen...the aristocracy in France were blindsided......it is to everyone's best interest that the whole country prospers.

 

Anyone that supported what our congress people did in December...lowering taxes and  continuing the spending like drunken sailors....is either a fool, not very patriotic, or both. We need to get our fiscal house in order or face the consequences.  Worrying about national health insurance rather than continuing to have a nation.....Congress really mixed up their priorities.

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Senior Contributor

Re: Barometer's and thermometer's

Wow nothing like a little doom and gloom for a saturday afternoon I thought I was on the Agweb forum. As far as the government taking the farms over because of high food prices all the government would have to do is open up CRP and some how cut corn demand for ethanol and the country would be awashed in plenty of grain for food. Believe me they will do this long before they will take over your farm. 

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Veteran Advisor

Re: Barometer's and thermometer's

NDf you are wrong.  They can open up CRP from now till kingdom come and it will not restore the lost animals!  Dairy has been on a tare I'll bet in the next two weeks whole milk in DEs Moines, Chicago and Indianapolis will top $4/ gallon. Then the whining will take on a whole new level.  Just like $3 butter got the housewives up in arms BTW butter is almost there again.  Hamburg going over $3.50 a pound WOW.

 

Also I didn't say they were going to take over farms all I said is that they will nationalize food prices just like they will health care. If they come out and say that a gallon of milk is only worth $3 what will you do then?  I doubt it will hurt deans but it will hurt me! 

 

And the folks who ignore the signs are doomed to check their brakes at a really bad time.

 

Sorry about the spelling guys that first post was horrible.

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Senior Contributor

Re: Barometer's and thermometer's

I don't believe they will nationalize food-beef prices JR. Just too many variables to control. But, they can as NDF said, go after ethanol. If they kill that there would be corn to burn, and it would be dirt cheap, Hello LDP's. only this time LDP's won't be enough

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Veteran Advisor

Re: Barometer's and thermometer's

One word here guys    NIXON!

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Senior Contributor

Re: Barometer's and thermometer's

Jr. Iwas replying more to red steeles post than to yours. As for the lost animals as far as I know they still breed beef and dairy cows so with cheap grain they can and will be replaced over time Yes tempory price controls could be placed on certain ag items, but a full nationalization of  our food policy I doubt it. What nixon did is a far cry from nationalizing our food policy.BTW some people could say we had a nationalization of our food policy brought to by the farm programs we  had thru the 80's and 90's that lead to the cheap grain prices.

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Senior Contributor

Re: Barometer's and thermometer's

Btw Jr price contols will not fix low supply situations only enhance them. They reduce the incentive  to find ways to overproduce the given commodity or to find alternatives for it and if a simple farmer like  me knows that I think the government economists do too. IMO if they are  used it will be for a tempory shock to the speculator.

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Veteran Contributor

Re: Barometer's and thermometer's

No, you are not all wet. However....you do need to spend less time in deep thought over issues that you can not resolve and will probably never happen. Don't worry about things out of your control. Yea, we have some issues in this country that need addressed. Dracionian measures will not be used to solve them, History has shown that our democracy will find a way to solve these problems by measured means rather than drastic measures. For instance, I (nor any of my farming neighbors) will not riot if direct payments are reduced or other substantial entitlements cut. If my local government cuts road repairs by 50% I will complain about pot holes not shoot somebody. This is how we need to dig ourselves out of this mess....one small step at a time.  Cut spending and hold taxes steady for now and slowly inflate our way out. Kick the can but not as far as usual. I don't like the medicine any more than you.

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Veteran Advisor

Re: Barometer's and thermometer's

Nixon didn't impose price and wage controls due to any shortage. Here is an interesting paper on the subject.

President Nixon Imposes Wage and Price Controls

August 15, 1971.  In a move widely applauded by the public and a fair number of (but by no means all) economists, President Nixon imposed wage and price controls.  The 90 day freeze was unprecedented in peacetime, but such drastic measures were thought necessary.  Inflation had been raging, exceeding 6% briefly in 1970 and persisting above 4% in 1971.  By the prevailing historical standards, such inflation rates were thought to be completely intolerable.

The 90 day freeze turned into nearly 1,000 days of measures known as Phases One, Two, Three, and Four.  The initial attempt to dampen inflation by calming inflationary expectations was a monumental failure. 

In 1971, the U.S. was also in the process of leaving the gold standard, which was intended to allow the value of the U.S. dollar to fall.  Compounding the situation were such events as Fed Chairman Arthur Burns and the Committee on Interest and Dividends (part of the controls apparatus) strenuously opposing banks attempting to raise the U.S. prime rate from 6% to 6.25% in February 1973.  Inflation rates were below 4% at the start of 1973, but reached 9% by the start of 1974, which would have made the real prime rate a negative 3%.  At the same time, interest rates were going up in foreign countries, putting enormous pressure on the dollar.

The wage and price controls were mostly dismantled by April, 1974.  By that time, the U.S. inflation rate had reached double digits. 

While there were skeptics in August, 1971, there were a great many who thought "temporary" wage and price controls could cure inflation.  By 1974, this notion was thoroughly discredited, and attention gradually turned toward a monetary approach to inflation.  In a complete reversal, the policy to curb inflation in now thought to be an increase in interest rates rather than an attempt to hold them down.

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