Transcript: 442 Relay Shilling

Because of time constraints and to keep our place in your queue of podcasts, today's episode is primarily a relay of a conversation between Tom Keene, Gary Shilling and Michael McKee. We featured Shilling recently as one of the few independent economists on Wall Street and consequently one of the few without a bull's bias, nor the need to wear hip waders. As the year turns, and we ourselves turn back to the forecast, we will be looking at some of the other forecasts. But we thought we'd start you off with Shilling, so you know it's not all bull....

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KEEN SHILLING MCKEE

Yes, honey.

The talk about inflation is a bit confusing. Shilling identifies six or seven different kinds of inflation. But inflation is by definition a general phenomenon. We've made this point before, and then backed off it by defining two types of inflation, inflation in consumer goods and inflation in investment goods. This is relevant because there is deflation in real investment goods, which means investment is lagging and the employment and value in investment is being extracted from our present and our economic futures. We could rectify this problem by big new investment in public goods, infrastructure, climate change mitigation, education, electrical transmission. The perceived inflation in consumer goods is caused, of course, by the bidding up of commodities in the casino markets. That inflation is greatly weakening, and ought to be a sign of weakness, as speculation cannot keep commodity prices high.

Key to any general price rise, that is inflation, is the wage rate. Wages are stagnant and falling, hence there is a general deflation, as well, masked by this folderol in the financial markets. Deleveraging is the context for debt deflation. There is deleveraging going on in the household sector, in the business sector, at least the small business sector.

And Shilling correctly points out that all the money, the liquidity, the M in the PQ equals MV equation, is not creating price rises except in financial securities, the casino, and that casino activity is not getting out onto Main Street.

This has been the theme of Demand Side for years. Monetary policy is not working. We need fiscal policy, as in public spending on job-creating enterprises. Otherwise, we will continue in what, as Keene and Shilling say, for two thirds and more of the country is not recovery, but recession.

To say then, that this new slump was not precipitated by the Fed, is a bit off the mark. The Fed is still steering in the same direction as precipitated the Great Financial Crisis, nothing has been fixed, and their cheap chips are not constructive in addressing the employment crisis.

Today's podcast brought to you by honey. Yes the natural sweetener with nutrients and value. That white sugar is poison, my friends. The energy you get is just the front side of the crash. Watch out for your chocolates, a Trojan Horse for sugar. One of these days, sooner or later, your body will ask you to switch.