Thursday, January 29, 2009
Having just stumbled upon the Mike Shedlock-Peter Schiff online feud as Schiff had executed a fine compound-riposte in response to Mish's dazzling ballestra-lunge earlier in the week, it suddenly became clear that data supporting one of the central arguments on one of my favorite subjects - "deflation" - was in dire need of an update.
First, for those of you who missed it, here are the two attacks:
Jan. 25 - Mish: Peter Schiff Was Wrong
Jan. 29 - Schiff: A Response to My Critics
There may be more commentary by one or the other, possibly both, over the last few days but you'll surely get the gist of what's going on by starting out with the references above.
To summarize, Peter Schiff was said to be very, very wrong last year and his clients are a little lighter in the wallet as a result (some, apparently, a lot lighter), while Mish's criticism was deemed wide-of-the-mark because it focuses on too narrow a time period.
It's all good clean fun reading...
Anyway, here's the chart from the first reference above that needs a little updating.
It shows year-over-year money supply growth and is presented as evidence that big increases in the monetary base do not necessarily lead to inflation since money supply grew during the Great Depression which, as everyone knows, was a period of "deflation".
The fact that the 25-30 percent growth in the money supply during the 1930s came after the worst of the depression from 1930 to 1933 aside (recall that the Great Depression was actually a three or four year depression followed by a recovery, followed by a nasty recession later in the decade - GNP actually grew 8 percent in 1934, 8 percent in 1935, 14 percent in 1936, and 5 percent in 1937), what is of much greater interest is to see what's happened to the recent data in the chart above.
Note the change in scale and the blue line slightly obscured by the gray recession bar.
Clearly, this calls for another use of one of last year's most popular words - unprecedented.