"Debt Inflation" book - Any thoughts?

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mrb55
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"Debt Inflation" book - Any thoughts?

Post by mrb55 » Mon Mar 14, 2016 12:12 am

I just finished reading "Debt Inflation" by Benjamin Moore and was wondering if anyone else had read this book? Essentially, the book discusses true monetary inflation (not CPI inflation) and how the available money supply and ongoing bank debt delinquencies can affect the stock market either positively or negatively (the most recent example being the financial crisis of 2007-2008 and the dot com bubble before that).

I found the way that Moore presented the information in his book to be very straightforward and enlightening. He provides a clear non-opinionated explanation into how the Federal Reserve money creation and Fractional Reserve banking processes work as well as what can occur when it starts to break down.

While I am a devout follower of the Boglehead discipline (including not trying to time the market), I can't help but wonder if what Moore presents is as compelling for you as it was for me. His conclusions are definitely worth mulling over and I think worthy of some discussion if you have read the book. I'm interested in any opinions that other members here might have to offer. Thank you.

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by Valuethinker » Mon Mar 14, 2016 4:16 am

My main thought is this thread is going nowhere.

I don't know the author or his theories, but "well laid out" doesn't mean correct. They certainly don't correlate with what I know about macro economics (ie undergrad course in).

Found any reputable book reviews of the book?

You can't make an investment policy on macro events. The events are too uncertain and there are too many people out there who spend their lives thinking about them, and therefore the market efficiently prices them.

Look at how many hedge fund managers went for gold in 2009-13, on the sure knowledge that inflation would shoot away- which it did not.

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by Quark » Mon Mar 14, 2016 6:21 am

mrb55 wrote:...Essentially, the book discusses true monetary inflation (not CPI inflation)...

There are some who define inflation as an increase in the money supply rather than an increase in prices we pay for goods and services (aka CPI inflation). They are usually regarded as cranks and are way outside the mainstream of economic thought.

There has been a massive increase in money supply throughout the world as central banks fight the global slowdown. There has not been the sort of inflation real people care about.

Of course, I may be overinterpreting a brief phrase.

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by nisiprius » Mon Mar 14, 2016 6:58 am

The testimony of the American Heritage dictionary is that these are the current meanings of the word "inflation."

in·fla·tion (ĭn-flāshən)
n.
1. The act of inflating or the state of being inflated.
2.
a. A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money.
b. The rate at which this increase occurs, expressed as a percentage over a period of time, usually a year.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

mrb55
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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by mrb55 » Mon Mar 14, 2016 10:50 am

Quark wrote:
mrb55 wrote:...Essentially, the book discusses true monetary inflation (not CPI inflation)...

There are some who define inflation as an increase in the money supply rather than an increase in prices we pay for goods and services (aka CPI inflation). They are usually regarded as cranks and are way outside the mainstream of economic thought.

There has been a massive increase in money supply throughout the world as central banks fight the global slowdown. There has not been the sort of inflation real people care about.

Of course, I may be overinterpreting a brief phrase.


I'm curious why some who reference monetary inflation would be considered cranks? Isn't the Consumer Price Index (CPI) tied to subjective data (sampling size of prices being rather small with the Bureau of Labor Statistics (BLS) relying significantly on survey data)? That seems to be a less accurate way of determining true inflation. It seems as though prices in some areas have risen over time for goods and services (for example, eating dinners out, possibly due to more available discretionary spending which would drive the price of those dinners up). However, from a supply and demand view, oil prices have fallen which has decreased gasoline and heating costs. A combination of forces seem to be at work here.

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by dkturner » Mon Mar 14, 2016 11:08 am

I thought Benjamin Moore was the paint guy. Does he dabble in macroeconomics too? :D

Quark
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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by Quark » Mon Mar 14, 2016 1:46 pm

mrb55 wrote:
Quark wrote:
mrb55 wrote:...Essentially, the book discusses true monetary inflation (not CPI inflation)...

There are some who define inflation as an increase in the money supply rather than an increase in prices we pay for goods and services (aka CPI inflation). They are usually regarded as cranks and are way outside the mainstream of economic thought.

There has been a massive increase in money supply throughout the world as central banks fight the global slowdown. There has not been the sort of inflation real people care about.

Of course, I may be overinterpreting a brief phrase.

I'm curious why some who reference monetary inflation would be considered cranks? Isn't the Consumer Price Index (CPI) tied to subjective data (sampling size of prices being rather small with the Bureau of Labor Statistics (BLS) relying significantly on survey data)? That seems to be a less accurate way of determining true inflation. It seems as though prices in some areas have risen over time for goods and services (for example, eating dinners out, possibly due to more available discretionary spending which would drive the price of those dinners up). However, from a supply and demand view, oil prices have fallen which has decreased gasoline and heating costs. A combination of forces seem to be at work here.

Redefining inflation as changes in the money supply is associated with crank economics in part because inflation means (that is, dictionaries, common understanding, etc.) changes in prices, not changes in the money supply.

There's no necessary relation between the money supply and prices. That's the key point. Just look at recent prices and changes in money supplies, throughout the world.

The BLS's measures of inflation are generally considered very accurate by experts. They've been refined, studied and critiqued for many years. They are obviously an average measure, so they don't apply equally to everyone or every group, but they're quite good for the overall population. Similarly, prices of some items will rise faster and others slower. That's the nature of any average.

Some professors at MIT started the billion prices project, in part as a check on the CPI. It monitors millions of items. Its results are pretty close to the CPI.

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by nisiprius » Mon Mar 14, 2016 2:15 pm

Immediately after World War I, the United States was on the gold standard and dollars converted to gold at the official rate of $20.67/ounce (I think it was $20.67). Henry Ford created a huge stir by raising the daily wage from $2.25 a day to $5 a day. Unfortunately, some of the worst inflation in the history of the United States followed the war, and cut the purchasing power of that $5 in half in just a few years.

I don't think the workers were heartened by the thought that their wages could buy just as much gold as before.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by Valuethinker » Mon Mar 14, 2016 2:23 pm

nisiprius wrote:Immediately after World War I, the United States was on the gold standard and dollars converted to gold at the official rate of $20.67/ounce (I think it was $20.67). Henry Ford created a huge stir by raising the daily wage from $2.25 a day to $5 a day. Unfortunately, some of the worst inflation in the history of the United States set in, and cut the purchasing power of $5 in half in just a few years.

I don't think the workers were heartened by the thought that their wages could buy just as much gold as ever before.


From memory there was a severe recession 1919? A combination of the rundown of wartime industries, the return of millions of soldiers to civilian ranks, and the Spanish Flu (which killed something like 1% of the population?).

In Britain the pound was restored in 1924 to its prewar value of $4.85/ £1.00. The Chancellor, Winston Churchill, would later term it his worst mistake.

This created massive deflation*, and the coal mine owners (the largest industry then in Britain, employing 500k+ men) demanded lower wages and longer working hours. The General Strike took place in sympathy for the miners "Not a penny off the pay, not a minute on the day". Britain had quite a nasty recession which took a long time to recover from.

By contrast, in the 1930s, once the Labour government (which had stuck to a fixed value for the pound**) was forced out by the National Government (coalition), the pound was taken off the Gold Standard in 1931. The British economy recovered in the 1930s quite strongly, on the back of a housebuilding boom, enabled by low interest rates and changes in mortgage rules which allowed middle class people (the likes of teachers, civil servants, police officers etc.) to get mortgages for the first time. The 1930s was Britain's biggest (or second biggest) decade ever for housebuilding. We built our way out of the Depression.

It's an odd one, because houses built in the 1930s are quite rare in North America, whereas in Britain it's a defined architectural style: semidetached, bowed bay window, roof over entranceway, attached garage, white stucco. Often "Tudorbethan" ie mock timber and wattle. Industrious new Town Halls and public buildings in 30s modernist style. Some exquisite Tube stations

https://www.google.co.uk/search?q=charl ... 80&bih=699

We had some flirtation with Modernism and Art Deco, but British Modernism is less harsh than its Continental comperes. But go to some place on the South Coast like Hove (next to Brighton) and you see it.


* as a result of WW1 and the demand created, plus the destruction of capacity (1 million men lost, etc.) Britain's prices and wages had risen far more than the USA, so it was no longer competitive at $4.85 -- probably $4.00 would have been a better bet, or $3.85.

** when asked why his government did not exit the Gold Standard earlier, a Labour Cabinet minister replied "no one told us we could".

The governor of the Bank of England, Montagu Norman, during the crisis, was a depressive who disappeared for weeks at a time during critical moments of international negotiations with the Bank of France, Federal Reserve, etc.
Last edited by Valuethinker on Mon Mar 14, 2016 2:27 pm, edited 1 time in total.

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by White Coat Investor » Mon Mar 14, 2016 2:26 pm

mrb55 wrote: His conclusions are definitely worth mulling over and I think worthy of some discussion if you have read the book. I'm interested in any opinions that other members here might have to offer. Thank you.


What were the conclusions?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: "Debt Inflation" book - Benjamin Moore - Any thoughts?

Post by Alex Frakt » Mon Mar 14, 2016 3:02 pm

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