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US: Negative GDP And Full Blown Deflation
By Thermidor
Many of you have seen this chart before but I thought given today's housing starts data it's was worth rolling out again. Its housing starts in red vs. US GDP YoY in green and as you can see the relationship is very solid over the last 62 years!
What the chart clearly shows is that EVERY GDP rebound in US has been led or at least accompanied by a rebound in housing starts. The one exception was the period 1963-66 (highlighted in blue), which occurred under Lyndon B. Johnson's presidency. Then as now the divergence in GDP from housing was heavily driven by government spending under the "Great Society" legislation, which included Medicare and Medicaid as well as significant spending on Vietnam (sound familiar). Ultimately, the binge was unsustainable and growth collapsed starting in 1966 as bond the vigilantes started to growl and inflation picked up.
This is the scenario I believe we are facing and I think that growth will erode significantly into the end of the year as the economy falters possibly dragging growth to -3% YoY by Q1 of 2011. Further fiscal spending will be impossible as the public mood is turning against spending and political gridlock will tighten ahead of this autumn's elections. The big difference between the 60's and now is that we aren't looking at inflation but full blown deflation.
Indeed, I expect tomorrow's YoY CPI to reinforce that risk as energy costs start to roll out of the calculations over the next few months and the headline number collapses. Just how far that series could fall is suggested by the second chart, which shows the NFIB Pricing question vs. CPI YoY and leaves me to believe we are heading towards - 0.75%.
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But what is continually misunderstood is that hyperinflation is a currency event not and economic event. There is no cost-push or demand-pull hyperinflation.
Hyperinflation occurs when a country massively devalues their currency through the monetization of debt. Sound familiar? Hyperinflation will follow the current period of deflation just as surely as night follows day.
+1
that chart makes perfect sense.....
In a system that requires constant debt expansion, since new debt is new money, the new money will seep into the economy and nominally look like growth/expansion. A home loan is the largest debt most average people will assume so it's likely to be a dominant factor in new money creation. No new home debt, no new nominal growth.
Compelling, very compelling.
Could've been written by Hugh Hendry.
one quibble regarding the historical comparison with 1963 to 1965: neither medicare or vietnam escalation were factors until 1965.
+1,000
You have to have inflation before hyperinflation. It's not happening in a big way yet since wages & real estate(and stocks) are still going lower. Housing starts reflect gov intervention. They probably extend homebuyers credit. The reflation experiment is a failure. Mish has had it right all along. It's now the public employees getting wage deflation possibly by force, now that everyone else has been gutted. There's no loan demand. Boomers are broke except the smart ones. They're not reflating or teaching their children the dead 'ol 'Keep Up With The Jones'.
Been watching the fedgub deficit or stock market lately? Deflation is for losers, the fascist pigs are making out like bandits.
They can't have it both ways. Inflation of everything but wages.
I'm wondering why not??? We've certainly not got anything to spur demand which would lead to wage competition. Look at last years and this years college grads where are the jobs for them.
Economic contraction, massive job losses, huge stimulus spending and debt by govt further crowding out private growth, leading to vastly reduced tax receipts, leading to more debt borrowing bailouts and taxes, govt sector contraction, deflation of all assets, eventual debasement of the currency, people who produce real needed things decide they don't want to take a haircut along with the rest of us.
I've been thinking this is the way things would go. It's my rational for going to PM's. I'd love to hear some thoughts on this, Thanks.
Neo, one interesting side-light to all jobs (or at least most new jobs) being government ones or at least government controlled (through hand-out imposed accountability) is that they get much tighter control on taxes.
If the .gov is the big paymaster, not much you can do to tax deducted at source, eh?
Win win for .gov.
ORI
http://aadivaahan.wordpress.com
"You have to have inflation before hyperinflation."
Maybe, but that's kind of like saying for a thousand-billionth of a second after the big bang, the universe was the size of a beach ball. Do we know that hyperinflation "presents" as a slow then fast verison of inflation?I'm not so sure about that. Matter of fact, I think hyperinflation can appear as quickly as national collapse of the banking system, over a weekend, in other words, and arising out of a need to at least to appear fund obligations that cannot be paid other than by printing money.
Have to agree with Ned here. Hyperinflation is not just rapidly accelerating inflation. It is an event with its own life cycle. That cycle starts when, by the time you can get your paycheck to the baker, it will buy only one loaf of bread. It continues when (if you're lucky) your pay is increased 1000 times and you take a wheelbarrow full of "money" to the baker, but it still only buys a single loaf. You know the cycle has completed when the baker won't even look at your wheelbarrow, its contents are meaningless. Usually before that point the real economy has already switched to barter, a foreign currency, or some other medium of exchange that buyers and sellers can agree on.
On the other hand, if the price of bread simply doubled every day, that would represent scary and crippling inflation -- but not hyperinflation. At least not until it gets far enough down the exponential curve that no one can keep track anymore.
We have both deflation and inflation. Deflation in homes, wages, equities and some to most discretionary consumables. Inflation in food prices. my 2 cents is that the paper aristocracy will live with some deflation which will be convenient, politically speaking for all these option arm and other mortgage resets and then come 2012 wham-o! bond vigilantees will tear Timmay Eraser-head Geithner a new one! well, actually....the middle and poor classes will be feeling it mostly (of course!).
Spoken like a man who does not know the definition of inflation. This time you are going to buy the bottom instead of sell it becasue this time you can predict the crash, right? The world is not going to conform to your personal definitions or economic bias. We have massive inflation now. Inflation is not price changes. Inflation is an increase in the money supply. Period. Insane fears of deflation, like yours, are why we are going to sail directly into hyper inflation. You want a do over. Tough luck. We are on to the next crisis and it has nothing to do with shrinking the money supply.
I highly suggest you examine what happened to the stock market in Weimar Germany.
But you yourself are only looking at half the equation. The proper definition of inflation by your line of reasoning would be the *net* increase in money and credit. In other words, the printing of money would have to be larger than the destruction of money and credit due to debt repudiation. The reason things look deflationary right now is because debt destruction is winning at the moment.
What destruction? Someone else won those bets that the banks lost. Then we printed money to make their losses whole again.
Isn't that what the true purpose of the bailouts were in the first place? To make the banks whole, to the detriment of everyone else?
The decline in asset values is less than the amount of money being "printed", therefore deflation is currently winning. If the assets were written down to their FMV deflation would be winning in a rout.
I was wondering what happened to all the 125% HELOC offers and credit card offers that used to stuff my mailbox. The government is doing a damn good job trying to fill the shoes of the consumer when it comes to borrowing and spending, but they cannot replace the giant real estate bubble. Deflation wins until Benron decides to wear out the zero button on the FED's computer.
Completely disagree. Hyperinflation is primarily the result of a lack of confidence in the nation which issues the currency in question. More often than not, a lack of confidence in the issuing nation's ability to pay or (at the minimum) service it's debt. As confidence falters so does the desirability of said nation's currency to be held as a store of value, first internationally and then domestically. An attempt is made to pay the debt by running the printing presses, this comes near the end of rapid monetary decline and gives the appearance that "printing" is the sole cause of hyperinflation, it is not. Hyperinflation is a the final fatal symptom of a nation in the throngs of collapse. It is not-so-much a currency event or an economic event, but a sociological one.
OK. But either way, you just summed up the current state of The United States of America.
I agree, Marx. Hyperinflation is caused by a loss of confidence in the country and its money. This could easily happen during what would otherwise be a deflationary period. It doesn't matter which way prices are trending or what people's wages are - if people lose confidence in the money you get hyperinflation since no one wants the money. Everyone tries to get rid of the money, its value goes to zero and prices measured in that currency go through the roof.
there is an element of that in the effect, but is that all?
When watching a stock PE go from 10:1, 20:1, 100:1 and on, at what point does rational logic turn to "jump ship!!"? And is reacting to overwhelming evidence of financial failure a psychological phenomena or just common sense analysis turning to panic as people decide not to be the last ones out the door? taking happy pills does not change reality. I heard the band kept playing right up until the Titanic started going under. I've also heard things were usually pretty quiet getting off the trains at Dachau.
that's "throes of collapse". a throng is a densely packed group of animals or humans. you economic geniuses are sooooo literarily challenged. just sayin'
Opps, got me there.
Agree. It is interesting to see arguments About hyperinflation as an event that happens in a matter of days. If you see the recent cases of hyperinflation in Brazil and Argentina in the 90s, you will see the the lack of trust on the local currency is the key componente, usually trigged by a external debt default and print of money to keep up with their internal obligations. Hyperinflation should occur when government creates automatic formulaes to adjust salaries (based on previous months inflation indexes) to respond to low wage classes pressures ( the ones most affected by inflation). This creates an inflation spiral.
Therefore you can have inflation without jiperinflation.
Currency board is the only way to stablize it. Wiyh regard to the US, it iis heading to severe deflation. U cannot take China out of this calculation ad it is signaling rate increases to curb inflation, which will eventualy generate excess capacity all over the world.
Yes, I think you are one of the few people who properly understands the situation.
Rather than call it hyperinflation, I think we should be calling it currency collapse instead. First we will get deflation, then, everyone runs for the exits simultaneously which triggers the rapid and unpredictable final collapse.
That's not 100% true. (Hyper)Inflation is an imbalance between the goods and services available in an economy and the money stock that is traded for -- this is Say's Law.
You can absolutely have hyperinflation with no change in the money supply. It happened all the time in cities under siege (see Amsterdam, 1500s; Leningrad, 1940s).
As long as the money stock is fixed, a fall in the volume of goods and services will cause inflation, and the expectation of future rising rates of inflation (i.e., no clear time horizon of material relief) will cause hyperinflation
So what was the inflation level outside those cities? So your point is merely the exception to the general rule under controlled conditions. You cannot base a country's monetary policy on what happend in a war time seige any more than you can base nutritional policies on the cannibalism that was taking place at the same time.
Has nothing to do with what was going on outside or the war -- the point is to take a conveniently observable closed economic system.
The original comment was that inflation was always and everywhere a monetary effect and not an economic one. My point was that a fall in the good and services available in an economy with a stable money supply has the same effect as a stable economy and growing money supply.
You can see the same effect in the paper on currency crises that was posted here a bit ago. The crisis is precipitated not by the initial devaluation but by the following drop in productivity, which is itself inflationary.
But has a global reserve currency ever "hyperinflated" (or, more precisely, been permitted to "hyperinflate") before?
(Serious question, I honestly don't know but suspect the answer to be "no".)
How many other global reserve currencies were there? If the answer is no, does that make you feel any better? Me neither.
Well, not many. But that's the point. And no, it doesn't make me feel any better - but you already figured that.
Heh - love BENdromeda Strain, by the way.
Yes, docj, this has happened before. The Roman Empire and it's coins could be considered the global reserve currency of its time. The Roman Empire suffered terrible hyperinflation under Emperor Diocletian.
Wasnt that the first time they used the words, debasement of money? more copper in gold coins than gold?
I don't know if that was the first time the term debasement was used, but yes that is what happened. The government tried to spend more than it received in taxes and "base" metals were added to silver coins to make up the difference. The addition of base metals is the origin of the term debasement.
OK, that's fair. Been a long time, then. Thanks.
turd,
+1000, no way out..........
Look for Gv't to re-start the $8k discount program.
Cool I can use it along with a loan on my otherwise soon to be worthless 401k assets to buy that bunker in Idaho I've wanted to pick up b4 the Mad Max American Tour begins.
Hyper Depression?
Deflation will follow hyperinflation.
It's about exponential growth....
http://en.wikipedia.org/wiki/Exponential_growth
That green line is credit/money supply/debt/inflation. All of these things expand in an exponential fashion over time. At first it's not all that apparent they are expanding & it's easy for the government & banks to hide it. As movement of that green line goes to the right in time the system starts becoming more unstable and going vertical is impossible. As things become increasingly more unstable governents, banks, etc. start scrambling to make things stable via printing, currency swaps, plunge, yada, yada. Ultimately that green line levels off & then kaboom, the curve goes straight down.
Massive deflation will follow hyperinflation.
This is truth. It is very easy to take out massive debts in hyper inflation and pay them off a week later with funny money. But once the money is fixed, you actually need an economy or some way to make money.
"The wavelike movement effecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion."
Ludwig von Mises
"The boom produces impoverishment. But still more disasterous are it's moral ravages. It makes people despondent and dispirited. The more optomistic they were under the illusory prosperity of the boom, the greater is their feeling of despair and frustration."
Ludwig von Mises
There is, to some degree, cost-push or demand-pull inflation, but both are temporary, as any real impact is arbitraged away by players in the market. You are correct in saying that on balance inflation a symptom of monetary supply with respect to the underlying value in the economic system (i.e. money is a store of value, not the actual value itself).
I just dont see hyperinflation anytime soon here. It made sense in the Weimer Republic but I dont see anything like that happening here anytime soon..
KING DOLLAR recalcitrant females!
Aurum, unpleasant women!
I freaking love this site. Golf clap to you both, Bugs & Max...
SDRs, whelping dogs!
oh wait... not so much
Disintermediation, bitches!!!!!!!!!!!!!!!!!!!!!!
<golfclap>
I posted this under another topic, but thought I'd post it again. I’ve been trying to better understand HFT, since that’s what’s driving markets. I’ve read several articles and have been taking notes. When TD posted that exceptional interview with Themis, I thought I’d organize my notes and post them. Basically, here are some key points about HFT as I understand it. This all may be old news to you (or arguable), but I nonetheless want to offer this to the mix. I believe most investors, whether institutional or retail, don’t know much about HFT. This is about 2-3 pages as a Word document. Hope it's helpful.
HFT Defined
Robert Iati, a partner at TABB Group, defines high frequency trading as “...fully automated trading strategies that seek to benefit from market liquidity imbalances or other short-term pricing inefficiencies. And that goes across asset classes, extending from equities and derivatives into currencies and a little into fixed income."
Basically, HFT is: using super powerful computers (i.e., on the order of milliseconds or less) and math PHd geeks to develop and implement equity trading strategies. This approach grew out of the algorithm, quant, and program traders of the 1980s. But it really come into its own in recent years. The strategy began in exchanges such as NASDAQ and only recently, due to regulatory changes (read, unintended consequences of government intervention), has it come to NYSE. HFT has found a fertile landscape in NYSE listed stocks, given the features present for most blue chip type equities (such as high number of shares available, liquidity, etc. more on this later).
HFT platforms are owned and operated by the large broker/dealers, independent HFT firms, and to a smaller extent by hedge funds. There is also a great deal of cross-ownership between various exchange platforms, HFT firms, B/Ds and funds. They use several different fields of math in order to build their models. For example, linear regression analysis, game theory, pattern recognition, and neural network analysis are used.
Currently, according to a TABB Group study, HFT trading accounts for over 70% of US equity trading volume. Who knows if this number is accurate. For any of us who watch the markets, it is clear that the impact of HFT is a (if not the) dominant force driving equity markets in 2010.
HFT Profitability Model
This sector is based on tiny margins from incremental asset gains/losses and rebates, so extremely large volume is required to make money real money. Volume can be on the order of millions of shares traded, essentially immediately. Also, high levels of leverage are required to amplify those margins. 10X to 30X leverage is not uncommon. HFTs see themselves as not managing high levels of risk because the norm is that they finish flat each day (i.e., don’t carry positions overnight).
Trading Strategies Used
Several math-based strategies are common among HFTs. Here are some categories I’ve read about:
Assumptions/Requirements
For these HFT models to operate, they assume that:
Issues/Questions
My Own Takeaway
When I think about Iati’s definition of HFT, it surely sounds accurate. But the overall self-conception of the HFT industry seems to leave out a key consideration. I look at this from a dynamic systems perspective. HFT tools have been applied to an existing system, in order to “benefit from market liquidity imbalances or other short-term pricing inefficiencies... across [all tradable, my addition] asset classes...." By all accounts, HFTs have been hugely successful at their task.
But, I believe we have entered a moment when the HFTs themselves are the exogenous factor that they didn’t build into their model. They are such a large player in the markets that they are the ones driving the relationships between various securities.
This seems unsustainable. It also ties with the observations of many market watchers. Most people seem to have a sense that this is unconnected to fundamentals and cannot go on forever. HFT firms driving prices up higher because other HFT activities have caused prices to approach various technical thresholds, and so on.
Sources
Sorry I didn’t put these in Chicago Manual of Style bibliography format...
Awesome Brother
Ever thought they want you to think that deflation is comming so they can launch another QE?
And housing has always been the key. This implosion we are about to see in Q3 and Q4 of this year will make the last downleg pale by comparison because now it hits the rest of the nation who dismissed the crash as a problem in the Sunbelt states only and did not think it would happen there. New England, New York, much of the Midwest and Mountain West are about to find out what 30-40% price declines really look like and the short term deflationary pressures will have to be met with full blown monetization or Bernanke risks a worse than 1937 collapse of the system.
HAHA, LMAO
...scholar of the Gread Depression...
you better get outa the sunshine state, John. the collectivist woo woo is coming to get you. BTW, who in the hell are you?
Yardfarmer, I'm the guy that assfucks Bernanke with facts and history, not an interpretation of his Keynesian delusions.
deflaton may well last for several years
Tyler,
Go through this guy's blog. Do yourself a big favor and have him write for you as a guest contributer from time to time.
"The Fed worries about a 'double dip' recession and falling prices" by Pater Tenebrarum
http://www.acting-man.com/?p=3034
That is some good reading; thanks for the link.
The fed is really worrying about QE'ing with so many people outside the system and really wants people in cash believing in deflation. Not going to happen.
Bernanke looks like he's praying: "Please Lord, let the printing presses hold up for another year!"
Deflation requires large scale asset destruction to reset. Set your phasers to evaporate matter.
http://data.newyorkfed.org/creditconditions/
Here in San Diego just saw home prices up 18%(yoy I think) from about $350K>$400K, this HAS to be flippers making a killing out here, paying cash and lots of suckers think bottom is in. It's a beautiful place to live, but 60% of economy is real estate related and rest is hotel service and military. Wage disparity has to be one of highest. These home sales are inflationary for the moment, fueled by speculation and these syndicates are cutting out 1st-time homebuyers by paying cash. Kickback fraud on 2nd trust deeds too I think.
i'm in the area and i see almost no activity. of course some people need to move, new jobs and things, guess is that a number of these sales will never get through escrow, which is like speed dating. flippers try to tie up the property for as long as they can, to see if the market changes, then back out at the last minute. escrow is too easy, and no commitment needed. i also think if the title companies were doing their job a lot of these properties would never change hands. but they call it insurance don't they?
You are correct: Signings are not closings. There is an ominous spread between the two.
nice link, gracias
Double-dip now assured...from Reuters today:
"The U.S. economy is slowly healing and will avoid a relapse into recession, the American Bankers Association's economic advisory committee said on Wednesday.
The committee, which includes the chief economists from many of the biggest U.S. banks, said Europe's sovereign debt turmoil would inflict minimal damage on the U.S. economy, aside from trimming exports."
Good call GNH.
People who are economists just were envious of the Beatles. They just want you to play everything they say backwards. ;)
Almost all small biz manufacturing is in some way connected to military, defense, gov't auto-housing-appliance manuf stimulus, bogus green energy. Take that away, forget it.
Inflation can also occur when the countries holding the currency ($ in this case) return all their dollars back to the US providing a mass influx of money.
We should be experiencing massive deflation. After a inflationary boom it's normal to deflationary bust. We had an epic boom, it only makes sense we would have an epic bust. The only problem is the money supply is not constrained in any real way (The Fed can buy anything from their buddies at any price). So as the Fed shovels free money at the chosen few, we are going to see the effects of deflation in a few markets and inflation in others. The system cannot survive deflation (The whole tax structure is based on rising prices), so I'm pretty sure Zimbabwe Ben will pass out money to get asset prices up, or if need be go in as the buyer of last resort of every trash asset in existence.
and at least half the tax structure depends on consumer spending. in CA Arnie restructed the states debt using a sales tax gimmick, but the fine print says if they cant make the payment on the interest, they can reach into the general fund. but deflation is sometimes an event? and after flash crash one, it could just be a one day event at that. massive and instant revaluing of assets? i think the bulls in this market maintain the illusion that someone rings a bell at the top. FC1 should have dispelled that notion, but look, they're back
and LBJ ran a budget surplus. anecdotally you have to wonder if CPI is going to fall as far as you think. Gasoline prices are firm, groceries prices are firm. And if the CPI doesn't fall quite as far as economists think it might, would that be construed at evidence of stagflation?
and LBJ ran a budget surplus
Really? When?
Edit: This (http://www.gpoaccess.gov/usbudget/fy09/pdf/hist.pdf) says otherwise.
people paid taxes in those days, the Vietnam war was not done on the cuff. really
So when you say "and LBJ ran a budget surplus" you actually mean he didn't.
Thanks for clarifying.
http://www.ssa.gov/history/BudgetTreatment.html
read this Socrates
Look genius, I'm pretty well versed with the concept of on-budget versus off-budget. And I'm really not trying to pick a fight here, but you've said something that is factually inaccurate.
LBJ ran a total budget and on-budget deficit every year. Period.
Page 22 (26 of the pdf) from the link I provided for you.
yeah whoever is junking me has his finger stuck, probably some burned out hippie. (heyheyLbJ) i was going to add a ?. in comparison to the Iraq war which was off budget, while LBJ reversed trend and brought SSN on budget. the economy was relatively healthy at the time, in the terms of taxes, labor and wages, and savings. i wouldn't consider todays economy half as good as that economy, regardless of what the numbers might say. also SSN and medicare costs were still relatively small, and the broad list of entitlements were small. inflation in healthcare costs has outpaced just about everything.
bottom line we have much less economic resiliency. this should be worse than the 30s economically, but maybe other things are in place to offset the problems.
The United States ran budget surpluses under Truman, Eisenhower, and Nixon. Not under JFK or LBJ however (except insofar as JFK inherited a surplus from Eisenhower's last budget).
Year GDP-US in $ Federal Deficit (as % of GDP)
1950 293.7 0.43
1951 339.3 -2.30
1952 358.3 -0.06
1953 379.3 1.52
1954 380.4 0.49
1955 414.7 0.37
1956 437.4 -1.21
1957 461.1 -1.15
1958 467.2 0.01
1959 506.6 1.59
1960 526.4 -0.48
1961 544.8 0.65
1962 585.7 1.22
1963 617.8 0.77
1964 663.6 0.89
1965 719.1 0.20
1966 787.7 0.47
1967 832.4 1.04
1968 909.8 2.77
1969 984.4 -0.33
1970 1038.3 0.27
BTW and FWIW, I am not the guy who "junked" you in this thread.
Increasing prices without wage support gave rise to the adage, "Nothing cures high prices like high prices"!
There will be no wage support until Chinese wages = US wages. A 20X disparagement. Don't hold your breath for inflation.
As we speak, the algos are taking the bultards for a ride down after empty technical promises
I have association with neural networks only as far as games go, such as backgammon (GNU backgammon)
see 5. Training a Neural Network in:
http://www.iwu.edu/~shelley/gnnv/tutorial.html
___
But what you say is very conceivable.
They could learn to fake out the opponent by "learning" the behaviour patterns around key technical points.
This is a fascinating topic that maybe TD could follow up on.
In comparing this era to the 70's its important to also consider the demographics of the baby boomer generation exiting the workforce - taking their assets and productivity out of the economy (what they have left) and becoming a net drain instead of bringing these things into an economy expanding through their own entrance. Hence the ability to generate an inflationary expansion on the back of the demographics is bordering on structurally impossible.
I would take this with a grain of salt. I think this is a simple inventory problem. Look at the gap in housing starts/GDP correlation from 2000-2006. Builders built too many houses that were bought by investors/speculators. Now with housing demand relatively low and inventories still relatively high its going to take some time before builders need to start building again. Credit also plays a key as constructions loans are near impossible as the banks follow supply/demand in housing as well.
"I think this is a simple inventory problem."
Simple belies the obvious. Try monsterous.
No amount of blather about high-speed printing presses can obscure the fact people don't have money, and there is no mechanism other than rising wages to change this. As noted above, global wage arbitrage has eliminated any propect of a higher pay packet for the average American worker. Deflation it is, and deflation it will be.
Wages don't have to rise to get hyperinflation. If everyone loses confidence in the country and money, the value of the money goes to zero and prices go through the roof regardless of what happens to your wages in the mean time.
Sorry, if wages don't rise, the high prices you describe will lead to lower sales. Lower sales reduces demand on raw materials. Raw material oversupply leads to lower prices.
Unless current policy changes(Fed makes good on malinvestment), don't expect inflation.
What you describe is what happens in a normal market where people have confidence in the money, but that's not what happens in a currency crisis.
If there is no confidence in the money it's value goes to zero and prices go up. You are correct that this will lead to lower sales, but the prices will continue to rise anyway as the currency value approaches zero. The price of the goods will not fall because people will hoard goods rather than trade them for worthless paper. This trend will continue until the currency is replaced by something else such as a new currency, gold, barter system, etc or until you starve to death because you can't afford to buy anything.
For proof of this all you have to do is look at past hyperinflations. You will see that the average joe ends up a whole lot poorer, but the prices stay high anyway. At a certain point the currency value collapses faster than the demand destruction can lower prices. The result is much higher prices and a replaced currency.
It defies logic to have lost all confidence in local currency, yet pay/demand little of that currency for an honest day's labor.
Ask yourself how much of your real net worth has been destroyed relative to the amount of money being put into circulation. Are you getting it to spend? Likely not.
Then you can understand why we are seeing deflation now.
This is more a redistribution of wealth on a grand scale than it is a inflationary/deflationary event.
http://www.zerohedge.com/forum/freegold
TD:
"Further fiscal spending will be impossible as the public mood is turning against spending and political gridlock will tighten ahead of this autumn's elections."
so it would seem, but I wouldn't bet the farm on it just yet
Economists have predicted eight of the last five recessions, however, I tend to agree with the general views expressed below, even if they are from the American Bankers Association. All this talk of double-dip recession, Soros seeing another market crash, and just general pessimism all over the place is exaggerated, especially when you look at improving fundamentals. We are in for a long period of low growth, but I think talk of a US double-dip is just plain silly at this stage. And I wouldn’t be surprised to see another stock market bubble developing this summer. US banks are printing money trading in their capital markets operations, and hedge funds’ assets under management are now close to $2 trillion – higher than pre-crisis. It’s almost as if nothing ever happened.
U.S. double-dip recession very unlikely-economists
1:00pm EDT
WASHINGTON, June 16 (Reuters) - The U.S. economy is slowly healing and will avoid a relapse into recession, the American Bankers Association's economic advisory committee said on Wednesday.
The committee, which includes the chief economists from many of the biggest U.S. banks, said Europe's sovereign debt turmoil would inflict minimal damage on the U.S. economy, aside from trimming exports.
On average, the economists pegged real economic growth at 3.2 percent in 2010 and 3.0 percent in 2011. That was similar to the findings in a Reuters poll, also released on Wednesday.
Although that growth rate is not robust enough to repair the ailing labor market, the committee unanimously agreed that a double-dip recession was very unlikely.
"The economy is moving ahead in a lengthy rehab process and will eventually return to full health and strength," said Stuart Hoffman, chief economist with PNC Financial Services Group and the ABA committee's chairman.
The economists expected 2.2 million new jobs in 2010, and 2.5 million in 2011. However, that will replace only about half of the total jobs lost during the recession.
They predicted that unemployment would come down only gradually, dropping to 8.5 percent by the end of next year. It currently stands at 9.7 percent.
High unemployment and low inflation will keep the Federal Reserve's interest rate near zero through the end of the year, they said. By June 2011, the economists thought the benchmark fed funds rate would reach 1 percent, still historically low.
As for Europe, they thought a backstop of nearly $1 trillion provided by European leaders and the International Monetary Fund would help restore confidence and contain financial market instability. While the crisis will weaken economic growth, it will also keep U.S. government and mortgage borrowing costs low, providing a benefit to the U.S. economy.
"The most notable effect on the U.S. will be lower U.S. exports globally due to a weakening European economy and a strengthening dollar," Hoffman said.
(Reporting by Emily Kaiser; Editing by Kenneth Barry)
For a financial professional, you are very amateurish when it comes to using proper metrics, indicators and data sets. Relying on Reuters, BBG or MW articles for trading [or anything else] is what 1st year day-traders do [and only a small percentage of them]. Also the tools you use are not very much sophisticated; but whatever, your money, not mine is at stake here.
I would e-mail you 150 different metrics, data sets, charts, representations etc etc which would make you freeze from fear of what they show. But I wont, since you will dismiss them and offer me some counter-argument in the form of a article [or worse, one quote] from Reuters, BBG or MW or some economists who uses stochastic process based mathematics to assess future movements based on the full knowledge of the variables that define the environment he/she observes [i.e numerology masked as mathematics [key word; all variables know/predictable upon probability quantization]].
So, have your delusions, but hedge them better than you hedge your positions [that is; if you hedge your positions at all].
Cheeky,
I don't take Reuters articles or any articles at face value. I'm sure you have plenty of scary charts to point to, just like I have plenty of hopeful ones. Bottom line is what are you doing with your money? I made my bets, and I remain long stocks, especially solars and tech. You can hedge all you want, but at the end of the day, your P & L is what counts.
Leo, "the amateur" :)
So he has scary ones and you have hopeful ones. "Hopeful"? Seriously? The worst word when investing and/or trading?
Scary implying they are real and now. Hopeful implying that a positive outcome, defined according to your situation, is dependant on outside forces beyond your control. Nice.
Hope it works out for you.
Look, I'm not trying to insult you or anything; and I really am sorry if I read to much into this comment; and I also admire your rate of conviction when it comes to your investments; but great gamblers know when to fold and when to raise [we are nothing but gamblers]; and this my friend is not the time to go All In.
On a more related note; do you know who is the main supplier of solars for Abu Dhabi and future Abdullah City in KSA. If you know; go long that company, they will have the necessary demand for their product for the next 40 years.
Im also going against the heard with my shorting of Mumbai real estate, ABS, MBS, RMBS related to Mumbai real estate and CLOs related to Mumbai real estate. I could lose my principal capital; but it wont happen at least for another 5 years [and I have a hard time believing that, in light of all the data I have available regarding this trade, I will lose one single dime.].
Just be careful man; and hedge goddammit.
"do you know who is the main supplier of solars for Abu Dhabi and future Abdullah City in KSA?"
Wish I knew, the company will make a mint. As far as solars, I am now sitting on my positions and raising cash. If they get whacked hard again, will accumulate more. That's my hedge. A far as the market, I got this feeling we're going to see a low volume market meltup this summer. We'll see.
I am not one of your junkers, Leo. It's not any different from what I'd expect you to post so it does not register on my junk-o-meter. I will, however, look forward with much anticipation to the comments which will undoubtedly follow. Just my view: I'm supposed to believe "economists" at this point?
And, there's this:
That is exactly what they want us to think -- nothing has happened here, there are no dead bodies and blood everywhere.... just go back to your homes (which are under water). Where did the banks' money come from? No deep thought needed to answer this one. It came from the pockets of savers who get nothing for their money, and it comes as a gift from the Fed. What the hell, I give up. You'll answer with some convincing (in your own mind) "evidence" that I'm full of it. Game over!
There is no inflation because the extra money pumped into the system is like regular matter, held as a foil to the trillions of dollars of worthless instruments (antimatter) hidden on institution and government balance sheets. If the two were ever allowed to meet, the conflagration would instantly destroy $10T of value. Hugely deflationary, and everybody concerned knows the score and why they can never allow it to happen.
Best comment I've read in a week. Thanks!
+1000
Any thoughts on Asian-driven inflation via rising worker wages? I read this and it seems rather ominous:
http://www.prudentbear.com/index.php/thebearslairview?art_id=10391
"The obligations incurred by governments and in the housing market will become worth considerably less, lightening the debt burden on the Western economies."
This is only true if the national debt is financed with long term fixed interest rates. The average maturity of the debts of most Western nations is very short - around 5 years. Therefore, inflation will simply cause investors to demand higher interest rates as the bonds mature. The high interest rates will make the debts less affordable, not more affordable. The US can not inflate its way out of debt.
Excellent! Our inflation will be "caused" by inflation in other countries. Just like our bubbles were caused by that savings glut. Our problems must be caused by external events since it could not possibly be caused by the profligacy in the United States for the last 30 years.
And as a side note, can this be true?!
Senate votes to extend home-buyer tax credit deadlineBingo. Just judging by what happend when south korea went to partial labor cost parity if it happens in china. LOOK OUT. They are tryng to put it off till october to get through elections here. So if by some miracle we don't crash this month or next month we are definitely going down in october.
Full Blown Deflation will occur when the well in the Gulf Of Mexico collapses in on itself....The rest will be history.
I don't know how CPI is an inflation indicator. CPI can go up as the money supply shrinks.
There's really no possible way to avoid deflation without replacing M3 debt with cash. But that won't really help either.
What we really need is a super hero.
Money Man !
Or, there is always this guy.
I prefer the latter because with him there was always the possibility of a bank error in your favor.
We always have Ben... Oh, I thought you said stupid hero.
"Economists have predicted eight of the last five recessions"
Leo, you must be an economist...
Housing Starts Down? Easy Answer...
New Home Buyers $8k Tax Credit...
What else would your bought and bribed Congressional douche bag do?
Wrong. The baker will trade you your wheelbarrow for bread.
I'm just getting ready for Summer, after all, how long do you think they can keep up the charade? At some point actual money must be paid, at that point things start to fall apart. If we make it through Summer without social unrest I will eat my socks.
In the mean time you better get one of these!
Once again, endless debate over "Is it inflation or deflation?"
The money managers laugh while you waste your time.
They are one and the same thing.
EURO bullish warnings mentioned earlier, have strengthened today. Vice versa for the USD index of course.
I have detected EURO buying support for several weeks now.
XAUEUR daily chart gives bearish warnings as of today.
This could be an important development.
The proprietary indicators I use in my technical analysis can identify trend changes before they occur.
http://stockmarket618.wordpress.com