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Geographical Area: United States. Time Frame: Next 18 Months.
Submitted by Zero Hedge on 09/12/2009 02:27 -0400
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This is a terrible poll. Where the hell is the third line that says stagflation? That is the box that I want to click on.
The deflationary forces in front of us are biblical. The only reason we are not seeing that in September of 09 is that we are still on life support. Zero interest rates, money creation and numerous stimulus have worked. Peel those things back and growth is negative.
Price rises for all manner of things is going to expode in the next two years. It may not show up in the dummied up CPI or COLA, but it will be there.
Sugar, rice, specialty steel,fish, fruit,kerosine,Av gas,copper,soy,private education,medical costs,ball bearings,automobiles,taxes of all sort,paper,many grocery items and a hell of a lot of otherthings are going up in price far beyond what the CPI will measure.
Wages and rentals will be down, so inflation will look tame.
Overall, I agree. However, "stagflation" is not good economic descriptor, which needs to be more specific and depends on definitions. There cannot be simultaneous inflation and deflation in a single domain. There can be monetary (money + credit) deflation that is inversely proportional to prices (price inflation/deflation) because the Fed will respond to monetary deflation with monetary reflation. However, the Fed cannot control where the liquidity it creates goes. For example, it is now flowing into equities and commodities, even though the bond markets are signaling deflationary expectations. Monetary deflation is also affecting the real economy, leading to decreasing wages (wage deflation) and consumer prices are also falling in many sectors as consumers deleverage and save and business cuts capacity and inventories.
The problem is that, properly defined economically, "inflation/deflation" are relations of money (money + credit) to available goods. Strictly speaking asset prices, commodity prices, wholesale prices and consumer prices, as well as wages, increase or decrease, not "inflate" or "deflate." We have to look to the cause of this increase or decrease. Was it nominal (due to monetary inflation or deflation) or real (appreciation/depreciation)? The only what to tell is by looking at the relation of money to production, not just prices.
The real story here is the action of credit. Financial bubbles are the result of credit exploding, and financial busts of credit imploding. The world has recently expanded credit beyond the ability to repay in terms of the real economies. This is not just a US problem. For example, anyone who thinks that China doesn't have a huge bubble is mistaken. This crisis is just beginning and has years to run.
Actually some website was trying to coin the new phrase:
STAGDISINFLATION
Deflation, that is what we are fighting.
The three things to look for as Rosie points out are:
*Rents/Housing Prices (Increasing or Decreasing)?
*Average Income (Increasing or Decreasing)?
*Credit (Personal/Business Increasing or Decreasing)?
The proper question is do you see an increase or decrease in the next 18 months for those three major categories that determine inflation or deflation above for the general trend.
All the POMO liquidity has flowed straight to the stock market and commodities with banker speculation and to prop up each others stocks to improve their balance sheets. The dollar will drop in value so they can bring in a new world currency and oil and gold as the two exceptions will increase over 18 months (partly due to dollar printing and partly due to geopolitical instability with Iran and global finance still a risk).
It looks like our buddy Jim Simons' has finally thrown in the towel and is now resorting to unloading the family's furniture to cover the expanding RIEF losses:
http://newyork.craigslist.org/lgi/fuo/1370721418.html
Inflation and deflation are not phenomena that occur in a particular place, there are not phenomena that affect countries, these are phenomena that affect currencies.
Zimbawean hiperinflation is not something that is happening to Zimbabwe or to Zimbawe economy, is somthing that is happening to the zimbawean dollar. If you pay in US dollars, euros or yens, the prices in Zimbawe are droping. Any tourist can check.
Inflation and deflation are properties of the monetary effective mass (monetary mass x money velocity). These two properties are actually two different names for the same variable: the rate of growth of the effective monetary mass.
Monetary mass is a structured, very complex creature. The monetary mass of the euro or dollar not grow or shrinks uniformly. The money mass of the dollar may be growing in California and, at the same time, shrinking in Florida. A few years ago, strangely, the euro monetary mass grew much in Japan or in ex-communist countries that do not use officially euros after all. In Spain, where I live, the housing bubble has led to growth (inflation) in the monetary mass of the Japanese yen. Many houses in Spain have been bought recklessly with yen loans.
Speculative bubbles or minibubbles (always credit bubbles) can make monetary mass to grow (inflation) in certain markets or sectors while the montary mass contracts (deflation) dramatically in others.
In a regime of fiat money, with monetary policy planned by a central dictator clown, inflation or deflation are unstable (positive feedback looped) phenomena that lead to inflation spirals or deflation spirals. In the early stages of the Keynesian experiment, for decades, when the debt still can grow wildly, the central bank can always avoid deflationary spirals. When the accumulated debt exceeds a certain threshold, the inflationating machine stops working and the deflationary spiral is inevitable.
The feedback loop in the growth of monetary mass is the most important machanism loop in the keynesian-inflationary-bubble-paper economies.This loop is basis on all markets and trades.
The loop works because the issuance of new credit increases the monetary mass, a larger monetary mass increases the price of (colateral) assets, assets with higher prices permit the issuance of new credit.
The new_bubble-reflationary trades, all trades in all markets during the past 30 years, are simply barish bets on the value of currency (all curencias). For these trades to work, the speculator simply need found areas of the economy where the monetary mass grows at different speeds, areas where the central planner clown destroy the value of the paper currency with different degree of brutality.
All this will no longer be possible, "reflation" trades or "reflation" recoveries of the crisis will no longer work. Keynesian machine is a unsustainable machine because it relies on continuous exponential growth of debt and on a continuous theft of wealth from savers.
All the wealth of the savers has already been stolen, the keynesian game is over.
Basque - excellent, well-thought out post. Agree with your conclusions.
CURRENT: Deflation (as a result of the continuing absence/retraction of credit/liquidity) of the assets you have (rigged equities mkt through Q/E being the exception); Inflation of the assets you need
SHORT-TERM (3 - 9 MONTHS): Ultimate headfake - temporary reversal of above as equity/commodity (exception being gold/silver) markets get slayed in feigned support of the USD, T-bond markets up, though not massively as DUMB money will go here - SMART money leaves the country or takes physical possession of gold/silver (at only a slightly discounted px from today's levels).
LONGER-TERM (9 - 12 MONTHS and beyond): Hyperinflation in the US stemming from currency crisis leading to a planned devaluation of the USD or repudiation of US foreign debt followed by a generation of lower standards of living. USD no longer world's reserve currency, obviously - China finds the most opportune time to de-peg the Yuan. US is in a mire until either a) a new 21st century Bretton Woods accord is reached with gold/silver resuming their rightful place in monetary/economic history; or, b) the US chooses/instigates war
Bretton woods failed. You can't peg a fractional reserve currency to a fixed commodity. Sit around with a gold bar and tell it you are charging it interest and it has to grow. Gold is easily cornered and manipulatable. The only currency that will work and can work is a purely fiat currency that is based on population and population only. You can't fix an abastraction to a peg when the underlying population is mutable. You can't allow banks to be the creater of money because money in it's purest sense is an abstraction of all creation and all energy. If the banks control it then only the banks will create what it wants and needs everyone else simply has a job or part in that role. Our economy is only the legitimate side of a balance sheet that is nothing but an illusion once you break into the FED's and banks balance sheets. A change scam, a magical abstraction of mathematical model that is wrong and refuses to be set right because it works temporarily and corrects itself under the glazed over eyes of a public who sucks at math. The people who are not fooled by it run it and keep the magician trick all to themselves.
That doesn't mean gold won't go to the moon in valuation. It is always the path and lynchpin of the correction of the trick. Because nothing else will quite do the job.
Good post Busy Body.
Damn I thought my forecast was original.
Now I might have to go contrarian on my own view if too many people start to have it.
Yeah I totally agree with you, I'm not so sure about gold and silver though they could sell-off with the other commodities in the near term. Good for a hedge on equity shorts, if not the only surviving bull market.
I agree; deflation first, followed by inflation last. Longer term (b) is the likely answer for the US. Since the question was based on 18 months out, I voted inflation. Right now, deflation reigns.
I voted for deflation, for the immediate future anyways. Yes, eventually we will see hyper-inflation, but that , hopefully, is still a few years off!?!?
Prices at the grocery store are going down, gas prices have never really gone up, so far. Heck I even convinced my home insurance agent that if he wanted to keep us as a customer, he had to do better than $1,600 a year for a $91,000 1400 sq. ft. home. After all, it was $1,100 in 2007 and 2008. After some computer research, our new yearly price is $975.00. :-)
It was either that or I was going to take our cars and house to a new company.
Anyways, deflation it is for a time. The Banksters are not letting loose the massive amount of money we gave them. When, or IF, they ever do let it loose, hold on tight!
"Prices at the grocery store are going down."
Interesting. At the Von's I shop at here in San Diego, a new wrinkle's been thrown into pricing that y'all may have seen too: 'permanent' lower pricing. Scads and scads of products with price markers stating NEW LOWER EVERYDAY PRICES that show new prices on basic products that used to be the SALE prices. I would see certain things I stock up on when they're at sale prices, like tuna fish and spaghetti sauce (for the Apocalypse Now pantry) and realize it was just the new EVERYDAY LOW PRICE. Since the pricing on groceries is 'sticky', this is a significant deflationary signpost witnessed on the micro scale.
+18 months, we go deflationary to hyperinflationary currency crisis. Essentially, when Bernanke's printing party finally gains traction, we'll go blowing by and right over the cliff. Final scene of THELMA & LOUISE.
Everything, FED is doing now is to fight deflation. Fed is more than happy to have any kind of inflation after 18 months. Will they succeed?
are you deflationists seriously going to hold your toilet paper FRN's????????????
My answer: Deflation in real-world terms.
Inflation in the markets.
The fact that markets are "inflating" while prices in the
the real world are "deflating" is due to the nature of
today's markets - a TRADER'S casino completely
decoupled from reality.
Good money became bed money, bad money becomes dead money. Deflation!
ZH, you are too optimistic, the deflation could last longer than 18 months.
We will have both inflation & deflation. House/OER deflation will mask inflation in the cost of almost everything else but especially food, oil/gas & materials as the folks rush to dump dollars. Look for it to get serious ~1Q10.
In my area you can't even give a house away. And, Detroit is being turned back into farmland from whence it came.
There were informally 50 other cities destined for land reclamation - anyone have the actual list?
Third choice should have been Weimar Republic - hyperinflationary depression
Fourth Choice should have been Fed Gets it Right (I want to see a poll with Zero as a result!)
debt destruction will outrun the printing press. deflation.
That was the "rationale" behind my vote for "deflation" also. I just don't think Ben-Dover can (or will be allowed to) print money fast enough to negate the combined effects of crashing RE prices and the (necesarily) deleveraging consumer squeezed by flat wages and job insecurity.
Inflation: a net expansion of money and credit.
Deflation: a net decrease in money and credit.
Since credit is 50T+ and shrinking by tens of trillions, and money is about 2.5T and expanding by hundreds of billions, the answer is deflation.
Ours is a credit-based system, not currency-based. We use credit like money, so when it shrinks, it is deflationary.
Ok. What happens when a currency that is a global reserve currency used in numerous business transactions and spread out over billions of participants gets dumped and is only used by 300 million participants?
FED knows what happens. Thats why they attacked Iraq because it figured out it could make 17 percent more from it's oil just by bypassing the dollar. Money changers work in several ways. One way is they always give you less of one currency than it's really worth as "profit". If you don't believe me buy some physical gold. You'll pay more than the price tag. I think we need a 3rd option from inflation and deflation. Crazycash, sillyvalue, there's got to be a good name for it sooner or later.
I will have to agree with Speculator on this one. Mish has covered this extensively over the past year.
Inflation: interest rates at or ~0%.
Do we have that? Yes, yes we do.
i'd be inclined to think carefully about Zhu Min's closing words in the clip with the Bloomboig feller
I am going with currency collapse as well for my choice. Auditing the Fed could be the final nnail in the coffin. Expose that the FED is the Buyer of last resort for treasuries and that there really isn't the foreign demand that is being reported.
stress test? ... a kind of middle ages witch ducking under water for 10 minutes. if they came up alive they could all be declared completely innocent. everybody wins.
Yea same as the Salem trials. If they burned they must have been innocent right?
Just to clarify my vote of INFLATION:
> Monetary Inflation
> Asset Deflation
I see much higher prices in the necessities of life and lower prices in the discretionary things.
The question should also have considered hyperinflation, a CURRENCY EVENT, which I expect to occur sometime within this time-period.
I would personally break it down as: higher prices in "skilled" tangibles, lower prices in services.
So pretty much the same as you: basic = necessity.
The exception would be food: it takes surprising skill to to be able to produce reliably in quantity.
Lone Star:
You covered all the valid points. We get deflation in houses, cars, toys that we all have wasted way too much money on during the good times.
We are get inflation in everything that we need since the democrats want to force us all to pay for Big Healthcare, Cap and tax, and protectionism. So everything like food, energy and healthcare goes up in price. Less supply when it comes to energy and food and overwhelming frivilous demand when it comes to healthcare.
And finally, the odds of seeing a complete currency crisis just went up even further with Obama's trade war with China. On top of the $24 trillion in unpaid liabilities shoveled onto the back of the american middle class to fund this bailout.
ditto, hyperinflation. printing money has never worked in the past, it isn't going to work this time either.
price inflation will stalk and overwhelm money sensitive
goods and services....
price deflation will haunt credit sensitive assets
john williams continues to show signficant
price inflation on a pre-clinton basis....
monetary inflation is continuing although recently the m1
and m2 numbers have slowed - not sure if they
are showing decreases....nonetheless that is not
good since it will starve businesses in need
of capital....and since the fed no longer publishes
m3 i go with williams who shows it increasing...
m3 has the highest correlation with cpi inflation....
if we get permanent gold backwardation then it will be
economic destruction but i still see inflation
as the outcome as the usa becomes a gigantic
titanic....
silver is in backwardation again - a leading
indicator for gold backwardation...
Espen Haug, a brilliant guy, puts it right
in is blog, writing about electronic printing
money. I believe, as long as the electronic
printing money stays in the financial markets,
the deflationary cycle is going to continue. But
I also believe that it could end in 12 to 18 month,
and from there on, we are going to start an
inflationary cycle, that will last 25 years.
It's all about cycles and the FED can't do anything
to change it.
Life Blood Posted At : August 29, 2009 10:01 AM | Posted By : Espen HaugRelated Categories: My Macro View
Money is the lifeblood of the economy. In the last boom cycle bankers created tons of money through credit expansion, naturally with the help of homebuyers (wanting to make fast money on a second and third home), consumers and fast expanding businesses.
Snakes and banks have a few things in common, they both have a lot of muscles. If you ever had a python snake around your neck you can feel it has a lot of muscles. Banks have the muscles to create money through credit expansion. Central banks have the mucles to create money and to set the official interest rates, manage the currency reserves etc.
When the credit bubble busted the short-term fix was relatively simple. Central bankers and politicians could replace much of the shrinking credit-money (credit contraction) with fresh money from the central bank “electronic printing press”. The money was used to bail out banks and financial institutions that based on horrible risk management (of credit) suddenly were imploding and still keep imploding. Well only the too big to fail got bailed out, the small banks went bankrupt or got swallowed up by super banks that had got billions and billions in fresh bail out money.
Fresh money is also used to buy the countries own debt. This to keep interests down and avoid further panic.
Many snakes can also be poisonous (luckily the python around my neck is not). If the central banks print too much electronic money it could at some point become poisonous for the lifeblood of the economy. The potential poisonous lifeblood of the economy is now congested around the heart of the economy. If the congested lifeblood dose not spread out in the economy it could at some point cause another heart attack with a lot of chaos in the world economy. In a big body (the world economy) it normally takes a lot of time for the lifeblood to spread out. Unemployment is up in most countries and consumer spending is down, the blood is simply congested around the heart of the economy. If the congested potential poisonous lifeblood should reach out in the economy it could down the road cause high inflation and or weakening of certain currencies.
If you fear the lifeblood of the economy could be poisoned you should consider investing in antidotes now. Personally I would think a good antidote diluted in water is reddish in color, it looks like wine, but do not taste like wine (few people have tasted it, but most people have touched it), I say no more….
To understand a snake you have to feel it, touch it, smell it. A true serpent master does not fear snakes. Snakes should fear him!
It TOTALLY depends on what your mesurement tool is: My vote is for inflation in terms of paper money, deflation in terms of real money (Gold). But I think you guys mean in terms of fiat money, so I voted inflation. BTW, looking at the poll results, which one seems like a contrarian bet? Right.
I think this poll needs to define inflation...and whether we are referring to the economy or the "economy".
The economy consists of people, not numbers.
Inflation/deflation should be a measurement of how easily people can buy what they need, now and in the future.
On the topic of gold: excluding the small number of people that make transactions in physical gold, the price is immaterial.
There needs to be a greater sense of proportion on this site, instead of this constant, self-feeding negativity, which I keep reading.
The dollar hasn't fallen off a cliff. Look at a 12 month DXY chart and you'll see a low in 2008 of 66.15.
Yes, QE is directly proportional to an increase in S&P, but is that any surprise??? As long as the markets are going up, investors are strengthening their balance sheets and that applies to you and I, as well as the big banks.
So what if its printed money? Japan has a debt ratio of 170% to GDP. With a debt/GDP ratio of 62% in the US, we would have to print three times more money to meet Japanese excess.
I see no imminent crash. I see a continued status quo, whilst the emerging markets make hay. And as to the question regarding deflation/ inflation, I would say stagnation in the west (neither), but inflation in the emerging markets (which will benefit US industry exposed to this sector).
Debt to GDP ratios are downright spurious and a poor indicator of economic health. Peter Schiff is one of the few real economists who gets it and knows that our GDP is phony. How much of the US GDP is defense spending and war funding? How about health care spending? And then what about the US financial system "profiting" from it all? All of this is garbage GDP that is non-productive and a drain on society. If war is so great, how about starting new ones in Latin America, Iran, N. Korea etc. We can borrow or print more money pay Blackwater and Halliburton to provide security and build bases all over the world. Or all these fat, diabetic, unhealthy people we have - what a bonanza - just imagine all the tests to be run, procedures to be performed and drugs to prescribe! Sorry - it's production that counts - this service economy bullshit will collapse sooner or later. Looks like the US will have to broke first though.
And finally, if everything is just wonderful with the economy, how about telling Banana Ben to pull the plug on all this supports, guarantees, backstops, QE, etc. Why so afraid of the free market's verdict?
Best post on this thread so far... the truth is difficult for decent people to accept since decent people do not think about profiteering from the misery they are willing to inflict on others as our leaders and their masters do.
They protect themselves behind the false flag of patriotism. Flag waving implicitly or explicitly if you will... and Americans are nothing if not patriotic... and brainwashed.
God bless America... I salute her flag.
But please wake up soon... O.K.?
dude, that dxy number was for my taste off a cliff
I'm not seeing it http://www.marketwatch.com/investing/index/DXY/charts?countryCode=US&sub...(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
I'm not seeing 66.5
http://www.marketwatch.com/investing/index/DXY/charts?countryCode=US&sub...(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
printed money is theft and currency debasement -
that's why it matters.
a rising price in debased currency is not a gain...
+1
Good to see that the moron inflationistas in the comments section are only a vocal minority. I guess the rest of us don't have the inclination to rabidly post in *every* *single* *story*, "ZOMG ZIMBABWE LOLWUT HUR HUR HUR".