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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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good to see that the moron deflationistas in the comment section are only a misguided majority.
stop talking to yourself anonymous
Fail. Come back when you can explain the V in "MV = PQ".
Russian economy grew 7% in the last quarter. Most of this growth came due to increase in OIL export revenue. Those increased mostly due to the quantity shipped rather than OIL price increases. They all remember the late 90's experience when OIL prices collapsed and dragged them into hell, so most of the rational OIL exporters are rushing supplies out. It's better be safe and have enough cash to last through global slowdown or be sorry.
And since there are only so many tankers GS & Co' could fill, the drop in energy prices will contribute to deflationary pressure.
In addition we could count on farther deterioration of RE once the tax incentives and bail out measures expire there will be additional deflationary pressure. DOn't forget to add in falling rental prices.
By the winter, CHinese manufactures will start slashing prices after they realize that there isn't much local demand. Thereafter they will copy the logic of OIL exporters.
While extensive trade barriers will keep the prices from collapsing, they won't be able to stop devaluation because most of the manufactures are global players and influenced by the same pricing trends. In addition all of the large marketing and distribution firms will demand lower prices to attract remaining customers or ELSE they will disappear.
Deflation = another trillion dollars = temporary deflationary freeze = more deflation = credit equilibrium near sustainable level = abnormal inflation with the huge interest rate increase = W recovery.
The US economy can grow due to increase in oil and imported goods despite total collapse in volume, even adjusted for inflation. Of course, all money spent on that expansion is through credit.
Can the S&P 500 go bankrupt and there still be economic growth, even adjusted for inflation? That is a question with interesting answers.
Well we could have inflation if our mega rich philanthropists actually gave shit to charity instead of goofing around in the stock market or trying to fend off rival software companies or fighting people trying to hijack thier diet pill scam.
You mean if creditor institutions actually lent money? Not sure if you've been watching the american consumer, but the wealthy are the only ones spending money... albeit a little less haphazardly than prior to their market/retirement haircut.
Not to mention that although our system is entirely fucked up (privitizing gains, while publicly bearing losses), I think what you're advocating is communism. How much money has Bill Gates given? Billions? Ted Turner? It hasn't been that long since Ted Turner threw down the gauntlet and challenged the mega rich to pony up a billion each to charity... many followed suit. (although they're probably having buyers remorse atm). How much is enough?
Where'd it go. Did they just wipe a thirld world country under IMF debt out of the hole? Did they just hand out checks and let people do with it as they pleased? Or did they instituationlize the giving. Maybe buld a halfway house so thier perv buddy could do some mollesting or thier psycho buddy could do some beating. Communism and socialism and philanthropy have the same goal to give in the most conrolling way possible after taking in the most controlling way possible and expanding powerlessness to make room for expansion of power. It's all labels to hide dictators.
Oh no there's a catastrophe. Let's jump in the helicopter and fly around taking shots of it while flashing screens where people can donate. All charity in america done by the middle class and the working poor.
"Communism and socialism and philanthropy have the same goal to give in the most conrolling way possible after taking in the most controlling way possible and expanding powerlessness to make room for expansion of power. It's all labels to hide dictators."
"No, Donny, these men are nihilists, there's nothing to be afraid of."
Correct nihilists...
how much have you given in the last 12 months, pal?
you give a little help by giving your time, or you can give a lot by giving a lot of money. one person's time doesn't feed thousands of hungry people (unless that person is the president of a food bank). money does.
And the illusion of wealth does not take affect until the money actually changes hands. The money is not power and actiivity until it gets into enough hands to actually produce something. And a president of a food bank does not feed thousands of people. Money does NOTHING. The philanthropist is nothing but heartless wall of indiference or a meaningless part of a process that is bigger than the philanthropist is. They simply allow charity to happen or deny it. Sorry if the truth of it all sucks. But that's how it is.
I'm bummed now...
deflation WHERE ?
inflation WHERE ?
you need to make this question less ambiguous TD.
I we are talking about the market; then INFLATION ( see your post on the correlation between the rise on SP500 and QE ); if we are talking housing; then DEFLATION; if we are talking DXY; than Inflation, if we are talking credit, then deflation. I voted deflation, not sure why i did it; but i did it. the market will go to the moon while the world goes down the toilet.
+1
What CB said
Spot on Cheekster...
Things that you wanted to pay for... (McMansions, private jets and yachts) will adjust down. Banks won't extend credit until the economy bottoms and inflation starts pumping up nominal values.. You don't try to catch a falling knife guys.
Things that you needed to pay for...(Food, energy, property taxes, taxes,insurance, education... you know... the necessities) will of course go up.
When yeilds on bonds get too low and the inflation risk too high... the smart money will head into the equity markets on a wave of Q.E.
We need a brief but massive bout of inflation to decrease the real value of the nations debt, private and gov... and the value of the dollar of course... to decrease imports and increase exports. After that we can hopefully start to rebuild albeit with a much lower standard of living for all.
That's if the entire shitmobile doesn't skid of the road and crash and burn in the ditch first.
50/50
yup, products based on the provisionof credit will most likely go down in price most: thats houses cars and flat screen tvs.
stuff like food and education will get more expensive in terms of the fraction of income they occupy.
But this is all before the shitmobile crash. We are seconds away from a currency crisis for the rest of the USD's lifespan.
Deflation Dice is what you just did.
You reduced my ramblings to the bare essence with half as many words... yet still managed to get the word 'shitmobile' in.
Inflation will be when there won't be enough words to describe what is happening to us.
BTW I forgot to include gold, PMs, and all the important commodities that make the world turn.
the market will go to the moon while the world goes down the toilet
*nods*
true, 'both' should have been an answer. Depends on the lense...
If you are using the right metric (i.e. Gold), there is NO QUESTION WHATSOEVER that we are in a deflationary depression; however if you are using fiat money as you metric than I'm afraid the outcomes will be totally opposite to what you expect (hyperinflationary depression).
Right on, international commodities will reflect the debasement of our fiat currency, anything with a large US-labor component will decline in price. Relative to real currency, gold, international commodities will stay flatish, while US labor will decline even more.
Bottom line is lower standards of living for Americans, especially those foolish enough to hold their wealth in USD. Those of us who are wise enough to move our wealth into international commodities, or real currency, will maintain our wealth.
Check out David Goldman's blog, he does a decent job of summarizing it, though I think he downplays the probability of the collapse that I am sure is coming.
http://blog.atimes.net/?p=1142
The Fed must continue selling treasuries which lowers the supply of money. Ben will try and offset this by increasing M1 and buying some treasuries back, but the net effect will be deflationary. Their balance sheet will explode to 5 trillion in the next 18 months, and be comprised almost entirely of MBS, CRE and treasuries. They'll continue trashing the dollar and print $$ 24/7, but people cannot and will not spend, and business will not invest. The turnover of money will continue to be extremely low.
Asset prices will continue to decline, then stabilize in the 2nd half of 2010, but valuations will make it impossible for the Fed to unwind the toxic real estate, so there it will sit. The risk/reward ratio for treasuries will render them unattractive before 2012, but the shell game may be sustainable for the next 18 months. Goldman and friends will try and pump commodities to the moon in an attempt to bail Ben out of this deflationary trap and make a few billion in the process, but events in China and elsewhere will kill any and all attempts for Ben to inflate his way out of the real estate ponzi scheme.
That's my take
Well put--and very scary
If the banks refuse to take the hit and Uncle Sappy lets them get away with it (and of course they Will) then the only recourse is for the Fed, Treasury to take them on, sticking it one more time to "the little guy".
Thanks, Zippy. I further believe that the O Team and Ben are mistaken in thinking industrial capacity utilization will begin returning to normal levels. The current 'slack' in the economy is not going away simply because current industrial capacity is 15-20% greater than it ever should have been. The FFF (Fannie, Freddie Fed) housing bubble, crazy interest rates, insanely liberal borrowing and other excesses led to expansion that never should have occurred. Plants were expanded, trees were cut, gravel was turned into cement, and copper and plastic created wire to produce such items as 3500 sf homes for empty nesters, 3 ton SUVs, etc.
And remember this so-called 'slack' exists despite the fact the United States is currently waging war (or whatever they wish to call it) in two countries! Factor in the fact there are fewer full-time workers in the US than any time since 1999, and I cannot, for the life of me, figure out what will drive any semblance of a sustained recovery. You can hire every firm on Madison Avenue to feed the masses with carefully calculated hope and optimism, but sooner or later, the rubber hits the road.
all measurements of price inflation should be
done in gold....everything else is pure
poppycock....
runtogold.com shows ratios of key assets in
terms of gold...housing is declining in silver but by
no means cheap....
Agree. I vote inflation in nominal/dollar terms and deflation in real asset terms.
Bernanke's typing speed, though decent, is still slower than the speed those banksters can destroy credit by charging off all those uncollectible, busted sub, alt, arm, prime , CMBS, etc., etc., and by making all those unsound hedges and gambling derivatives.
Obama should fire Bear for she single handly destroyed credit by closing failed banks. 4 or 5 banks, large and small, every Friday, like a clock work.
Deflation! Definitely deflation! Oh, Yes, I paid 20 cents less for my daily doughnut. nuff said.
Well, 0Hedgers smarter than the average bear, significantly deluded, or there was some serious ballot box stuffing going on;
The 0 donut indicator works for me and most cops.
Who needs the Misery Index, currently at record levels
whether or not we believe official statistical lies?
Beware the money mirage:
How can we have inflation like talking Ad heads on TV
suggest when shadow banks and debt defaults are imploding faster than the Fed and Treasury can create deficit
money to loan or spend?
How long can the banksters ramp up markets after they
get margin calls?
Hint: Big4 long dollars, short bonds, commodities, gold
and indices...
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493
But Starbucks is raising prices. I think it is possible to have both, depending on the asset we are looking at.
The necessities: bread, beer and bullets, & energy. Inflation?
The bling: autos, real estate, electronics, boobs, DU(M)B. Deflation?
... hey look, another person who thinks inflation is defined as "rising prices".
Bzzzz.... wrong.
Inflation is the expansion of money and debt.
Deflation is the opposite.
Prices can and very frequently do rise in deflations due to supply chain dislocations.
Debt is being deleveraged...deflation
Monetary inflation is the expansion of the money supply.
Price inflation is the increase in cost of goods and or services.
Two different critters.
I thought it was more money chasing fewer goods. Doesn't that cover both of your definitions? One leads to the other in other words. Right?
The problem with "more money chasing fewer goods" is that it is a bitch to try to quantify. Heck, we can't even agree on which monetary aggregate is the most important. Now you want to bring in something as generic as "goods?" If we double the base money supply and produce slightly fewer cars, is that inflation? What if we produce additional milk and computer chips at the same time? What if there isn't a corresponding increase in credit with the increase in currency? Does the existence of food stamps alter your definition?
First. The definition of inflation is not actually agreed upon, so even in an academic sense you are trying to show yourself better read than you really are.
Second. Supply chain dislocations are by definition of short duration and of course unpredictable (or there would not be a dislocation). Additionally, dislocations can be both positive or negative (a bumper crop for example, just as easily as a drought).
Temporarily rising prices in one specific asset will not change the course of the world economy and are not an investable trend
"charging off all those uncollectible, busted sub, alt, arm, prime , CMBS, etc., etc."
As long as the government is backstopping all those losses, there is not a chance in hell of them causing deflation.
Ding, ding, ding, GG has the winner.
We will see, with apologies up front to Austrians and Monetarists, "asset deflation" with commodity and monetary inflation. It will not be pretty. And in history no central bank with full control of the money creation process without a hard asset backed currency, aka "fiat" money, has a massive and fatal deflation ever happened in history. We will inflate because the consequences of not doing so usually end up with peasants in the streets and guillotines with long lines.
In 18 months over 50% of the stock market dollar volume will be 5 bankrupt companies--And No One Will Care.
3. Hyperinflationary currency crisis.
Overnight currency devaluation is a hyperinflationary event. Money supply doubles or more overnight. Everything reprices except wages and fixed debts.
Debts: easier to service
Wages: must take hits to purchasing power
Prices: overthetop
currency: garbage
gold: will be called messiah
On my wall I have a framed $10 Trillion Zimbabwe bank note. This could never happen to my dollars...
While you may be right in the end, hyperinflation cannot be the first step along the way.
Before (hyper)inflation can occur, all assets of value need to be sold. First to go are the lucrative US held patents/technology. After that, a repatriation of all accumulated foreign assets (people, companies, R&D).
Foreign purchases will keep a (at least temporary) floor under the dollar. Any emigration will also be be deflationary by reducing the velocity of money.
The US needs to be hollowed out of assets before its worthless.
i agree....ben and the gang will not let deflation occur. when will the deflationists realize this?...they will continue to push the dollar over the cliff..and it will collapse.....deflationists live in a box.
Where have you been the last two years?
There's just one problem with your argument. Deflation is winning in spite of all of the efforts of Bernanke to inflate his way out of it. Time will tell. In the meantime, I'll weather your childish insult from the safety of my box.
Politically, deflation is more palatable than inflation, and a lot more likely.
People don't mind if things go down in price—but they sure mind it if things go up, and the little money they have starts to lose value while they don't have a job.
Also, from a political perspective, a second big stimulus package will not pass through Congress, no matter how many starry-eyed speeches Obama makes. Ditto for a second version of TARP.
Once the equities crash—and once the mainstream media begins catching up and reporting that the March-September equities boom was yet another bubble, this time fueled by banksters deploying stimulus/bailout/TARP monies—then there will be no political ground for another round of Fed/Treasury free money.
A second crash guarantees deflation like it was 1932.
starry-eyed "telepromped" speeches!
Edit: this thread is a stupid game and I'm not going to play.
Excellent points. Definitely deflation, as hyperinflation is not politically feasible. If citizens' buying power is destroyed, and people can't get the necessities, people won't lie down like the poor old trodden on Zimbabweans. Bernanke and his boys will all be accounted for at the public gallows in short time, as they won't even be able to pay bodyguards with a destroyed currency.