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Deflation is coming
Deflation is coming
www.southofwallstreet.com
In going thru old research I found a note from Dave Rosenberg in March of '08, where he discusses Bernanke's decisions on rate cuts and points to his speech from 2002 on deflation as a road map for his options. At the time, cutting the Fed Funds rate was 'the answer' that rallied markets and substantiated the Fed's ability to maintain confidence in financial markets. We all know how that ended.
Rosenberg from 3/18/08 at ML:
We believe that Fed Chairman Bernanke is now fully in charge of the FOMC and he likely does not want to take a chance of disappointing the still very fragile financial markets. More importantly he understands that we are simultaneously facing a credit crisis, deepening housing market meltdown, and an unfolding economic recession. (Sounds a lot like today, doesn't it?)
He goes on to question what Bernanke can do if rate cuts don't work:
Since the last rate cut, the Dow is down more than 500 points and
BBB corporate spreads have widened out an extra 50 basis points. Financial
conditions are actually tightening. So don’t think for a second that Bernanke does not have something up his sleeve – we think the press statement is going to be very key. What other aggressive action can the central bank possibly take?
Today Big Ben sits in a similar, but more nuclear situation. In this 2002 speech he suggests the ability to buy foreign debt:
The Fed can inject money into the economy in still other ways. For example, the Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt
We aren't far away from that being our last option, are we? It will be a sad day if we start buying foreign wallpaper. Here's the point of my note - if you look at where we are today, markets are becoming more fragile - requiring more 'solutions.' At the end of the day bad debt can't be subsidized by facilities or coordination. Debt has to be destroyed, which will cause levered market participants to fail and ripples to spread. Its not doom and gloom BS - its the only way capital markets become healthy again. Think of it as a backed up drain that all the Drano (liquidity) in the world can't unclog. You've got to cut the bad pieces of the pipe out, which may cause you to tear up the whole bathroom - causing your wife (or husband.. or mistress) to bitch and moan, but you eventually rebuild and move on to the next crisis. That was pretty lame... sorry.
Bernanke continues in his address on why the Japanese couldn't fight deflation:
The claim that deflation can be ended by sufficiently strong action has no doubt led you to wonder, if that is the case, why has Japan not ended its deflation? The Japanese situation is a complex one that I cannot fully discuss today. I will just make two brief, general points.
First, as you know, Japan's economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt. Plausibly, private-sector financial problems have muted the effects of the monetary policies that have been tried in Japan, even as the heavy overhang of government debt has made Japanese policymakers more reluctant to use aggressive fiscal policies (for evidence see, for example, Posen, 1998). Fortunately, the U.S. economy does not share these problems, at least not to anything like the same degree, suggesting that anti-deflationary monetary and fiscal policies would be more potent here than they have been in Japan.
Well, it looks like things have changed from 2002, we aren't much different now from where Japan was. The US now has a large overhang of government debt and massive financial problems in the banking and corporate sectors muting the effects of monetary policies (ZERO HOUR).
Deflation appears unavoidable. I'm renting assets until we see the painful - but necessary bust to rectify imbalances in liabilities. So, with today's news about increasing liquidity via swap lines - I can't help but sense that Central banks see something developing that guys who stare at blinking screens don't.
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Yup, until you hear the 'B' word
B-B-B-BBB-BAILOUTS!!!
Egg-zact-ly.
Gonna be big.
Lehman was just a practice round. Relatively small contained brokerage house relative to the Whole of the European Continent, countries, banks, brokerages....
Gonna make having a portfolio that you can sleep well with at night the best thing ever happened to you.
I concurr with the portfolio disposition: strong solid income based in US$ (flight premium) primarily treasuries and munis barbelled by PMs
One other interesting point in this deflationary cycle is that $LIBOR has been very well behaved due to the extreme accomodative policies of Central Banks , but this time around the interest rate spreads on Sovereign debt is soaring making funding of countries extremely difficult as they are not to be trusted. Banks can trust each other now as Grand Daddy Ben and uncle Mario is behind them.
The fact is they are trying to plug holes on a dike and as soon as one is plugged, the pressure builds somewhere else and another hole leaks again....Other potential dike holes are in state and municiplal governments both in the US and across the planet.....where in general governments at all levels are spending more than they take in......
The non-deflation crowd is the overwhelming majority here so I'll keep on the deflation bet. No doubt they're gold owners too since the scent of deflation makes em howl. The last 25 years have been built on a credit card and now people are happy if their FICO is over 400. Good luck goosing the economy. The government boot heel has made it's final step on the throat of the middle class Gold is headed back to 800 bucks an ounce but it'll still make a nice doorstop.
No it won't.
Hope & Change with the muslim. The seniors and baby boomers who voted for the muslim sure f***ed their future. Now they can look forward to becoming Soylent Green.
Not that Soros second choice the Maverick was much better. Anything would have been better than the muslim.
Not that I'm sticking up for Obama, I think we should get rid of government all together but...
Why can't a muslim kid right now work to become president? If he was born here he has just as much of a right as anyone else.
How many people own gold? By comparison, how many own dollars?
If you're a government faced with destroying one or the other, which would you choose?
If you think that gold is going to $800/oz you should sell all that you own.
What? You've never owned any gold? You don't know what you're talking about? I didn't think so.
THAT is HILARIOUS! $800? God you're good. Do you do standup?
Don't blame the messenger,he was talking to Jon Nadler,and Jon FuckTard Nadler told him the proper price for gold.
According to the bankster-loving, fiat-adoring, gold-hating Jon Nadler of Kitco, the "fair" price of gold is always around half of whatever the spot price happens to be --- in other words, half of what the market (and a suppressed, manipulated market at that) has determined the price of gold to be at any given moment.
Some official spokesman for an ostensible precious metals dealer, eh?
How cute, I got junked by a Nadler-lover.
For me, that is a real badge of honor.
if only
Deflation is here. Go shopping, everything is half off, and still no one is buying.
The only thing is that we are currently in the end of a long standing hyperinflationary event. The dollar has steadily lost its value for its whole existence. We are down to the last penny. Once that goes, game over.
Read about hyperinflation periods in Europe between 1915 and 1950 before saying that we are currently in hyperinflation... When a day you have to pay 10^6$ for your breakfast and the next 10^7$ you'll understand what is HYPERinflation.
Everything is not half off. I just filled my tank, and bought some groceries. GRRRRR....don't tell me prices are down!
Yeah - lots of deflation at the grocery store. Maybe in hard assets like RE.
Deflation will happen in anything that is financed. Staples can go up, but as credit is destroyed, supply of assets becomes higher with respect to credit, so their value will drop.
The problem is deflation. The cure is hyperinflation.
pods
That last penny takes a long time....
I am leaning to the deflation camp, at least for now in the short term....
40% cash flows from hard assets, esp. oil and NG
25% PMs
20% hard asset equities, PM, resources etc...
15% cash
This is what I said to my friend who bought penny stocks recently.
It may seem like it will be easy to double you money, because your stock is $2 and if it goes to $4 then you did it, but if it loses just $1 you lost half of your investment.
Sorry, Flak, the last penny goes quickly, like a spiral down the drain.
I rememeber a lot of big numbers on currencies, 1400 lira for a coffee.... the last penny is the hardest....
As I see it deflation gives the TPTB a chance remain in power, hyperinflation will lead to the end of the US and you will really have Red States and Blue States.....
I really dont think the path to a worthless dollar is as clear as some think, though we will get there.
for some people it is apparently difficult to realize that inflation and deflation are not matually exclusive.It is perfectly possible to have a deflationary price collapse in one part of the economy and an inflationary price explosion in another one.This is exactly what we are starting to have right now , real estate for example will be collapsing more and more while food , fuel etc. will be rising.It is a completely separate question who will EXPERIENCE inflation and who will deflation.Because most people can not buy real estate anyway but all people have to buy food.You can be damn sure that for the vast majority of the population inflation will be the fate while only a minority will see real deflation (primarily people who have high income and do not spend much of their income on food and similar stuff)
Right you so are sir. In a reverse metaphor, deflation is like temporary bursting of the dam with the torrent of water sweeping up everything (except food and energy) in it's path. But once the water has passed through, all that is left is the ravages of inflation, or hyperinflation, since regular inflation is a demand driven phenomenon, curable by raising interest rates a la Volcker, and hyperinflation a situation where the traditional economic model has gone to money heaven (or hell).
Bingo, and let's not forget how this is exacerbated by the Stagflation component of slow economic growth and high unemployment...
I'm just a cowboy so someone help me out here. If the banks and governments of the world continue to hold toxic assets at pre-2008 price levels and the real value of these assets has fallen by more than 10 trillion and the central banks have only printed 6 trillion, doesn't leave the world in a Japan like stagflation until something gives with the true value of the debt? In other words don't the central banks have to print another 4 trillion or so in order to make the banks solvent and then when the banks are solvent the value of property can collapse and the banks will be setting on trillions of cash to loan out? It would be at that time that inflation would take off.
Just asking
Yes.
If you had 100 cows and overnight somebody stole 40 of them, you wake up with less assets and are deflated. If you could go print 40 cows you would be back to square.
But if every one can print cows, at will, they will and cows deflate to zero and your screwed
its the debt that is toxic. Inflation is the destruction of money -bit by bit
FV = PV + I ............... I... has never existed and the formula is an exponetial one same as Y = X2
we will have massive deflation after we have hyperinflation and toast the economy.....these idiots that think the fed can print forever or that we will always have inflation and never an end are beginning to get tiring. the fed will print and at some point they will stop. not because they want to but because the money is worthless....
....and that is what deflation is.
Deflation is the one thing that I think will not happen. Deflation is the one thing that the Federal Reserve can kill by printing. Hell, they can essentially create money at the speed of electrons now. And if that doesn't work, I don't doubt that they'd literally drop money over our cities like leaflets over Baghdad before the bombing started.
So by this same logic if Ben dropped reams of toilet paper out of helicopters printed with the reserve stamp would you spend it on what. No one will want it because everyone has a supply. It would have no value other than to wrap fish and chips or wipe up spills. Then you do get deflation. What you thought was valuable in dollars is now valued in toilet paper. And something - anything other than Dollars will be sought for trade.
What they have agreed to do yesterday is tie all the life boats together and tie the lead rope off the stern of the Titanic.
It's The debt Stupid. This is what has to be addressed - the debt - not more cheaper debt(money)
Pearls to Pigs really
Deflation is coming after the Hyperinflation Depression.
Never. Going. To. Happen.
Deflation requires debt to be written off -- recognized as bad, defaulted on, and ... wait for it ... the lender to take the hit. That last bit is just not in the equation any more.
Debt. Will. Be. Paid. At. 100cents/$. No questions asked.
That means that the USGov will eventually buy it all and print to pay for it. The debt holders absolutely will not care because they will get to spend the money first -- so they'll get the full value of all our pain.
If you're waiting for grinding deflation, you're in for a long wait. Short spikes in the value of the US$ are certainly possible, especially as it periodically wins the leper-with-the-most-fingers award. But the ultimate nature of trend is not what that graph purports to show.
JMHO.
I call this "The first pass effect " Where printed money makes it's first entrance into the real market economy. Like oxygenated blood, those tissues where it it arrives first get the benefits of the delivery of oxygen, but those downstream face a blue, deoxygenated blood.
Think of all those trillions of electronically added dollars by central banks as frozen FRESH water, vital for life , but not usable in the current form because they are locked up as ice, as in Antarctica. When the inevitable thaw occurs, suddenly the ice melts and is delivered as a flood or rising sea levels....too much of a good thing.
another deflation monger lol
comes out of the woods to pronounce stupid with a accent ,
the buck now worth 1 cent over 100 of printing . digets , and they storm the bastle as if they have a clue about mises , about the 1th marble .
inflation is money creation ever sicne 1938 deflation is not printing money .
these defaltionist do not eat of buy services ,or live in the world of 120 bags of grocerys or 80 dollar fill ups at the gas station
http://news.goldseek.com/GoldSeek/1322723700.php
Deflation isnt coming for long.
Central bankers wont allow it to.
Burn your FRN's on something tangible while prices are still comparatively low.
Prep your exit to parts unknown because when things blow theyre going to blow big.
... and fast.
credit is manipulated to squeeze cash out of your orifaces by the banking 'cartel'
.
its a delicate ballence of power, politics, and money
.
try not to get raped
There are other factors to consider. With both declining purchasing power and rising unemployment, deflation can still occur. Even with an increasing fiat paper supply, an increasing number of people have to cope with zero dollars. They can't buy houses, cars, some won't be able to buy even food. The chain reaction decline in demand would produce deflation. Unless Helicopter Ben does drop bales of currency out of the sky, we could see deflation.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Isn't that a standing threat?
You have a very unique view point. I challenge you to explain "printing"
Short answer: The dollar is worth 2 cents.
There have been 3,800 Fiat currencies since the beginning of time, everyone of them went to their intrinsic value of 0.
Tha average lifespan of a Fiat is 39 years, we're over 40 since the gold window closed.
We borrow (or print) 43 cents on every dollar we (the government) spend. Our debt isn't 15 trillion it's closer to 128 trillion. We're insolvent. We're beyond cuts. We're beyond raising intererest rates. It's collapse. If they defualt it's hyperinflation. If they continue to "print' it's hyperinflaition. Think whatevery you wish. Best of luck to you.
And who was foolish enough to presume the medium of EXCHANGE was ever destined to be a store of value?
Commerce is based upon the exchange of value. Growth does not occur when wealth sits idle. The system was designed to force the players to keep the game rolling. Currency is not money, only a re-presentation of money, a substitute, colorable money.
"We" are the gold and silver.
The reason "we" are all so fucked is because "we" never reached the age of majority. "We" slept upon "our" rights and therefore "we" have none.
So leave the "we" out of the equation, because "we" are just the wards..collateral for the debts, the ones who pledged "our" past, present and future labors to the gaurdians through "our" silence.
I can not be responsible for "we". Only me.
Well said.
Did you get rid of your strawman?Did you actually verified that we " are collateral of debt.
I would like more talk abouy it.thanks
Right after Santa, the fucking tooth fairy and the Easter Bunny!
You CAN NOT HAVE DEFLATION WITH THESE FUCKING MORONS PRINTING LIKE THERE IS NO TOMORROW.
And, oh by the way, if they don't print then we'll have defaults, which will decimate the value of the dollar even quicker --- which will lead to hyperinflation.
A.) Hyperinflation.
B.) Hyerinflation.
C.) All the above.
From http://www.zerohedge.com/news/observations-engineer :
Many economists seem to be differing on whether the economic system will head towards inflation or deflation. My insight reasons that both inflation and deflation will be occurring but they will happen in differing areas of the economy. Assets that require longer term loans to purchase where there is a forward looking expectation that the debts incurred in today's transactions will be able to be repaid in future years will suffer deflation and falling prices and asset valuations. The reasoning for this is as follows : The Hubbert Curve strongly implies that future real economic activity will be decreasing since there will be less energy available in each successive year, so less will get done in each successive year, which implies that there will be less jobs in each successive year. With less jobs available, and more unemployed people competing for any job openings that do become available, the wages for jobs will be dropping too, as there will be more competition between the unemployed to get any given job. Employers will be able to do price discovery for wages where supply and demand work somewhat in reverse (but not counterintuitively). With a high demand for jobs, and a small supply of jobs, the price (or wage) of jobs goes down! So, with less jobs in the system, and a tendency for there to be less wages paid for existing jobs, we can expect the funds that will be available in future years to repay long term credit to be decreasing. This is a fundamental change for the long term credit business model used in prior years. Prior to peak oil/debt/GDP/water/soil/phosphorous etc, the trends and expectations were that there would be more funds available in future years, and 7 yr. loans for CRE, and 15 and 30 yr. loans for housing made good business sense. Now that we are post peak the long term credit business model is structurally challenged with higher risks of defaults due to an expectation of less wages being available to repay loans.
Inflation can be expected in the price of real/hard assets and commodities that don't require long term credit, especially where basic necessities (BN) are concerned. Discretionary spending will obviously decrease, but BN purchases will be made first. With money printing increasing the funds available, more money will be competing for BN and for real assets where there is immediate value and need. And the Hubbert Curve implies that there will eventually be less supply of BN and real/hard assets, so supply and demand will tend to drive prices up in these areas and cause inflation in them.
One might consider that even if there is a level plateau on the Hubbert Curve that population is still trying to increase and as a result the competition for BN and real/hard assets (for which production has now leveled) increases and that could drive prices up too.
Pretty much. People are confused because eveything is confused and screwed up. Money is crowding on the short end as no one will take a long term bet. That drives the price of immediate things up and up. But peak oil is driving real things up as well because it literally costs more to produce and transport just about every real thing. At the other end, no one wants to loan or bet on the long end. Homes have additional problems since the powers that be have screwed up that area so badly. Still, hyperinflation seems innevitable, as this time is NOT different and we are destroying our currency beyond repair. Add to it everyone's race to debase.
How about deflation first, and then hyperinflation?
Or maybe: Deflation in everything you own. Inflation in everything you use. Your house is worth $30K and your gas and milk cost $30 a gallon. Taxes on everything, including the air you breath. Truly 3rd world visions of poverty on your city and town streets. Very militant police presence in most cities.
That's my vision of my city in 5 - 15 years.
Bummer. Well, the sun will still shine...and life will go on.
Unless we kill ourselves and our planet. Then life won't go on. Bummer.
deflation inflation deflation inflation ....., at some point OIL is $500.barrel and a loaf of bread is $100, the US economy and infrastructure dependent on oil grinds to a halt resulting in permanent or rather sustained deflation ala 1930's , this is the time where we will definitely move to alternative energies, grow local consume local, etc.....it will be painful but necessary!!!
Developing countries more sensitive to food prices will also have deflation as order will breakdown, resulting in zero or negative economic growth.....
Persistent Deflation is the end state from which a new world will emerge if we don't blow ourselves during that period.
and finally, we HAVE A WINNER!
Asset deflation, commodity inflation. Welcome to the future. Heads you lose, tails you lose. The choice is yours!
{Step 7: physical PMs.}
Indeed it would be nice if we could structure the model based on such a concept. The residential air conditioner I OWN at a rental property devolves into the available copper pipe that a meth addict can USE for recreational liquidity purposes. The correlation between asset prices and commodity prices is starting to osscilate on the telephone poles in my town where the bandit signs used to read "I buy houses" and now reads "I buy scrap metal."
The frequency at which these classes of physical property (be it scrap metal or metal buildings) are vibrating reminds me of that video of the Tacoma Narrows suspension bridge that was only doing its job of responding to high winds (http://www.youtube.com/watch?v=j-zczJXSxnw) which strikes me as exhibiting one consistent trait... volatility.
To use the heart attack metaphor, most people don't expire from a single massive heart attack. It's more common to have a series of ever-increasing crises responded to by ever-strengthening drugs designed to restore equilibrium to the main power unit. As we all know treating symptoms rather than causes always have negative side effects on the periphery. If your plan was to "nationalize" (i.e. SDR and fractional gold-backed divorced currency) the TBTF all along, then it's just a matter of a coordinated global surveillance and an agreed upon timing of the reset switch.
My guess is that this latest "modern jubilee" as promoted by Keen is subtle enough to slip through as a structured solution because it "restores" relative real property asset values while directing sufficient inflation into the new fractionally gold-backed model while leaving a very narrow slice of middle class savers (think 60 yr. old former firefighter with a paid off mortgage and a pension) and so-called "sovereigns" holding the bag. Speculators on both ends of the spectrum get redeemed, but only one end of that spectrum gets to control the new & improved global network which becomes the new form of "money." The double coincidence of wants first half of the currency is subject to the fractional gold-backed wealth second half of the currency. If you have mortgage debt, you would be restricted from owning part 2.
www.TradeWithDave.com