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We're On the Cusp of Another Round of Deflation
I believe we’re on the cusp of another round of deflation.
Now that the Swiss have pegged the Franc to the soon-to-be-broken-up Euro, the US Dollar is now the primary “flight to safety” paper currency for the world. With that in mind, we need to consider that the greenback appears to be forming a massive wedge pattern:
This pattern predicts a possible target of the mid-80s. Remember, the last two major US Dollar rallies were caused by Crises (2008 and the Euro Crisis of 2010). So if the greenback explodes again here, it will be based on another round of deflation/ systemic risk.
However, in order for us to get there, we need to take our resistance at 76:
This is the line to watch. When we take out 76, the financial system will be in BIG TROUBLE again.
Indeed, I fully believe that the financial system is now more in danger of systemic collapse than at any point in history (including 2008). Do NOT be fooled by the rally of the last few days. We saw rallies of 8%, 11%, even 17% during 2008. Those investors who bought into them got taken to the cleaners.
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What you see is deflation in value but not in cost. Even though yor home may have lost a lot of its value, if you are still making your mortgage payment it is probably still based on the inflated cost. Due to the cost increase o everything else even a deflated value will stillbe inflationary as a percentage of reduced income.
The value of a day's work is being devalued which is deflationary for employers, but inflationary for employees. The same amount of work nets you a far lower return. Even if the dollar strengthens by 25% it will still won't be considered deflationary becuase the overall increase in inflaton has been much higher and the level of income has dropped so far.
Even a drop to $2.50 gallon gas is still $1 higher than the average from 1990-2004. Meanwhile true wages have fallen far below the level of 1990 so even gasoline at an equal cost to 1990 would still be inflationary as a percentage of real income.
There isn't a definition for what we are in. It is completely new.It is some kind of debt expansion nightmare where the creation of new debt somehow is supposed to increase the value of what you hold.
Actually, I think what we are experiencing is pretty straightforwardly defined: falling standards of living. This has accompanied every bout of inflation/hyperinflation/fiat currency devaluation throughout history, no matter the exact degree or mechanism of currency debasement involved.
So standards of living can only fall during inflation? The guy that lost his job due to defaltion would agrue a great deal over that one..
Keep looking for that deflationary unicorn at the end of the rainbow if it makes you happy --- but you would be much better served searching for the pot of gold instead.
My facts are better than your insults...
Your "facts" are nothing but the baseless ravings of a dishonest and disingenuous troll.
Said the troll...
I sprinkle gold dust on you and demand you depart, ye deflationary Douchingerite demon!
Akak, if you don't think we're suffering from a deflationary implosion, in addition to the inflationary bubble blowing of Bubble Bernanke, I suggest you buy some property in the US (or Europe)
Because under the hyperinflationary hypothesis property should be skyrocketing in price too ...but it ain't
Under inflation it wasn't just carrots and beans that were inflating in price at 1,000% per month with Zimbabwe Dollars but all asset classes, including property and stocks.
Fast as Bubble Ben is expanding his balance sheet and printing the crap out of the currency the actual credit mountain is STILL deflating. Credit has gone negative for the first time in 30 long bubble-blowing years and there's nothing the hyper-infating midget can do about it.
Ben has lost all control, but why? Because the economy, and consumers, are a social event, not a monetary event. Whatever BS Ben says or does makes no dfference, it's all falling on deaf ears. Nobody wants his BS Bucks. Nobody in the real economy or amongst real people want more credit (debt). We're all in deflation mode.
Everyone clapping 'Oh goody look at the dollar go up!' doesnt realize thats the worst nightmare for the FED's mandate and theyll pull the rug out from everything before they let the dollar rise further.
Watch out here.
Back in May/June I recall this author claiming the USD hit a tipping point, and an imminent catastrophe was ahead. The author projected the DXY to fall to 68. Thank heavens for the Internet; you can actually save these references and then when the hucksters do a 180 without any reference to past sensational claims, YOU can be smarter
Yep and one day soon all the 'sensational claims' will suddenly be proven right, but no one will be blogging about it....youll instead be trying to run for your life from rioting mobs looking to loot and rape you.
Your not exactly new to ZH so you should be well aware that for most of regular readers the system has been capable of collapsing at any moment.. May/June was a good as time as any and so is now..
just read the public page on EWI and reprint it as your own ideas, and hope someone buys in. The last shoe to drop in the deflationary maelstrom (Elliottwave - wise) is a rally in the dollar. Its possible of course that the market will actually prosper under those conditions, as the US becomes the hot money destination, and yields on UST go negative, but such a move will probably be temporary, as the fall in asset values will wipe out a lot of balance sheets, and strangely enough, help the economy to recover.
interest rates will run at a fraction of CPI, and your only safe play is TIPS to beat that spread, 2.5% on the 5year note, 5% CPI for as far as the eye can see.
and Bernanke can rationalize this all day, as low interest rates run counter to inflation (at least for the time being) and high interest rates lead to deflation, or falling commodity prices, ergo asset values in general.
and they fear deflation, so the lag will be permanent. (been planning for this for several years, people generally buy TIPs thinking of a 70' s style inflation, high nominal rates, and high CPI, in this case both are nominally low but the CPI to interest rate spread is high)
the time to buy TIPS was last year, however, although the ETF is a speculative equivalent.
Notice how gold is green alongside the dollar?
Gold is going to break $1900 before year-end. It will break big. Get some while you can.
Stop this BS spam from Phoenix BS.
So you know the article is writen by Phoenix and you already know what its about but you decide to click the link and comment any way... by defination that makes you a troll...
Your old pickup truck (you're trying to sell) is seeing deflation.
Your old house also. Try to sell your motorcycle, you get low-ball offers and trades. Meanwhile milk, electricity, haircuts, eggs, new cars, insurance, bacon, beef, clothes, rent, and unemployment are all going up.
That which we own is deflating in price, that which we need is inexorably rising.
When silver or gold rise in price, the world trembles and the elite financial power brokers throw everything but their wives and daughters at it. Must not let the proles see a way out, you know.
Stagflation, bitchez.
The elite financial powers would have their wives and daughters pole dancing if they got to make money off it.
My definition of deflation is "when gold costs less than it did a year ago". Anything else is noise.
yah..put your faith in something that has been manipulated for the last couple hundred years as a barameter for deflation... just tell me.. are you spending more on the holidays this year than you did last year?
Holidays? What holidays?
'Spend on the holidays'? What is this monkey talking about?
Exactly my point.. no money for the holidays... becuase of deflation
if my household expenses and gas expenses go up by 5% and as a result I don't have money for Christmas presents, is this deflation?
Which holiday(s) are you talking about, and what do holidays have to do with generally rising prices in the first place? Do consumers only spend money on Labor Day, Thanksgiving, New Year's Day and Christmas? So if I don't spend any money on a holiday, does my cost of living actually go down? How about if I only spend money on a Monday, or only on Wednesdays --- are some days of the week more inflationary than others?
The more you inanely babble, the more confused I become.
You are definately confused...
More SENSATIONALIST Bullshit from an advertiser!
Imagine the first time reader on ZH seing this article... If your not new here then its not for you..is it? Cause you should already know this... but should we leave everyone else behind who hasn't caught on yet?
Pleeeeeze. Zero Hedge. Graham has been saying COLLAPSE COMING THIS WEEK almost daily for over two years and then he pitches his newsletter.
If he is a paid advertiser under the guise of a contributor, state that fact.
He floods your site with ads and it is getting tiring. Almost as tiring as his spam emails.
The article has a total of 389 words. 193 of them are pushing his FREE REPORTS. Pfffft
ANother round of deflation? Prices are steadily rising in every area from my standpoint. More like 5% increases.
sure in commodities... hows that house doing for you? If the price of things you need goes up the price of things you want go down... When inflation is real everything goes up..not just one..
With inflation, the prices of almost everything goes up in the long run but in the short term the price of most things will go up and some may go down if they were in a bubble. Some things will also go down if technology advances past them. Even if we had hyperinflation do you think you could you get much for your PC from 1991 that uses the floppy disks? I bet it would fetch pretty much the same as it would now - close to 0.
Your image of the Weimar with people purchasing a loaf of bread with a wheelbarrow full of cash- if that's what they were doing with their money do you think they also were buying roses from the florist on the way home or cigars? Don't you think currency collapse fear would push people to allocate all of their cash to buy items of need if they could possibly secure them? Did everyone have a wheelbarrow of cash to buy things? Do you think it is possible that there were people with none or very little cash.
Supply and demand still rule in pricing, inflation or deflation can affect the buying patterns (demand) and production patterns (supply) and with some things, especially large long-term commitments, those patterns can get very distorted. But, in the end it is still supply and demand that fix market prices, so when the government/fed create money (credit creation, monetization of past credit) but ration that in such a way as to choke off jobs, lower incomes, and generally confuse and confound even the experts this will cause people to not demand residential real estate for example because they will not take on a 30 year commitment when they do not know if they will be employed in six months, or if that job will pay as much or more as they now make, or if that pay will buy the groceries they need to feed children, or if housing will be substantially cheaper in the future. So, in spite of much better affordability now than three years ago you see prices/demand dropping even still. When the bubble was building it was the opposite, fear that housing would never again be as affordable as it was right now swept the nation even though houses were anything but affordable. And the banksters played on that fear and fed it with al manner of what should have been illegal transactions.
Fear of either deflation or inflation distorts market behavior in all but the most inelastic goods. That is why the PRIME mandate of the Fed is price stability, while maximizing economic performance (jobs) is secondary, but as we all know both of those have been almost completely abandoned for the unspoken original purpose of the Fed which is to protect and concentrate wealth and private property in as few hands as possible. At least keep the vast majority of it in the hands of the elite WASP powers that be. They have done such a good job of it they have actually strangled capital formation and left 90% of Americans with less than 10% of the wealth. Yet they keep doing what they have done in spite of an obviously imploding economy/nation/world, not to would only hasten the implosion, and post implosion there will by definition have to be a massive redistribution of wealth one way or the other, forced or voluntary no nation with this many people can have poverty and stagnation levels we have and survive. No nation has ever had sustained prosperity without a vibrant middle class. Even Spanish wealth from the plundering of the new world only made the nation wealthy for a very few while inflation devastated most of the people and rendered them subsistence serfs.
For the 3,467,923rd time --- the collapse of an asset bubble does NOT equate to deflation!
For the 3,467,924th time... Yes it does..
I see that, like Karl Douchinger, you believe that equities and houses are money.
At least you are not ashamed of your profound monetary ignorance.
If I can sell my house or my equities for money how exactly are they not money?
Cluelessness cubed.
So EVERYTHING in the world is money, then, by your absurd and all-inclusive definition.
I might as well try explaining Special Relativity to a gibbon.
Akak, money is a means of exchanging value.. it is also a means of gauging (measuring) value. If house prices are rising, they are inflating in value. If house prices are dropping, they are deflating.
You cannot have it both ways.
"If I can sell my house or my equities for money how exactly are they not money?"
You can buy stuff with money, stuff however is not money.
In order to be called money something has to have all three of the following:
A) It has to serve as a medium of exchange, that is portable and universally recognized as having exchange value, or intrisic value you can agree upon.
B) It has to be a unit of account, that is you have to be able to agree on the exact value in accounting terms (divisible and fungible).
C) It has to be a store of value, that is you can count on your money to buy you what you seek in the market place no matter the circumstances at a reasonable rate tomorrow or next year or ten years from now as it did yesterday, or last year.
**California home prices in many cities are now poised for a second correction. The cities that will experience this change in the next few years are in mid-tier and upper-tier locations. With no summer bounce and sales falling, the economic pendulum is swinging to lower prices since incomes are not moving up. Make no mistake, you are seeing a correction already occurring but there are more crosscurrents entering these locations moving forward. Areas like Bel-Air and Beverly Hills are seeing price drops that were unthinkable only a few years ago***
http://www.doctorhousingbubble.com/foreign-buyer-argument-cerritos-calif...
2008 crisis was last hurrah for US dollar , this is head fake , printing press working overtime in US , EU and CHINA and JP ( Swiss are joing the party too ) , commodities will explode , only political plausible way to pay the debt down is inflation tax , average Joe will not support deflation and tax increases
Pure bullshit, Graham.
Deflation, real deflation, under a worldwide, purely fiat monetary regime is for all practical purposes IMPOSSIBLE, as governments always, have always, will always devalue their currencies in the face of irresistible fiscal pressures. It is disingenuous, naive, historically ignorant and intellectually insulting to suggest otherwise.
Give us just ONE example of a fiat currency that has appreciated over time, and I will reconsider my rock-solid denial that a fiat currency deflation is even remotely possible. Until then, please shut the fuck up already about the so-called "threat of deflation".
Deflation doesn't exist untill it does.... When Inflation reaches the limit of the equation deflation will occur.. ALWAYS becuase it is IMPOSSIBLE to inflate and not deflate afterward.. the problem is you forget that deflation is more commonly know as econmic collapse and the nation that experiences it usualy never survives to tell the story.
You can play semantic word games all day to try to define deflation as something that it is not, but at the end of the day ALL fiat currencies are continually devalued, if they do not finally collapse in value, taking almost all investors' and savers' wealth with them --- THAT is the reality of the history of fiat currency. There has NEVER been an appreciating fiat currency, and anyone keeping their savings in assets denominated in any fiat currency has been a loser, and WILL be a loser when they all finally come crashing down together.
but they all collapse in value?... thats the point... for every dollar of inflation and equal dollar of deflation is in waiting... the problem is that inflation happens for so long that that when the deflation comes its catastrophic and the currecny doesnt survive... will the dollar survive..I dont know... but for now the cyclical trend is deflation..
Fine --- it's easy to make an argument when the terms can be summarily and arbitrarily redefined.
There is NO fucking deflation! Prices, and the cost of living, are rising almost across the board, as they have for EVERY single year since the USA left the gold standard in 1933. Coincidence? I think not.
Run to the supposed safety of the dollar, or the yen, or the euro --- and I will keep laughing at your historically blinkered and monetarily ignorant idiocy.
Thats the problem.. Prices accross the board have not gone up... in commodities yes.. but assets? those have gone down... how exactly is that inflationary?